People agonise over which car finance structure to use, and the decision is usually simpler than it looks. It comes down to one question: who owns the asset. Everything else, the GST timing, what you deduct, who carries the risk at the end, follows from that answer.
Here are the three structures side by side.
This is general information, not tax or financial advice. The right structure depends on your circumstances, and your accountant should confirm it.
Chattel mortgage: your business owns it
Your business takes title at purchase. The lender advances the funds, the supplier is paid, and the lender registers a security interest over the asset until the loan is repaid.
- Owner: your business, from day one
- GST: because the borrowed funds pay the full price at acquisition, a business on a cash basis can claim the entire input tax credit in that tax period. For a car it is capped at one eleventh of the car limit, a maximum of $6,353 in 2026-27
- Deductions: depreciation on the asset plus the interest component of repayments. Not the principal
- End of term: you already own it. Any balloon or residual is simply the last amount owed
- Risk: you carry the resale value risk
This is the default for ABN holders buying a work vehicle or equipment they intend to keep. Full detail here.
Finance lease: the financier owns it, you use it
The financier buys the asset and leases it to your business for an agreed term, with a residual value set at the end.
- Owner: the financier, for the life of the lease
- GST: claimed on each lease payment as it is made, not upfront. That is the practical opposite of a chattel mortgage
- Deductions: the lease payments, to the extent the asset is used for business. You do not claim depreciation, because you do not hold the asset
- End of term: you deal with the residual. Depending on the agreement that can mean paying it out, refinancing it, or returning the asset
- Risk: depends on the agreement, but the residual arrangement is where it sits
Leasing tends to suit businesses that cycle equipment regularly, want the asset off balance sheet, or prefer smoother monthly costs over owning an ageing asset.
A related structure worth knowing: under a hire purchase agreement you hire the asset with ownership transferring at the end. For agreements entered into on or after 1 July 2012, the GST treatment lands close to a chattel mortgage, with the full input tax credit generally available upfront rather than spread across payments.
Novated lease: your employer is in the middle
A novated lease is a three-way arrangement between an employee, their employer and a financier. The employee leases the car, and the lease obligations are novated to the employer, who makes the payments out of the employee's salary package.
This is the one that gets mixed into business finance comparisons where it does not really belong, so be clear on the distinction:
- Who it is for: salaried employees, not ABN holders financing a work asset. If you are a sole trader without an employer arrangement, a novated lease is not your structure
- Owner: the financier
- How it is paid: from the employee's salary, typically as a mix of pre-tax and post-tax amounts, arranged through the employer's salary packaging provider
- Tax: the benefit runs through the employer's fringe benefits tax position, not the employee's deductions. FBT treatment is the single most important variable and it is genuinely complex
- End of term: a residual is owed, and the employee is usually the one exposed to it
- If you change jobs: the novation ends. The obligation reverts to the employee unless the new employer takes it on. This is the most common unpleasant surprise in the structure
Novated leases can work well for employees with stable jobs at employers who already run salary packaging. They are not a substitute for commercial finance, and the FBT position should be checked with your accountant or the packaging provider before you sign, not after. We cover the structure on its own terms in novated lease explained.
Choosing between them
Ask these four questions in order:
1. Do you have an ABN and is the asset for business use? If not, you are looking at a consumer car loan or a novated lease if your employer offers one, not commercial finance.
2. Do you want to own the asset at the end? Yes points to a chattel mortgage. No, or "maybe", points to a lease.
3. When do you want the GST benefit? Upfront points to a chattel mortgage. Spread across payments is a lease.
4. Who should carry the value risk at the end? You, or the financier?
Most ABN holders buying a ute, truck or machine they plan to keep end up on a chattel mortgage, and that is usually the correct answer rather than a default one. The cases where a lease wins are real but specific: high equipment turnover, balance sheet reasons, or a genuine preference to hand the asset back.
What the structure does not change
Worth saying plainly, because the tax tail wags the dog on these decisions: the structure does not change the price of the asset, and it does not change the rate you qualify for. Those come from the lender, the asset and your business profile.
If the maths is close, run the repayments both ways with our calculator and compare the total cost, not the monthly figure. And if your financials are not lodged yet, read up on low doc ABN finance before you assume your options are limited.
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