Chattel mortgage vs lease: which is better for your business vehicle or equipment?

A chattel mortgage is a loan to buy a vehicle or piece of equipment, where you own the asset from day one and the lender takes security over it. A finance lease is an arrangement where the financier owns the asset and your business pays to use it for an agreed term. Chattel mortgage vs lease is one of the most searched asset finance questions, and the honest answer turns on ownership, GST timing and what you’ll do with the asset at the end.

How does a chattel mortgage differ from a lease?

The core difference is who owns the asset during the term. Business.gov.au’s key financial terms describe a chattel mortgage as similar to hire purchase, except the business owns the asset from the start. Under a lease, the financier holds ownership and you rent the asset, with end-of-term options.

Ownership drives the rest:

• GST: you buy the asset under a chattel mortgage, so the GST on the purchase price is generally claimed upfront. Under a lease, GST is built into each payment.
• Depreciation: generally sits with the owner, which is you under a chattel mortgage.
• End of term: a chattel mortgage simply ends with you owning the asset outright once any balloon is paid. A lease ends with a decision.

Side by side: chattel mortgage vs lease

Test	Chattel mortgage	Finance lease
Who owns it	You, from day one	The financier, during the term
Security	Mortgage over the asset	Financier’s ownership of the asset
GST	Generally claimed on the purchase price upfront	Claimed on the GST in each lease payment
Car GST cap	Credit capped at one-eleventh of the car limit	ATO says lease GST is not capped at that amount
Depreciation	Generally yours, for the business-use portion	Generally not yours
End of term	Pay any balloon; you own it	Pay residual, refinance, upgrade or return
Best for	Keeping the asset for years	Regular upgrades or not wanting ownership

Our verdict

The chattel mortgage wins for most small businesses buying a work vehicle or machine they’ll keep. Ownership is simple, the GST comes back early in your BAS cycle, and when the loan ends the asset is yours outright.

The lease wins when you don’t want the asset long term. If you refresh vehicles every few years or want a clean hand-back option, a lease can fit that pattern better. Your accountant’s view on tax treatment should settle any close call. For the bigger picture on funding equipment, see our equipment finance vs business loan verdict.

How does GST work under each one?

GST is where the two structures most clearly part ways. The ATO’s guide to purchasing a motor vehicle explains that a GST-registered business using a vehicle in its business can claim a GST credit, in part if use is partly private. If you buy a car priced above the car limit, the most you can claim is one-eleventh of that limit. For 2026–27 the car limit is $69,883, so the maximum GST credit on a car purchase is $6,353.

For leases, the same ATO guide says you may claim the GST included in each lease payment, based on business use, and that this is not limited to one-eleventh of the car limit.

So for a business buying a car near or above the limit, the GST picture can tilt towards a lease. For utes, trucks and machinery that aren’t “cars” under the tax rules, the cap may not apply. That is precisely the kind of detail to confirm with your accountant before you sign.

What about depreciation and the instant asset write-off?

When you own the asset, you can generally claim depreciation on it for the business-use portion. The ATO’s instant asset write-off lets businesses with aggregated turnover under $10 million that use the simplified depreciation rules immediately deduct eligible assets costing less than $20,000. Under a lease the financier owns the asset, so the deduction picture is different. Ask your accountant which gives the better result for your turnover and the asset in question.

Choose a chattel mortgage if…

• You want to own the vehicle or machine and keep it for years.
• You are GST-registered and want the GST credit back early.
• You’d like the option of depreciation or the instant asset write-off for eligible assets.
• You want a simple ending: pay any balloon and it’s yours.

Choose a lease if…

• You upgrade on a regular cycle and don’t want to sell old assets yourself.
• You’d rather not hold depreciating assets on your books.
• You’re buying a car well above the car limit and your accountant favours lease GST treatment.
• You value the flexibility of handing the asset back at the end.

To see what you could borrow for either structure, run your purchase past a specialist.

Illustrative example: one ute, two structures

Illustrative only. Round numbers, no real business. Tax outcomes depend on your circumstances.

An electrician buys a $66,000 ute, including GST, for business use only. She plans to keep it for six years.

• Chattel mortgage: she owns the ute from day one. Her BAS for that period includes the GST on the purchase, which reduces what she owes the ATO that quarter. She finances the balance over five years with a modest balloon, then owns it outright.
• Lease: the financier owns the ute. She claims GST on each lease payment as she goes. At the end of the term she must pay the residual, refinance it or hand the ute back.

Because she intends to keep the ute well past the term, the chattel mortgage fits her plan better. A colleague who swaps utes every three years might reach the opposite verdict. For more on vehicle choices, read our best business car loan and best truck finance verdicts.

Deposit, balloon or neither?

Both structures let you shape repayments with a deposit upfront or a balloon at the end. A deposit lowers the amount financed, so the total cost in dollars falls. A balloon lowers each repayment but leaves a lump sum due at the end, and you pay finance charges on that amount for the whole term. Pick a balloon only if you’re confident the asset will be worth at least that much when the term ends, or you’ll have the cash to clear it. For assets that lose value quickly, a small balloon or none is the safer verdict.

Do lenders assess them differently?

Not much. Both are asset finance, so the lender looks at the asset’s value and resale market, your time trading, your bank statements or tax returns, and your credit history. New assets from established makers are easiest to finance; older, specialised or imported equipment may need more paperwork or a larger deposit. Our asset finance explainer covers the assessment in more detail, and for multiple vehicles see the best way to fund a fleet.

Other match-ups worth reading before you buy are collected on our head-to-head verdicts page.

Ready to finance the right way?

The structure should follow how long you’ll keep the asset, then your accountant’s tax view. Ask what you could qualify for by telling us what you’re buying, the price, whether you’re GST-registered and how long you’ve traded.

There’s no credit check when you first get in touch, and your details go to a single specialist rather than out to a pool of financiers. A real person will follow up to talk through ownership, balloon and term. Please describe the asset and your trading accurately so the quote fits the first time.