Chattel mortgage and lease are the two primary asset finance structures for Australian businesses. A chattel mortgage provides immediate ownership with potential tax benefits including GST credits, interest deductions, and depreciation claims (subject to individual circumstances), while a finance lease means the lender owns the asset during the lease term with different tax treatment. In 2025, chattel mortgage rates typically range from 7-11% p.a. while finance lease rates often sit at 8-12% p.a., though actual rates depend on business profile and asset type.
Chattel mortgages suit businesses wanting immediate ownership and maximum tax flexibility, while finance leases work well for off-balance-sheet financing and regular equipment upgrades. Both structures offer balloon/residual options to reduce monthly payments. The optimal choice depends on your business structure, tax position, cash flow requirements, and equipment strategy.
According to industry data from 2025, approximately 65% of Australian business vehicle finance uses chattel mortgage structures, while finance leases account for roughly 25% of arrangements. The preference for chattel mortgages reflects their tax advantages for many business structures, though finance leases remain popular for specific situations.
Understanding the Fundamental Difference
The core distinction between a chattel mortgage and a finance lease centres on ownership. This single difference has cascading implications for your tax position, balance sheet treatment, and overall costs.
Chattel Mortgage: You purchase the asset and own it immediately. The lender provides the funds and registers a mortgage (security interest) over the asset until you repay the loan.
Finance Lease: The lender purchases the asset and leases it to your business for an agreed term. The lender retains ownership while you have use of the asset, with an option to purchase at the end of the term.
Chattel Mortgage Explained
A chattel mortgage is a secured business loan where you borrow funds to purchase an asset (vehicle, equipment, or machinery) and take immediate ownership, with the asset serving as security for the loan. This is the most popular equipment finance structure for Australian businesses.
How Chattel Mortgages Work
- You select the equipment from your chosen supplier.
- The lender provides funds to purchase the equipment, with 100% finance often available for strong applicants.
- You take immediate ownership, and the asset appears on your balance sheet.
- The lender registers a security interest over the asset on the Personal Property Securities Register (PPSR).
- You make regular repayments of principal and interest over a term of 1-7 years.
- An optional balloon payment can be structured at the end of the term to reduce monthly repayments.
- Once the loan is fully repaid, the security interest is discharged and you own the asset outright.
Chattel Mortgage Advantages
A chattel mortgage offers significant benefits, particularly around ownership and tax efficiency:
✅ Ownership Benefits
You have immediate legal ownership, allowing you to modify, customise, and build equity in the asset.
💰 Tax Efficiency
You may be able to claim the full GST input tax credit upfront, as well as deductions for interest payments and asset depreciation.
⚙️ Financial Flexibility
Balloon payments can be used to lower your monthly commitments, and you have the freedom to sell the asset after paying out the loan balance.
For a deeper dive, see our complete chattel mortgage guide.
Finance Lease Explained
A finance lease is an arrangement where the lender purchases an asset and leases it to your business for an agreed term. You make regular lease payments for the use of the asset, but the lender retains legal ownership during the lease period.
How Finance Leases Work
- You identify the required equipment.
- The financier purchases the equipment and retains ownership.
- You lease the equipment for a fixed term, typically 2-5 years.
- You make fixed monthly lease payments.
- At the end of the term, you choose to either: upgrade to new equipment, return the equipment, or purchase it for a pre-agreed residual value.
Finance Lease Advantages
A finance lease is ideal for businesses prioritising flexibility and simplified expenses:
🔄 Upgrade Flexibility
Easily upgrade to the latest technology at the end of the term, avoiding the risk of obsolescence without the hassle of selling the old asset.
🧾 Simplified Tax Treatment
Lease payments may be fully tax-deductible as an operating expense, simplifying your accounting and providing predictable deductions.
📊 Balance Sheet Impact
Leases may be treated as off-balance-sheet financing, which can help preserve borrowing capacity and improve certain financial ratios (subject to accounting standards).
Side-by-Side Comparison
Understanding the practical differences helps you select the optimal structure for your business.
Tax Treatment Differences
The tax implications are often the deciding factor. However, this depends entirely on your business structure and circumstances.
Important: The information below is general only and does not constitute tax advice. Always consult your accountant to understand the specific tax implications for your business before making financing decisions.
Chattel Mortgage Tax Treatment
- GST Input Tax Credit: If GST-registered, you may claim the full GST on the asset’s purchase price on your next BAS, providing a significant upfront cash flow benefit.
- Interest Deductions: The interest component of your loan repayments may be tax deductible.
- Depreciation Deductions: As the owner, you can claim depreciation on the asset according to ATO schedules.
- Instant Asset Write-Off: You may be eligible for schemes like the instant asset write-off, as you own the equipment (subject to ATO rules).
Finance Lease Tax Treatment
- Lease Payment Deductions: The full lease payment may be treated as a tax-deductible operating expense.
- GST Treatment: GST is claimed progressively on each lease payment, spreading the benefit over the lease term.
- No Depreciation: You cannot claim depreciation because the financier owns the asset.
- Simplified Record-Keeping: This structure offers simpler tax administration with a single, consistent expense to track.
For more details on asset finance structures, review our complete asset finance guide.
Rates and Costs Comparison
While finance lease rates are often slightly higher to account for the lender’s residual value risk, the total effective cost depends on your tax position.
Interest and Lease Rates in 2025
Indicative rates vary based on business strength, trading history, and the asset being financed.
Rates are indicative examples only and depend on individual circumstances and lender assessment.
Real-World Cost Examples
These scenarios illustrate how the costs can differ in practice.
Example 1: Commercial Vehicle Finance
Scenario: A Sydney transport business finances a $77,000 delivery van over 5 years with a 30% balloon/residual.
Chattel Mortgage (8.5% p.a.)
Monthly Repayment: ~$1,185
Total Cost (before tax benefits): ~$95,695
Key Benefit: Immediate GST credit of up to $6,334 (subject to ATO caps).
Finance Lease (9.5% p.a.)
Monthly Payment: ~$1,265
Total Cost (before tax benefits): ~$100,895
Key Benefit: Simpler tax deductions on the full lease payment.
⚠️ All figures are for illustration only. Actual rates, fees, repayments, and tax outcomes depend on lender assessment, individual circumstances, and professional tax advice.
Which Structure Suits Your Business?
The right choice depends on your business priorities, tax position, and equipment strategy.
Choose Chattel Mortgage If:
- You want to own the asset from day one and build equity.
- You plan to keep the equipment for its full useful life (5+ years).
- Your business has strong taxable income and can maximise depreciation deductions.
- You are GST-registered and want the immediate cash flow benefit of the upfront GST credit.
- You need the freedom to customise or modify the equipment for your specific needs.
Choose Finance Lease If:
- You want the flexibility to upgrade equipment regularly (every 2-4 years) to avoid obsolescence.
- You prefer simpler tax treatment with consistent, fully deductible payments.
- You are concerned about balance sheet impact and prefer off-balance-sheet financing (subject to accounting standards AASB 16).
- You want to avoid the risks and hassle of managing equipment disposal and residual values.
- You value predictable, fixed costs and administrative simplicity.
Get the Right Finance Structure
Ready to finance your business vehicle or equipment? Understanding whether a chattel mortgage or finance lease best suits your business is the first step. The only way to determine the truly cheaper option is to have your accountant model both structures against your specific tax circumstances.
Loan Phone provides fast online comparison of both structures from over 100 lenders, combined with specialist broker expertise to help you make the right choice.
Related Resources
Explore these related guides to learn more about business asset financing options:
Disclaimer: This article provides general information only and should not be relied upon as financial or tax advice. Rates, terms, and eligibility vary by lender and individual circumstances. Tax benefits are subject to your specific situation and business structure. Always seek independent professional advice from a qualified accountant and financial adviser before making financing decisions.
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Last updated: October 3, 2025