The Two Most Common Business Finance Structures
Finance lease and chattel mortgage are the two structures that cover the vast majority of business asset finance in Australia. Both allow you to acquire and use an asset by paying over time rather than upfront — but they differ significantly in how ownership, tax and accounting work.
Quick summary: Chattel mortgage = you own the asset from day one. Finance lease = the lender owns it until end of term, and you claim lease payments as a deduction.
Chattel Mortgage: Ownership from Day One
Under a chattel mortgage, you purchase the asset and the lender secures their interest via a mortgage over it. You own the asset, claim depreciation and interest as deductions, and claim the GST on the purchase price upfront in your BAS. The asset sits on your balance sheet.
This structure suits GST-registered businesses that want to own the asset long-term and prefer to claim the GST benefit immediately rather than spreading it across the lease payments.
Finance Lease: Off-Balance-Sheet Option
Under a finance lease, the lender purchases the asset and leases it to you. You pay regular lease payments and claim those as a tax deduction. At end of term you can purchase the asset at a residual value, re-lease, or return it. Because the lender is the owner, the asset does not appear on your balance sheet — which can be advantageous for businesses managing their debt ratios or borrowing capacity.
Note: Australian accounting standards under AASB 16 now require most leases to be recognised on the balance sheet for larger businesses. Speak to your accountant about how this applies to you.
GST Treatment: A Key Difference
Under a chattel mortgage, you claim the full GST on the purchase price in your next BAS — immediately. Under a finance lease, you claim the GST on each lease payment as you pay it, spreading the GST benefit over the term. For a large purchase, the immediate GST claim under a chattel mortgage can be a meaningful cash flow benefit.
Which Is Right for Your Business?
The best structure depends on your GST registration status, whether you want the asset on or off your balance sheet, how long you intend to keep the asset, and your preference for upgrading regularly vs long-term ownership. For most owner-operated businesses purchasing vehicles and standard equipment, the chattel mortgage is the more common choice. For businesses that upgrade assets regularly or prefer to avoid balance sheet impact, a finance lease can be worth considering.
Not Sure Which Structure Suits You?
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Get a Free Quote →Can You Switch Between Structures?
Once a finance agreement is in place, you generally cannot switch structures mid-term. If you discover partway through a lease that a chattel mortgage would have been more tax-effective, you would need to wait until end of term (or pay break costs) to restructure. This is why it pays to get the structure right at the outset — and why your accountant's input before signing is important.