What Is a Chattel Mortgage?
A chattel mortgage is the most popular asset finance structure in Australia for GST-registered businesses. Despite the formal name, it is straightforward: you borrow money to purchase an asset, own the asset from day one, and the lender takes a mortgage (security interest) over it until the loan is repaid.
Unlike a personal mortgage on property, a chattel mortgage is used for moveable assets — vehicles, equipment, machinery and plant. The word "chattel" simply means a moveable personal asset, as distinct from real property.
Key point: Under a chattel mortgage, the asset appears on your balance sheet and you claim the depreciation and interest as tax deductions — not the full lease payment.
How a Chattel Mortgage Works
The process is simple. You identify the asset you want to purchase, agree on a price with the seller, and your finance broker arranges the loan. The lender pays the seller directly, you take possession of the asset, and you repay the lender over the agreed term — typically 2 to 7 years.
A balloon payment (residual) is often used to reduce monthly repayments. At the end of the term, you either pay the balloon and own the asset outright, refinance the balloon, or sell the asset and use the proceeds to settle.
Tax Benefits of a Chattel Mortgage
For GST-registered businesses, a chattel mortgage offers two immediate tax advantages. First, you can claim the full GST on the purchase price in your next BAS — even though you are paying for the asset over time. Second, the interest component of each repayment is tax deductible, and you can claim depreciation on the asset under the normal ATO rules.
This is a significant advantage over a finance lease, where you claim the lease payment rather than the depreciation. Which structure is more beneficial depends on your specific tax position — always get advice from your accountant.
Who Is a Chattel Mortgage Best Suited To?
A chattel mortgage works best for GST-registered businesses that want to own the asset, claim the GST upfront, and hold the asset on their balance sheet. It is particularly common for vehicle finance, equipment finance and machinery purchases where the business intends to keep the asset long-term.
Businesses that prefer off-balance-sheet treatment, or those that want to regularly upgrade their assets, may be better served by a finance lease.
Chattel Mortgage vs Other Finance Structures
The main alternatives to a chattel mortgage are the finance lease, commercial hire purchase and novated lease. A chattel mortgage differs from a finance lease in that you own the asset from day one rather than at the end of the term. It differs from a commercial hire purchase in the way ownership and tax treatment are structured. A novated lease is specifically for individual employees using pre-tax salary and is not a business-to-business structure.
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Rates vary depending on the lender, the asset type, the term and your business profile. Well-established businesses with strong financials and popular asset types (new utes, common excavator brands) attract the most competitive rates. New businesses, older assets and specialist equipment may attract slightly higher rates. Your broker's role is to match you with the lender whose rate and policy best suits your situation.
Key Questions to Ask Before Signing
Before committing to a chattel mortgage, confirm the total cost of finance over the full term, whether the rate is fixed or variable, what the balloon payment is and when it falls due, whether there are early repayment fees, and how the asset will be treated in your accounts. Your accountant and broker should both be involved in this conversation.