Equipment finance lets a business get vehicles, machinery or tools now and pay for them over time. With a chattel mortgage or hire purchase, the tax law treats your business as the owner. With a finance lease, the finance company owns the asset and you pay rent to use it. That choice changes how you claim GST and what you can deduct at tax time.
What is equipment finance?
A business can get equipment in two broad ways. business.gov.au explains that leasing means you rent the vehicles or equipment from a leasing company that owns them. Buying means you pay for the equipment and own it outright.
Equipment finance sits between these two. Most businesses use one of three arrangements: a chattel mortgage, hire purchase or a finance lease. They can look alike on a quote, but the legal and tax results are different.
What is a chattel mortgage?
A chattel mortgage is a loan to buy a movable business asset, like a ute, a truck or a piece of machinery. Your business buys the asset and the lender takes security over it until the loan is repaid. business.gov.au notes that when you borrow money to buy an asset like a vehicle or equipment, you can often use that asset as security for the loan.
Your business owns the asset, so for tax purposes it is treated like any other purchase made with borrowed money.
What is hire purchase?
Under hire purchase, the business pays for the goods in instalments while using them. The finance company keeps legal ownership until the agreement is finished.
For income tax, the ATO looks past the label. Under Division 240 of the Income Tax Assessment Act 1997, a hire purchase agreement is treated as a sale of the goods from the financier to you, combined with a loan from the financier to you. The hirer is treated as the owner and the financier as the seller.
What is a finance lease?
With a finance lease, the finance company owns the asset and your business pays regular lease payments to use it for a set term. At the end you may be able to pay a residual amount to take ownership. The ATO treats that residual payment as a separate transaction from the lease.
business.gov.au lists some general features of leasing. It is less of a commitment than buying, it makes upgrades easier, and the leasing company is usually in charge of maintenance and repairs. Paying upfront can save money over time, while leasing can end up costing more.
Chattel mortgage vs hire purchase vs finance lease
This table sums up the main differences at a high level. Each point is explained further down.
| Option | Who owns it | GST credit | Main tax deductions |
|---|---|---|---|
| Chattel mortgage | Your business | On purchase price, generally upfront | Depreciation and interest |
| Hire purchase | Financier, until the end | Upfront (agreements from 1 July 2012) | Depreciation and notional interest |
| Finance lease | Financier | On each lease payment | Lease payments |
How GST works on equipment finance
GST credits are only available if your business is registered for GST and the asset is used in carrying on the business. Here is how each option works.
Chattel mortgage
Because the business is buying the asset, it can generally claim a GST credit for the GST in the purchase price. For a vehicle used solely for business, the ATO says you are generally entitled to that credit if you are registered for GST and hold a tax invoice. The price goes at label G10 (capital purchases) on your activity statement. The ATO's guidance on hire purchase and chattel mortgages says the recipient will generally be entitled to claim the full input tax credit upfront.
Hire purchase
For hire purchase agreements entered into on or after 1 July 2012, all parts of the agreement are subject to GST, including the credit (interest) part. You can claim one-eleventh of all of it as a GST credit, and you can claim the full credit upfront rather than spreading it over each instalment. For agreements entered into before 1 July 2012, you could only claim the credit on the principal, as each instalment was paid.
Finance lease
You can claim GST credits for any GST included in the lease charges. If you account for GST on a cash basis, you claim one-eleventh of the lease payments made in each tax period. If you buy the goods at the end of the lease, you may be able to claim a GST credit for the GST in that purchase price.
Cars and private use
Special rules apply to cars. When you buy a car, a car limit affects both depreciation and the GST credit you can claim. For a leased car, the ATO says the GST credit is based on how much you use the car in the business, and it is not limited to one-eleventh of the car limit. The ATO page on purchasing a motor vehicle explains the details.
How income tax works at a high level
Chattel mortgage and hire purchase: depreciation and interest
When the business is the owner, or is treated as the owner, it generally claims a deduction for the decline in value (depreciation) of the asset rather than for the repayments. Under hire purchase, the ATO splits each payment into notional loan principal and notional interest. The notional interest may be deductible to the extent the asset is used to earn assessable income.
Finance lease: lease payments
business.gov.au says you may be able to claim leasing costs as a tax deduction if you use the equipment solely for business.
The instant asset write-off
Small businesses with an aggregated turnover under $10 million may be able to deduct the full cost of an eligible asset straight away instead of depreciating it. The limit was $20,000 per asset for the 2025-26 income year. The ATO confirms the government's measure to keep the $20,000 limit permanently from 1 July 2026 is now law.
Some points from the ATO's instant asset write-off page:
- The limit is tested against the asset's total cost, not just the business-use share. In one ATO example, a $40,000 ute used 40% for business could not be written off because its total cost was over $20,000.
- Assets costing more than the limit can go into the small business pool. The pool is depreciated at 15% in the first year and 30% each year after that.
- You need to use the simplified depreciation rules.
Because hire purchase treats the business as the owner, an asset bought this way can come under the same depreciation rules. Whether a particular asset qualifies depends on the business's circumstances.
What lenders look at
Each lender uses its own criteria, but business.gov.au points to some common ones:
- Your business plan. Lenders usually want to see it before they approve a loan, because it gives them an overview of your finances.
- Financial health. For unsecured lending, the lender usually looks at your business's finances to make sure you can repay.
- The asset as security. With equipment finance, the equipment itself usually backs the loan, so its type, age and value matter.
business.gov.au also suggests comparing lenders before applying, including non-bank lenders. Things to compare include upfront and ongoing charges, minimum and maximum loan amounts and the terms on offer. Reading the full terms and conditions shows the true cost, including any amount owing at the end of the term.
When it is worth getting a professional
The "best" structure depends on your GST registration, how you account for GST, how much private use there is and your cash flow. A registered tax agent or accountant can explain how GST credits, depreciation and the instant asset write-off apply to your business before you sign. A finance broker can explain the lending options available. You can see how accountants and tax agents charge in our guide to accountant fees in Australia.
FIZO shows whether a professional appears on the regulator's register. You can find business finance professionals on FIZO.