Chattel Mortgage vs Hire Purchase vs Lease: Which and Why
ADS Team
Author
August 7, 2026
27 days ago
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In short: All three fund the same asset at a similar repayment; they differ in who owns it and when you get the tax benefit. A chattel mortgage gives you ownership immediately and the full GST credit in your next BAS. Hire purchase transfers ownership at the end. A lease keeps ownership with the financier and makes the whole payment deductible.
Key takeaways
- Ownership determines what you deduct: interest plus depreciation, or the payment itself.
- Chattel mortgage returns the GST in one BAS - the biggest cash-flow difference between the three.
- Hire purchase has become uncommon since GST treatment changed, but still appears in some contracts.
- Leases suit assets replaced on a cycle; chattel mortgages suit assets you keep.
Side by side
| Chattel mortgage | Hire purchase | Finance lease | |
|---|---|---|---|
| Ownership during term | You | Financier | Financier |
| Ownership at end | You (after balloon) | Transfers to you | Financier, unless you buy it |
| GST on the asset | Claim in full, next BAS | Claim in full, next BAS | Claimed on each payment |
| Deduction | Interest + depreciation | Interest + depreciation | The full lease payment |
| Balance sheet | Asset and liability | Asset and liability | Right-of-use asset |
When each one wins
- Chattel mortgage - you keep the asset beyond the term, you are GST registered, and the immediate GST credit matters to your cash flow. This covers most trucks, machinery and work vehicles.
- Hire purchase - largely superseded, but occasionally used where a financier prefers to retain title while still passing the GST credit up front.
- Lease - you replace the asset on a cycle, want the whole payment deductible without depreciation schedules, or are not GST registered so the up-front credit is worth nothing to you.
The balloon question
A balloon or residual lowers the monthly repayment by deferring part of the principal. On $120,000 over five years at 8.5%:
| Balloon | Monthly | Due at end | Total paid |
|---|---|---|---|
| Nil | $2,461 | $0 | $147,660 |
| 20% ($24,000) | $2,132 | $24,000 | $151,920 |
| 30% ($36,000) | $1,978 | $36,000 | $154,680 |
A larger balloon costs more overall. It buys monthly breathing room, not a saving.
Frequently asked questions
Which gives the best tax outcome?
It depends on whether depreciation or the full payment produces a larger deduction in your circumstances, and on whether any instant asset write-off applies. Ask your accountant to model both against your actual position.
Can I pay out a chattel mortgage early?
Yes, though there may be an early termination fee and the payout figure includes unearned interest calculated under the contract. Ask for a payout quote before committing.
Does a lease keep debt off the balance sheet?
Largely no longer. Accounting standards now bring most leases on balance sheet as a right-of-use asset. Confirm the treatment for your reporting framework.
Related reading
- Equipment Finance Explained: Funding Assets Without Draining Cash
- Truck Finance in Australia: A Complete Guide for Owner-Drivers
- Negative Equity: What It Means and What to Do
Sources
- GST and hire purchase agreements — Australian Taxation Office
- Leases accounting standard AASB 16 — Australian Accounting Standards Board
Information current as at 2 September 2026.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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