Choosing a tax-efficient financial structure for a business vehicle or piece of equipment starts before the finance application is submitted.

The business needs to consider which entity will purchase the asset, how much of it will be used for business, whether GST can be claimed, how depreciation may apply, what part of the finance cost may be deductible and how the proposed repayment will affect cash flow.

There is no single finance structure that produces the best tax outcome for every Australian business. The right setup depends on the business structure, asset, intended use, available working capital and long-term plans.

The Asset Finance Shop (TAFS) primarily arranges chattel mortgage finance for trucks, commercial vehicles, machinery and other business assets. TAFS can help structure the finance amount, deposit, term and balloon, while your accountant should confirm the tax treatment that applies to your business.

Here are the key questions to ask before financing your next business asset.

1. Which Business Entity Should Purchase the Asset?

Start by confirming which entity will buy and own the asset.

Depending on the business, this could be a:

• Sole trader
• Company
• Partnership
• Trust

The entity purchasing the asset may affect how the purchase, finance and eligible deductions are treated.

Ideally, the entity:

• Purchases the asset
• Uses the asset for business
• Generates the income associated with it
• Makes the finance repayments
• Records the asset in its accounts

This should be confirmed before settlement.

Changing the borrower or purchaser after finance documents have been prepared can create additional work and may require the lender to reassess the application.

Ask your accountant:

Which business entity should purchase and finance this asset?

Once that has been confirmed, TAFS can structure the finance for the appropriate borrower.

2. How Much of the Asset Will Be Used for Business?

The tax treatment of a business asset can depend on how much it is actually used to generate business income.

Some assets may have close to 100% business use.

Examples could include:

• A prime mover used for interstate freight
• An excavator used on civil projects
• A forklift operating in a warehouse
• A tractor used in an agricultural business

Other vehicles may have both business and private use.

This can be particularly relevant for:

• Utes
• Vans
• Passenger vehicles
• Light commercial vehicles

Where there is private use, eligible deductions may need to be adjusted to reflect the business-use percentage.

This can affect expenses such as:

• Finance interest
• Depreciation
• Fuel
• Registration
• Insurance
• Repairs
• Servicing
• Tyres

Ask your accountant:

What percentage of this asset can reasonably be treated as business use, and what records should I keep?

3. Can the Business Claim GST on the Purchase?

GST can make a meaningful difference to the cash flow surrounding a major asset purchase.

A GST-registered business may be able to claim an eligible GST credit when purchasing a business asset, subject to the circumstances of the transaction.

The position can depend on:

• Whether the business is GST registered
• Whether GST is included in the purchase price
• Whether the seller is registered for GST
• Business-use percentage
• The type of asset
• The documentation provided with the sale

The seller matters.

For example, purchasing from a GST-registered dealer may have a different GST position from purchasing the same asset from a private seller.

Do not build an expected GST refund into your cash flow plan until your accountant has confirmed that it applies.

Ask your accountant:

How much GST, if any, can the business claim on this particular purchase?

4. How Will the Asset Be Depreciated?

Purchasing a business asset does not automatically mean the entire purchase price becomes an immediate deduction.

Depending on the asset and the tax rules that apply to the business, the cost may be dealt with through depreciation or another available tax treatment.

Factors can include:

• Asset type
• Purchase price
• Business-use percentage
• Date the asset becomes ready for use
• Business structure
• Current small business tax concessions
• Whether any specific limits apply

Larger business assets such as:

• Trucks
• Excavators
• Tractors
• Machinery
• Commercial vehicles

can remain in the business for several years, making depreciation an important part of the overall tax discussion.

Ask your accountant:

How will this asset be depreciated, and when can the business begin claiming it?

5. Is the Entire Finance Repayment Tax Deductible?

This is an important distinction.

A chattel mortgage repayment generally includes both principal and interest.

The principal reduces the amount borrowed.

The interest represents the cost of borrowing.

The complete monthly repayment should not automatically be treated as one tax deduction.

The tax treatment of:

• The asset
• Loan principal
• Finance interest
• Other finance costs

can be different.

For example, the asset may be depreciated while eligible business-use interest may be treated as a deductible finance expense.

Ask your accountant:

Which parts of the finance repayment can the business claim?

Keep the lender's repayment schedule so your accountant can identify the relevant components.

6. Is the Interest on Asset Finance Deductible?

Eligible interest associated with an income-producing business asset may be deductible depending on the circumstances.

For example, if a civil business finances an excavator that is used entirely for business work, eligible interest associated with that finance may form part of the business's deductible expenses.

If the asset has private use, the eligible interest may need to be apportioned.

The exact treatment depends on:

• Purpose of the finance
• Business-use percentage
• Business structure
• Applicable tax rules

Ask your accountant:

How should the interest component of the asset finance be treated?

7. Does a Larger Deposit Improve the Tax Outcome?

Not automatically.

A deposit primarily changes the finance structure.

For example:

Asset purchase price: $150,000
Deposit: $30,000
Amount financed: $120,000

A larger deposit can:

• Reduce the amount borrowed
• Reduce regular repayments
• Reduce the amount of interest paid

However, it also removes cash from the business.

That money may otherwise be needed for:

• Wages
• Fuel
• Suppliers
• Insurance
• Repairs
• Tax obligations
• Stock
• Project costs
• Unexpected expenses

A tax-efficient financial structure should also leave the business with enough working capital to operate comfortably.

Ask your accountant:

Does changing the deposit affect the tax treatment?

Ask TAFS:

How does changing the deposit affect the repayment and total finance structure?

8. Does a Balloon Payment Increase Tax Deductions?

Not automatically.

A balloon payment is an agreed amount of the finance that remains outstanding at the end of the term.

For example, instead of repaying the entire principal through monthly repayments, part of the principal can remain as the final payment.

A balloon can:

• Reduce regular repayments
• Preserve more monthly cash flow
• Leave a larger final payment
• Change the total interest paid

What it does not automatically do is create a larger tax deduction.

The balloon changes how the finance is repaid.

The underlying tax treatment of the asset is a separate matter.

Ask your accountant:

Does the balloon change the tax treatment of the asset or finance?

Ask TAFS:

What balloon, if any, makes sense based on the asset's expected future value and our cash flow?

9. How Long Should the Asset Be Financed For?

The finance term should make sense for the asset and the business.

A longer term can reduce regular repayments.

However, it can also mean:

• Paying interest for longer
• Carrying debt further into the asset's life
• Still owing money when maintenance costs increase
• Having finance outstanding when the business wants to replace the asset

Consider an older truck.

A seven-year repayment may appear attractive because the monthly figure is lower, but the business could still be making repayments when the truck is approaching replacement.

The finance term should be considered alongside:

• Asset age
• Working life
• Annual kilometres or operating hours
• Maintenance costs
• Replacement plans
• Expected resale value

Ask TAFS:

Does this finance term match how long we realistically expect to keep the asset?

10. Should the Business Pay Cash or Finance the Asset?

Paying cash and using business asset finance have different cash flow consequences.

Paying Cash

Paying cash can mean:

• No finance repayment
• No finance interest
• No finance debt

But it also means the business uses a large amount of its available capital immediately.

Financing

Financing can allow the business to:

• Keep more cash available
• Spread the purchase cost
• Put the asset to work immediately
• Preserve working capital

The trade-off is the cost of finance.

Consider a business with $200,000 available in cash that wants to purchase a $150,000 machine.

Paying cash leaves $50,000.

Financing part of the purchase could leave significantly more capital available for operating expenses and future opportunities.

There is no automatic winner.

The business should compare the cost of finance with the value of retaining that cash.

Ask:

What does the business need the available cash for over the next 6 to 12 months?

11. Am I Buying the Asset Because the Business Needs It?

A tax deduction should support a commercially sensible purchase.

It should not be the entire reason for buying the asset.

Before proceeding, ask whether the asset will:

• Generate additional income
• Support a new contract
• Replace unreliable equipment
• Reduce downtime
• Reduce equipment hire
• Reduce subcontracting costs
• Increase capacity
• Improve productivity
• Support business growth

A deduction can reduce taxable income.

It does not remove the underlying cost of the purchase.

If the business does not need the equipment, buying it simply because there may be a tax benefit can still leave the business with unnecessary debt and operating costs.

12. What Ongoing Expenses May Be Deductible?

The finance is only one part of owning a business asset.

Depending on the asset and business use, operating costs may include:

• Fuel
• Registration
• Insurance
• Servicing
• Repairs
• Tyres
• Parts
• Tolls
• Maintenance
• Consumables

Some of these expenses may be deductible to the extent they relate to business use.

The exact treatment should be confirmed with your accountant.

For an owner-operator truck business, for example, the finance repayment needs to be considered alongside the costs of actually keeping the truck on the road.

A finance structure that looks affordable before fuel, tyres, maintenance and insurance are included may look very different afterwards.

13. Does Buying Used Equipment Change the Tax Position?

Used business equipment can still have tax considerations around:

• Depreciation
• Eligible interest
• GST
• Operating expenses

But the individual transaction matters.

For example, the GST position may differ depending on whether the equipment is purchased from:

• A GST-registered dealer
• Another business
• A private seller
• An auction

The age and purchase price of the asset may also affect how it is treated.

Ask your accountant:

Does buying this asset used rather than new change the tax treatment?

14. Does a Private Sale Change Anything?

Potentially.

Private-sale equipment finance can be arranged through selected lenders, but the tax side of the transaction should also be considered.

A private seller may not charge GST.

The business should confirm:

• Whether GST applies
• What documentation will be available
• How the purchase should be recorded
• Whether the asset remains eligible for depreciation

On the finance side, a private sale can also require additional checks around:

• Seller identity
• Ownership
• Asset value
• Existing finance
• Asset condition

TAFS can coordinate the finance requirements while your accountant confirms the tax treatment.

15. What Happens When the Asset Is Sold or Traded?

Tax planning should not stop at the purchase.

Eventually, the business may:

• Sell the asset
• Trade it
• Replace it
• Refinance it

At that point, several figures can become relevant:

• Sale price
• Trade-in value
• Outstanding finance
• Balloon
• Accounting value
• Tax treatment of the disposal

For example, a truck may be financed with the expectation that its trade-in value will help clear a balloon at the end of the term.

If its market value falls further than expected, the business could have a shortfall.

Ask your accountant:

What happens for tax when the asset is eventually sold or traded?

Ask TAFS:

Does the proposed balloon make sense against the expected value of the asset at the end of the term?

16. Does the Timing of the Purchase Matter?

It can.

Businesses sometimes consider asset purchases around the end of the financial year because of potential tax treatment.

However, the timing rules and eligibility requirements can vary.

Do not assume that:

• Signing a contract is enough
• Paying a deposit is enough
• Ordering an asset is enough
• Every asset qualifies for the same deduction

If timing is part of the tax planning strategy, confirm exactly what must happen before the relevant date.

Ask your accountant:

Does the timing of this purchase affect when the business can claim depreciation or another available deduction?

17. Are Any Current Small Business Tax Concessions Available?

Tax rules and thresholds can change.

Before making a significant vehicle or equipment purchase based on an expected tax outcome, ask your accountant whether any current concessions apply.

These could potentially relate to:

• Depreciation
• Immediate deductions
• Small business asset rules
• GST
• Vehicle limits
• Business structure

TAFS can arrange the finance, but tax eligibility should be confirmed separately.

18. What Records Should the Business Keep?

Good records make the tax side of asset finance much easier.

Keep documents such as:

• Purchase invoice
• Finance agreement
• Repayment schedule
• Deposit receipt
• Trade-in paperwork
• GST tax invoice
• Registration
• Insurance
• Fuel receipts
• Repair invoices
• Servicing records
• Business-use records
• Sale documents
• Trade-in documents
• Finance payout statements

Ask your accountant which records need to be retained and for how long.

What Is the Main Asset Finance Structure TAFS Arranges?

TAFS primarily arranges chattel mortgage finance for vehicles, machinery and other commercial assets.

Under a chattel mortgage:

• The business owns the asset from settlement
• The lender registers a security interest over the asset
• The finance is repaid over an agreed term
• A deposit may be included
• A trade-in can contribute toward the purchase
• A balloon payment may be available
• The lender's security is removed once the finance has been repaid

Chattel mortgage finance can be used for eligible assets including:

• Prime movers
• Rigid trucks
• Tippers
• Trailers
• Utes
• Vans
• Excavators
• Skid steers
• Posi-tracks
• Agricultural machinery
• Manufacturing equipment
• Other commercial assets

The business may be able to claim eligible GST, interest and depreciation amounts depending on its circumstances.

Your accountant should confirm the treatment that applies.

Is a Chattel Mortgage a Tax-Efficient Financial Structure?

It can be an appropriate structure for many Australian businesses.

One of the defining features of a chattel mortgage is that the business owns the asset from settlement.

From there, the tax outcome can depend on:

• Business structure
• Business-use percentage
• GST position
• Asset type
• Applicable depreciation rules
• Finance costs

There is no single answer that makes a chattel mortgage automatically the most tax-efficient structure for every business.

The structure should be assessed alongside the business's tax position and cash flow.

Can You Claim Depreciation on a Financed Asset?

Potentially.

Under a chattel mortgage, the business owns the asset from settlement.

Eligible depreciation may therefore apply depending on:

• Asset
• Business use
• Business structure
• Applicable tax rules

Your accountant should determine the amount and method that applies.

Is Chattel Mortgage Interest Deductible?

Eligible interest associated with an income-producing business asset may be deductible depending on the business and percentage of business use.

The principal portion is treated separately.

The lender's repayment schedule can help your accountant identify the interest component.

Can Sole Traders Claim Asset Finance Expenses?

Potentially.

Sole traders can finance eligible vehicles and business equipment and may be able to claim relevant business-use expenses.

Where the asset also has private use, that portion should be separated.

Keeping clear records is particularly important where a vehicle is used for both business and personal purposes.

What Is the Best Tax-Efficient Financial Structure?

There is no universal structure that provides the best result for every business.

The answer depends on:

• Business entity
• Asset
• Business use
• Purchase price
• GST position
• Available cash
• Finance term
• Deposit
• Balloon
• Expected asset life
• Replacement plans

The strongest approach is usually to have your accountant confirm the tax position and then have the finance structured around the commercial needs of the business.

Questions to Ask Your Accountant Before Asset Finance

Before financing the asset, ask:

1. Which entity should purchase the asset?
2. What percentage will be used for business?
3. Can the business claim GST?
4. How will the asset be depreciated?
5. When can depreciation begin?
6. How is the finance interest treated?
7. Is the principal deductible?
8. Does the deposit affect the tax outcome?
9. Does a balloon change the tax treatment?
10. What operating expenses can be claimed?
11. Does private use need to be apportioned?
12. Does buying used change the treatment?
13. Does a private sale change the GST position?
14. What happens when the asset is sold?
15. Does the purchase date matter?
16. Are there current small business concessions that apply?
17. What records should the business keep?

Questions to Ask TAFS About the Finance

Once the tax position is understood, ask TAFS:

1. How much can be financed?
2. Is a deposit required?
3. Can a trade-in be used?
4. What interest rate applies?
5. What will the regular repayment be?
6. What finance term is available?
7. Is a balloon suitable?
8. What will the balloon amount be?
9. What is the total estimated amount repayable?
10. Can used equipment be financed?
11. Are private sales accepted?
12. Can auction purchases be financed?
13. Can the structure preserve more working capital?
14. Does the term match the expected working life of the asset?

How TAFS Helps Structure Asset Finance

TAFS focuses on the finance side of the transaction.

1. Review the Asset Purchase

TAFS looks at the asset, purchase price and intended business use.

2. Assess the Business

The business history, available documentation and proposed finance requirement are reviewed.

3. Complete a Soft Credit Check

TAFS begins with a soft credit check that leaves no mark on the applicant's credit file.

4. Internal Credit Review

The internal credit team assesses the application before a formal lender submission.

5. Compare Suitable Lenders

TAFS has access to more than 80 bank and non-bank lenders.

6. Structure the Finance

The finance amount, deposit, term and balloon can be considered around the asset and business cash flow.

7. Submit and Settle

Once the business selects an option, TAFS manages the formal application and settlement process.

TAFS provides commercial asset finance rather than tax advice.

Your accountant should confirm GST, depreciation, deductible expenses and the tax treatment of the purchase.

Frequently Asked Questions

What Is a Tax-Efficient Financial Structure?

A tax-efficient financial structure considers the tax treatment of a business asset alongside ownership, cash flow, finance cost and the long-term needs of the business.

There is no single structure that is best for every business.

What Tax Questions Should I Ask Before Financing Equipment?

Ask who should purchase the asset, how much will be used for business, whether GST can be claimed, how depreciation will work, how finance interest will be treated and what happens when the equipment is later sold or traded.

Is the Entire Asset Finance Repayment Tax Deductible?

The complete repayment should not automatically be treated as one deduction.

Principal, eligible interest and the asset purchase can have different tax treatment.

Can I Claim Interest on Asset Finance?

Eligible interest relating to an income-producing business asset may be deductible depending on the circumstances and business-use percentage.

Can I Claim Depreciation on Financed Equipment?

Potentially.

Under a chattel mortgage, the business owns the equipment from settlement. Eligible depreciation will depend on the business, asset and applicable tax rules.

Does a Balloon Payment Increase My Tax Deduction?

Not automatically.

A balloon changes how the finance is repaid. It does not by itself create an additional deduction.

Does a Larger Deposit Increase My Tax Deduction?

Not automatically.

A larger deposit mainly reduces the amount being financed.

The tax treatment of the asset is considered separately.

Can I Claim GST on a Financed Asset?

Potentially.

The position depends on the business, asset, seller, transaction and business-use percentage.

Your accountant should confirm the GST treatment before you rely on an expected credit.

Is It Better to Finance or Pay Cash for Tax Purposes?

Neither is automatically better.

Paying cash avoids finance costs but reduces available capital.

Financing preserves more working capital but introduces interest and repayments.

The tax position and cash flow impact should be considered separately.

Is Chattel Mortgage the Main Asset Finance Product TAFS Arranges?

Yes.

TAFS primarily arranges chattel mortgage finance for commercial vehicles, machinery and other business assets.

Does TAFS Provide Tax Advice?

No.

TAFS arranges commercial asset finance and can help structure the finance amount, deposit, term and balloon.

Your accountant should advise on tax deduction strategies, GST, depreciation, deductible expenses and the correct treatment for your business.

Structure Your Asset Finance With TAFS

A tax-efficient financial structure should also make commercial sense.

Before financing a vehicle or piece of equipment, confirm the tax position with your accountant and then structure the finance around the asset, business cash flow and long-term plans.

TAFS can compare suitable chattel mortgage options through access to more than 80 lenders and help structure the finance amount, deposit, term and balloon around your business.

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.