A chattel mortgage is the most common way Australian businesses finance a vehicle or a piece of equipment, and it is the structure most brokers will put in front of you first. The name is old-fashioned and slightly offputting. The mechanics are simple.
This is general information, not tax advice. Confirm your own position with your accountant.
What a chattel mortgage actually is
"Chattel" just means a movable item of property: a ute, a truck, an excavator, a commercial coffee machine. A chattel mortgage is a loan to buy that item, secured against the item itself.
Two things make it different from a lease:
1. You own the asset from the moment of purchase. Title passes to your business at settlement, not at the end of the term.
2. The lender takes a security interest over it, registered on the Personal Property Securities Register. If the loan is not repaid, the lender can recover the asset.
So the structure is closer to a mortgage on a house than to a rental. You are the owner, and the asset is the security.
How the money moves
The lender advances the purchase price and it is paid to the supplier, usually at settlement. You then repay principal and interest over an agreed term, commonly one to seven years.
You can usually structure it with:
- A deposit or trade-in to reduce the amount financed
- A balloon or residual payment at the end, which lowers each repayment but leaves a lump sum due
- A fixed rate and fixed term, which most commercial lenders offer as standard
A balloon is a structure choice, not a discount. The money is still owed, and interest accrues on the balance carrying it. If you are weighing one up, balloon payments explained walks through the trade-off in full.
The GST timing, which is the real advantage
This is where a chattel mortgage earns its keep, and it is worth being precise because the general "you get the GST back straight away" line skips the conditions.
Because the borrowed funds pay the supplier in full at the time of acquisition, the full consideration is provided in that tax period. The ATO's position, set out in its GST Issues Register and drawn from GSTR 2000/29, is:
- If you account for GST on a cash basis, you are entitled to the entire input tax credit in the tax period in which you apply the borrowed funds to make full payment for the asset.
- If you account on a non-cash basis, you are entitled to the entire credit in the period you receive the invoice or make any payment, whichever is earlier.
Either way, you are not drip-feeding the GST claim across the loan term the way you would with a lease.
The conditions that have to hold:
- You are registered for GST and it is a creditable acquisition for a creditable purpose, apportioned for any private use
- The borrowed funds actually discharge the full purchase price at acquisition. If you only part-finance and pay the supplier by instalments, cash-basis attribution follows those payments. The upfront credit is a consequence of full payment, not of the chattel mortgage label
- You hold a tax invoice at the time you lodge the BAS
- For a car, the credit is capped at one eleventh of the car limit, which is a maximum of $6,353 for 2026-27, no matter what you paid
- There is a four-year time limit on claiming GST credits
One more that surprises people: there is no GST on the interest. Lending is an input taxed financial supply, so the credit is on the goods only. You are not claiming GST back on your finance charges because there was none charged.
What you can deduct
Because you own the asset, you claim the asset's costs directly rather than lease payments:
- Decline in value (depreciation) on the asset, capped at the car cost limit of $69,883 for 2026-27 if it is a car, or written off immediately if the full cost is under $20,000 and you use the simplified depreciation rules. Otherwise it goes into the small business pool at 15% in the first year and 30% after
- The interest component of your repayments
- Running costs: fuel, servicing, repairs, registration, insurance
What you cannot deduct is the principal. Repaying borrowed capital is not an expense. Only the interest inside each repayment is.
And you cannot claim lease payments, because there are none. Lease payments and depreciation-plus-interest are alternatives, not additions. Claiming both is a common error on self-prepared returns.
All of it is reduced by the private-use proportion. And if you claim a full GST credit on the purchase, you exclude that GST amount from the asset's cost when working out depreciation.
Who a chattel mortgage suits
It tends to be the right structure when:
- The asset is genuinely for business use and you want it on your balance sheet
- You want the GST credit early rather than spread across the term
- You intend to keep the asset past the end of the loan
- You want the depreciation deduction yourself, particularly if the asset may qualify for the instant asset write-off
It suits less well if you cycle equipment frequently, want the asset off balance sheet, or would rather the financier carried the residual value risk. In those cases a lease may fit better, and it is worth reading how chattel mortgage, novated lease and finance lease compare.
What lenders look at
Commercial lenders assess the business, not just the borrower. Expect them to look at how long the ABN has been active and GST registered, your trading history and financials, the asset itself including age and type, your credit profile, and whether you own property or have other asset backing.
If your financials are not lodged or you are newly self-employed, that does not end the conversation. It moves you towards low doc ABN finance, which trades documentation for a different rate and a lower ceiling.
Loanseekers compares business equipment finance, machinery finance and commercial vehicle options across a panel of more than 70 lenders, and the initial check does not affect your credit score.
