Asset finance can help Australian businesses purchase vehicles, machinery and equipment while keeping more working capital available for day-to-day operations. The finance structure can also affect when the business owns the asset, how repayments are treated and which deductions may be available.
The Asset Finance Shop (TAFS) primarily arranges chattel mortgage finance for trucks, commercial vehicles, machinery and other income-producing business assets. Under a chattel mortgage, the business owns the asset from settlement while the lender registers a security interest over it until the finance is repaid.
Tax outcomes depend on the business structure, GST registration, accounting method, asset type and percentage of business use. The following tax deduction strategies can help business owners ask better questions before selecting a finance structure.
A common mistake is assuming the full chattel mortgage repayment is tax deductible.
Each repayment generally contains two components:
The principal component is generally not claimed as an immediate operating expense. The asset’s cost is usually dealt with through depreciation, simplified depreciation rules or another available capital allowance.
Your accountant can separate the principal and interest components using the loan schedule supplied by the lender.
The main finance product TAFS arranges for equipment and commercial vehicles is a chattel mortgage.
Under this structure:
Because the business owns the asset, it can generally claim eligible deductions relating to the decline in value of the business-use portion. The exact depreciation method will depend on the business and the tax rules that apply.
This differs from a rental or lease arrangement where the provider generally owns the asset and the business pays for its use. The tax treatment of those payments can differ from a chattel mortgage.
TAFS primarily arranges chattel mortgage finance rather than rent-to-own or equipment rental products. However, we provide all products that suit a client’s unique requirements.
A vehicle or piece of equipment may be used for both business and private purposes.
Only the business-use portion of eligible expenses can generally be claimed.
For example, if a vehicle is used 80% for business and 20% privately, the business may need to limit its claims to the eligible business portion.
Expenses that may need to be apportioned include:
The method used to calculate business use can depend on the business structure and the type of vehicle. Records may include logbooks, odometer readings, invoices and details of business and private travel.
Machinery used entirely within the business may have a clearer business-use percentage, but the business should still keep records showing how the asset supports income-producing activities.
Eligible small businesses may be able to use the instant asset write-off for qualifying assets that cost less than the applicable threshold.
From 1 July 2026, the Australian Government announced a permanent $20,000 instant asset write-off threshold for eligible small businesses. Eligibility depends on factors including aggregated turnover, the asset’s cost and when it is first used or installed ready for business use.
The threshold applies to each individual asset, rather than the total value of all equipment purchased.
It can apply to eligible:
An asset that costs the same as or more than the threshold may need to be depreciated or added to the small business pool rather than written off immediately.
Financing the asset doesn’t automatically prevent the business from qualifying. The relevant issue is generally the asset, business eligibility and tax treatment, rather than whether the purchase was paid for upfront or through a chattel mortgage.
The instant asset write-off rules have changed over time, so confirm the current threshold and eligibility with your accountant before relying on an immediate deduction.
Most larger vehicles and equipment will cost more than the instant asset write-off threshold.
These assets are generally claimed over time through depreciation or simplified depreciation rules.
Depreciation recognises that an income-producing asset loses value as it is used. The available deduction can depend on:
Eligible small businesses using simplified depreciation generally add higher-cost assets to the small business pool. The ATO currently describes a 15% deduction in the year the asset is first used or installed ready for use, followed by a 30% deduction in later years, subject to the applicable rules.
Before buying, ask your accountant how the asset is likely to be depreciated and when the first deduction can be claimed.
A GST-registered business may be able to claim a GST credit on the business-use portion of an eligible asset purchase.
Under a chattel mortgage, the business purchases the asset and owns it from settlement. The GST treatment is linked to the purchase rather than the principal portion of each loan repayment.
The available GST credit can depend on:
A private seller may not be registered for GST. In that situation, the purchase price may not include a GST amount for the buyer to claim.
Passenger vehicles can also be subject to a car limit. For vehicles first used or leased in the 2026 to 2027 financial year, the car depreciation limit is $69,883. The maximum GST credit on certain vehicles can also be limited by this threshold, subject to exceptions.
Commercial trucks and vehicles designed to carry heavier loads may be treated differently from passenger cars. Your accountant can confirm whether a particular vehicle is subject to the car limit.
Tax benefits should support the purchase decision, but they shouldn’t be the only reason for choosing a finance structure.
A chattel mortgage can usually be structured with:
A larger balloon can reduce regular repayments because part of the principal remains outstanding until the end of the term.
However, a balloon doesn’t create an additional deduction by itself. It changes the timing of the principal repayments and may affect the total interest paid.
Before selecting a balloon, consider:
The term should also suit the asset’s working life. Lower repayments may not help if the business is still paying for an ageing truck or machine when it needs to be replaced.
The strongest financial structuring usually balances tax planning with cash flow, asset life and the total finance cost.
Different equipment financing options can produce different ownership and tax outcomes.
|
Finance structure |
Who generally owns the asset during the term? |
Common tax considerations |
|
Chattel mortgage |
The business |
Eligible interest and depreciation may be claimed for the business-use portion. A GST credit may also be available where the requirements are met. |
|
Hire purchase |
The finance provider generally owns it until the final payment |
GST, interest and depreciation treatment depends on the agreement and the business’s circumstances. |
|
Equipment lease or rental |
The finance or rental provider |
Eligible rental or lease payments may be deductible to the extent the equipment is used for business. |
|
Outright purchase |
The business |
The business may claim depreciation, an immediate deduction where eligible and the business-use portion of running costs. |
TAFS primarily arranges chattel mortgage finance. Speak with an accountant before comparing structures based on tax outcomes alone.
Depending on the vehicle and how it is used, eligible deductions can include the business-use portion of:
The business needs records to support the claim. These may include loan documents, tax invoices, registration papers, receipts, logbooks and kilometres travelled for business and private use.
Fines and private expenses aren’t generally deductible.
For eligible business machinery and equipment, potential deductions can include:
Some costs may form part of the asset’s cost base rather than being claimed immediately.
For example, delivery, installation or modifications required before the asset can be used may need to be included in the asset’s value for depreciation purposes.
Your accountant can determine whether a cost is immediately deductible, depreciated over time or treated in another way.
A deposit reduces the amount that needs to be financed.
It doesn’t generally create a separate deduction simply because the business contributed cash upfront.
The tax treatment is connected to the asset purchase and eligible business costs, rather than whether the purchase was funded through:
A larger deposit can reduce the loan amount, repayments and total interest paid.
A smaller deposit can preserve working capital but may increase the amount financed.
The decision should consider cash flow and finance cost as well as tax planning.
A balloon payment generally doesn’t change the purchase price of the asset or the depreciation method applied to it.
The balloon affects the finance structure, not the underlying cost of the vehicle or equipment.
A larger balloon can:
The asset’s tax treatment should be assessed separately from the loan repayment structure.
Used business equipment may still qualify for:
The instant asset write-off can apply to eligible new and second-hand assets.
The GST treatment may differ depending on the seller.
A GST-registered dealer may provide a tax invoice showing GST. A private seller who isn’t registered for GST generally won’t charge GST, which can mean there is no GST credit available to the buyer.
This should be considered when comparing dealer and private-sale prices.
Good recordkeeping helps the business and its accountant calculate eligible deductions correctly.
Keep copies of:
Records should clearly show the asset, purchase date, purchase price, finance amount and business use.
When the asset is sold or traded, keep the sale invoice, payout letter and settlement records because the disposal may affect the business’s depreciation calculations.
TAFS primarily arranges chattel mortgage finance for eligible business vehicles and equipment.
The process generally involves:
TAFS reviews the business, asset purchase, deposit, proposed term and available documents.
The initial credit assessment leaves no mark on the applicant’s credit file.
The TAFS credit team considers the application against the criteria of more than 80 lenders.
The term, deposit, repayments and balloon are considered based on the asset and business cash flow.
The application is submitted to the selected lender.
TAFS coordinates the lender requirements and payment to the asset seller.
TAFS doesn’t provide tax advice. Before choosing a structure based on deductions, speak with your accountant about the treatment that applies to your business.
Before purchasing a vehicle or piece of equipment, ask:
Discussing these questions before settlement can help avoid incorrect assumptions about the tax benefits of the finance.
The full chattel mortgage repayment isn’t generally claimed as one deduction.
The business-use portion of eligible interest may be deductible, while the asset’s purchase cost is generally dealt with through depreciation, simplified depreciation or an immediate deduction where the business and asset qualify.
A GST-registered business may be able to claim the eligible business-use portion of the GST included in the asset purchase.
The seller must generally have charged GST, and the business must hold the required documentation.
Eligible small businesses may be able to claim an immediate deduction for assets that meet the current instant asset write-off requirements.
Assets above the relevant threshold are generally depreciated or added to the small business pool.
Eligible interest can generally be deductible to the extent the borrowed funds are used for business purposes.
The principal portion of the repayment is treated separately.
A balloon payment is generally a payment of loan principal rather than a separate operating expense.
It doesn’t create an additional deduction simply because it is paid at the end of the term.
A business that owns a vehicle under a chattel mortgage may be able to claim depreciation on the eligible business-use portion.
Passenger vehicle limits and other rules may apply.
Yes. Sole traders may be able to claim eligible business-use expenses relating to financed vehicles and equipment.
Private use must be excluded, and records are required to support the claim.
No. TAFS arranges commercial asset finance and can help structure the loan term, deposit and balloon.
Your accountant should advise on GST, depreciation, deductions and the tax treatment of the purchase.
TAFS can help Australian businesses arrange chattel mortgage finance for trucks, commercial vehicles, machinery and other business equipment through access to more than 80 lenders.
Speak with TAFS about the finance structure, then confirm the tax treatment with your accountant before proceeding.
Contact The Asset Finance Shop or apply online at www.tafs.com.au.
The Asset Finance Shop (TAFS) is a commercial asset finance brokerage based in Sydney.
Information on this page is general in nature and doesn't take your personal circumstances into account. Speak to a TAFS broker for options tailored to your business, and to your accountant regarding tax treatment.