Australia
Most businesses know they can finance equipment. Fewer know which structure actually suits their circumstances. The wrong choice can mean paying more tax, carrying unnecessary balance sheet debt, or losing flexibility you didn't realise you needed.
Here's a direct comparison of the three main equipment finance structures — chattel mortgage, hire purchase, and lease — so you can make an informed decision before you sign anything.
The Core Distinction: Who Owns the Equipment?
Ownership is the fundamental difference between the three structures, and it drives most of the tax and accounting consequences.
> Chattel mortgage — your business owns the equipment from day one. The lender holds a security interest (the mortgage) over the asset until the loan is repaid.
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> Hire purchase — the finance company owns the equipment during the payment term. Ownership transfers to your business when the final payment is made.
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> Finance lease — the finance company owns the equipment throughout the lease term. Your business never owns the asset unless you exercise a purchase option at the end.
Which ownership structure suits you depends on your tax position, your balance sheet requirements, and how long you intend to use the equipment.
Ready to discuss your options? Book a Strategy Session with Key Choice Lending.
Chattel Mortgage: Best for Ownership and Depreciation
A chattel mortgage gives your business immediate ownership of the equipment. You claim GST on the purchase price upfront at the next BAS lodgement rather than spreading it across payments.
> Tax treatment:
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> Interest on the loan is tax-deductible. The equipment is depreciated according to its effective life under ATO guidelines. Depending on your turnover and the asset value, instant asset write-off provisions may allow immediate deduction — confirm current thresholds with your accountant as these change regularly.
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> Cash flow:
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> Requires a deposit (typically 10-20%) plus regular principal and interest repayments. Higher upfront cost than leasing but lower total cost over time for equipment you intend to keep.
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> Balance sheet:
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> The equipment appears as an asset on your balance sheet. The loan appears as a liability. This increases both sides of your balance sheet, which affects leverage ratios.
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> Best for:
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> Businesses that want to own the equipment long-term, have a strong tax position that benefits from depreciation claims, and can manage the higher initial cash outlay.
Hire Purchase: Ownership at the End, Lower Entry Cost
Commercial hire purchase (CHP) sits between a chattel mortgage and a lease. The finance company owns the equipment while you make payments, but you're committed to ownership at the end — there's no option to return the asset.
> Tax treatment:
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> Like a chattel mortgage, interest is deductible and the asset is depreciated. However, GST treatment differs — you claim GST across the payments rather than upfront. Tax treatment varies — speak with your accountant about which approach suits your cash flow and BAS cycle.
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> Cash flow:
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> Initial deposit is often lower than a chattel mortgage. Regular instalments cover interest and principal. Total cost is similar to chattel mortgage but the cash flow timing differs.
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> Balance sheet:
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> The equipment and corresponding liability both appear on your balance sheet from the start, even though you don't hold legal title until the final payment.
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> Best for:
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> Businesses that want eventual ownership but prefer lower initial outlay, or where the timing of GST claims matters for cash flow management.
Finance Lease: Lower Payments, No Ownership
A finance lease provides use of the equipment without ownership. The finance company owns the asset throughout the term. At the end, you can return it, renew the lease, or purchase it at residual value.
> Tax treatment:
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> Lease payments may be fully deductible as operating expenses, subject to how the lease is structured and classified. You don't claim depreciation because you don't own the asset. Tax treatment varies — speak with your accountant before structuring agreements based on tax considerations.
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> Cash flow:
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> Lower regular payments than chattel mortgage or hire purchase because repayments don't include full principal reduction — they effectively cover interest plus the reduction in asset value over the term. Higher residual payment at the end if you want to buy.
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> Balance sheet:
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> Under current accounting standards (AASB 16), most leases must be recognised on the balance sheet as a right-of-use asset and corresponding lease liability. The days of keeping leases entirely off balance sheet are largely over for most businesses — confirm the treatment with your accountant.
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> Best for:
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> Businesses that want lower regular payments, need to upgrade equipment regularly (return and re-lease at term end), or where the operating expense deduction suits their tax position better than depreciation.
Operating Lease and Rental: Short-Term Flexibility
For equipment needed temporarily or for specific projects, operating leases and rental arrangements provide access without long-term commitment.
Payments are typically deductible as operating expenses. You never own the asset and gain no depreciation benefits. Per-day or per-month costs are higher than longer-term finance structures, but there's no residual obligation and no asset disposal to manage.
This suits seasonal businesses, project-based work, or equipment trials before a longer-term commitment.
Comparing the Three Structures Side by Side
| | Chattel Mortgage | Hire Purchase | Finance Lease |
|---------------------------|----------------------|-------------------|---------------------------------|
| Ownership during term | Business | Finance company | Finance company |
| Ownership at end | Yes | Yes (automatic) | Optional (residual) |
| GST claimed | Upfront | Across payments | Across payments |
| Depreciation claim | Yes | Yes | No |
| Interest deductible | Yes | Yes | N/A — lease payments deductible |
| Balance sheet impact | Asset + liability | Asset + liability | Right-of-use asset + liability |
| Typical deposit | 10-20% | 10-20% | Often lower |
Fees and rates vary by lender and are subject to change — confirm current pricing with your broker. LVR limits vary by lender and are subject to individual assessment.
Which Structure Suits Your Business?
There's no universally correct answer. The right structure depends on:
> Your tax position — if you're highly profitable and want to maximise deductions, chattel mortgage with depreciation may suit better than a lease. If you prefer consistent annual deductions that match lease payments, a finance lease may be more appropriate.
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> How long you'll use the equipment — if you'll keep it for its full useful life, ownership through chattel mortgage or hire purchase makes sense. If you upgrade regularly or the technology changes quickly, leasing preserves flexibility.
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> Cash flow requirements — leases typically have lower regular payments. If cash flow is tight, the lower periodic cost of leasing may be worth the higher total cost.
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> Balance sheet considerations — if leverage ratios matter for existing loan covenants, consider the balance sheet impact of each structure before committing.
An experienced commercial broker can compare equipment finance options across multiple lenders and help identify the structure that suits your specific business circumstances.
Key Choice Lending has access to 72+ lenders and has supported Australian borrowers through more than $1 billion in transactions. Founder Matthew Clark is a two-time Amazon bestselling author and Better Business Award winner.
Book a Strategy Session — no obligation, focused on your situation.
The information provided in this blog is for educational purposes only and should not be considered financial advice. Always consult with a professional financial advisor or lender for specific lending decisions.
