Chattel Mortgage vs Finance Lease vs Hire Purchase

Three names get thrown around every time someone finances a truck or a machine. They are not the same product. Pick the wrong one and you can leave tax benefits on the table or own an asset you did not mean to own.

Chattel mortgage

This is the workhorse for most Australian businesses. You own the asset from day one. The financier takes a mortgage over it until the loan is paid out. GST on the purchase can usually be claimed on your next BAS. Interest and depreciation are the typical tax treatments – speak to your accountant before you lock it in.

Chattel mortgages often include an optional balloon (a lump sum at the end). That lowers the monthly repayment. Just make sure you have a plan for the balloon – refinance, sell, or pay it out.

Finance lease

The financier owns the asset. You lease it for an agreed term and usually have a residual at the end. Lease payments are often treated as a business expense. GST is typically claimed on each repayment rather than upfront. This can suit businesses that want the use of the asset without holding it on the balance sheet in the same way.

Hire purchase

You hire the asset with an agreement to purchase it. Ownership usually transfers at the end once all payments (and any residual) are made. Tax treatment sits closer to a loan than a true operating lease. It is less common than it used to be, but still used.

A simple way to choose

• Want ownership and the GST back on the next BAS? Start with a chattel mortgage.
• Want payments as an operating expense and a residual at the end? Look at a finance lease.
• Unsure? Get the structure modelled against your accountant’s advice before you sign.

Rates matter. Structure matters more. Two quotes at the same rate can produce very different after-tax outcomes.

Need a second opinion on a deal? Call Tom on 0400 710 877 or email [email protected]. Rockliff Finance – equipment finance for Australian businesses, based in Brisbane.