A chattel mortgage is a type of commercial asset finance used by Australian businesses to purchase vehicles, machinery and equipment. The business owns the asset from settlement, while the lender registers a security interest over it until the finance has been repaid.

For tax purposes, the full chattel mortgage repayment is not generally treated as one deduction. Depending on the business, asset and business-use percentage, eligible interest may be deductible, depreciation may apply and a GST credit may be available where the relevant requirements are met.

The Asset Finance Shop (TAFS) primarily arranges chattel mortgage finance for eligible business vehicles and equipment. TAFS can structure the finance around the purchase price, deposit, term, repayments and balloon while your accountant confirms the tax treatment that applies to your business.

This guide explains how a chattel mortgage works, what may be tax deductible, how GST and depreciation are treated, and how it differs from hire purchase and rent-to-own.

What Is a Chattel Mortgage?

A chattel mortgage is a business loan secured against the vehicle, machinery or equipment being purchased.

The word "chattel" refers to the asset.

Under a chattel mortgage:

• Your business buys the asset
• Your business owns it from settlement
• The lender provides the finance
• The lender registers a security interest over the asset
• You make agreed repayments over the finance term
• A deposit or trade-in can be included
• A balloon payment may be available
• The lender's security is removed once the finance is repaid

TAFS primarily uses chattel mortgage finance for business asset purchases.

What Business Equipment Can Be Financed With a Chattel Mortgage?

Chattel mortgages can be used for a broad range of income-producing assets.

Trucks and Commercial Vehicles

This can include:

• Prime movers
• Rigid trucks
• Tippers
• Refrigerated trucks
• Crane trucks
• Tilt trays
• Trailers
• Utes
• Vans
• Service vehicles

Earthmoving and Construction Equipment

This can include:

• Excavators
• Skid steers
• Posi-tracks
• Loaders
• Rollers
• Graders
• Dozers
• Attachments

Agricultural Machinery

This can include:

• Tractors
• Harvesters
• Headers
• Seeders
• Implements

Manufacturing and Business Equipment

This can include:

• CNC machinery
• Lathes
• Fabrication equipment
• Packaging equipment
• Forklifts
• Other commercial equipment

TAFS arranges commercial asset finance across transport, earthmoving, agriculture and other business equipment categories.

How Does a Chattel Mortgage Work?

The process is relatively straightforward.

1. Choose the Asset

The business decides what vehicle, machine or piece of equipment it needs.

You may purchase through:

• A dealer
• An equipment supplier
• A private seller
• An auction

The asset can be new or used, subject to lender requirements.

2. Decide How Much to Finance

The amount financed can depend on:

• Purchase price
• Deposit
• Trade-in
• Existing finance payout
• Lender criteria

For example:

Equipment purchase: $120,000
Deposit: $20,000
Amount financed: $100,000

Alternatively, an eligible applicant may be able to finance more of the purchase price.

3. Choose the Finance Term

The finance is repaid over an agreed period.

The available term can depend on:

• Asset age
• Asset type
• Purchase price
• Business profile
• Expected working life
• Lender

The term should make sense against how long the business expects to use the equipment.

4. Decide Whether to Use a Balloon

A balloon leaves an agreed amount outstanding at the end of the finance term.

This can reduce regular repayments.

However, it also means the business has a larger final payment.

5. The Lender Takes Security

The business owns the asset, while the lender registers a security interest over it.

The asset provides security for the finance.

6. The Business Makes Repayments

The business makes the agreed repayments over the finance term.

Once the finance has been repaid, the lender removes its security interest.

Who Owns the Asset Under a Chattel Mortgage?

The business owns the asset from settlement.

This is one of the defining features of a chattel mortgage.

For example, if a transport business buys a prime mover using a chattel mortgage:

• The transport business owns the truck
• The lender has security over the truck
• The business makes the repayments
• The lender removes its security once the finance has been repaid

This ownership position is important when comparing a chattel mortgage with structures where ownership remains with the finance provider during the agreement.

Why Do Businesses Use Chattel Mortgages?

A chattel mortgage allows a business to purchase an income-producing asset without necessarily paying the entire purchase price in cash.

This can help preserve working capital.

Instead of putting a large amount of cash into a truck or machine upfront, the business can retain more money for:

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

The asset can then begin contributing to the business while being repaid.

Example: Paying Cash vs Using a Chattel Mortgage

Consider an earthmoving business purchasing a $150,000 excavator.

Paying Cash

The business pays $150,000 upfront.

There are no finance repayments, but $150,000 leaves the business immediately.

Chattel Mortgage

The business finances the purchase and makes repayments over time.

It pays interest on the finance but retains more cash for business operations.

Neither option is automatically better.

The business needs to compare:

• Cost of finance
• Available working capital
• Future business expenses
• Expected income from the excavator
• Existing cash reserves

For many businesses, preserving working capital is an important reason to use business asset finance.

Is a Chattel Mortgage Tax Deductible?

Parts of a chattel mortgage transaction may be deductible, but the entire repayment should not automatically be treated as one deduction.

A chattel mortgage involves several separate components:

• Asset purchase
• Loan principal
• Finance interest
• Finance fees
• Depreciation
• GST
• Business operating expenses

Each may have different tax treatment.

TAFS can structure the finance, but your accountant should confirm what your business can claim.

Is Chattel Mortgage Interest Tax Deductible?

Eligible interest may be deductible to the extent the finance relates to business use.

For example, if an excavator is purchased entirely for use in an earthmoving business, eligible interest on the finance may form part of the business's deductible expenses.

If an asset is partly used privately, your accountant may need to apportion the interest.

Factors that can affect the treatment include:

• Business-use percentage
• Business structure
• Asset use
• Purpose of the borrowing

The principal component of the repayment is treated separately from the interest.

Is the Principal Repayment Tax Deductible?

The principal component should not automatically be treated as an operating expense.

Principal is the amount borrowed to purchase the asset.

Each repayment reduces part of that outstanding amount.

The asset purchase itself is then considered under the applicable tax rules, including depreciation where relevant.

This is why businesses should keep their finance repayment schedule.

The schedule shows how the repayments are divided between principal and interest.

Are Chattel Mortgage Fees Tax Deductible?

Some finance-related fees may have tax consequences, but the treatment can depend on the type of fee and the circumstances of the business.

Potential finance costs can include:

• Lender establishment fees
• Security registration costs
• Other finance charges

Do not assume every fee can be claimed immediately or in the same way.

Ask your accountant how each cost should be treated.

Can You Claim Depreciation With a Chattel Mortgage?

Potentially.

Because the business owns the asset under a chattel mortgage, eligible depreciation may be available on the business-use portion of the asset.

For example, this may apply to:

• Trucks
• Excavators
• Tractors
• Commercial vehicles
• Manufacturing machinery
• Other business equipment

The depreciation method and amount can depend on:

• Asset type
• Purchase price
• Business-use percentage
• Business structure
• Date the asset becomes ready for use
• Current tax rules

TAFS does not determine depreciation treatment.

Your accountant should confirm how it applies to your business.

Can You Claim GST on a Chattel Mortgage?

A GST-registered business may be able to claim an eligible GST credit on the business-use portion of the asset purchase where the requirements are met.

The seller and purchase structure matter.

For example, buying from a GST-registered equipment dealer may have a different GST outcome from buying from a private seller.

Factors to confirm include:

• Whether your business is GST registered
• Whether GST is included in the purchase price
• Whether the seller charged GST
• Whether you have the required tax invoice
• Business-use percentage

TAFS's existing guidance notes that a GST-registered business may be able to claim the eligible business-use portion of GST included in the asset purchase, subject to the transaction and required documentation.

Always confirm the actual GST position with your accountant before relying on an expected credit.

Does GST Get Claimed Through the Monthly Repayments?

The GST position generally relates to the asset purchase rather than simply treating each principal repayment as a separate GST expense.

This is an important difference.

If you are planning your cash flow around an expected GST credit, speak with your accountant before finalising the purchase.

Does a Private Sale Affect GST?

It can.

A private seller may not be registered for GST.

If there is no GST included in the purchase price, there may be no GST amount for the business to claim.

This is worth checking before comparing:

• Dealer price
• Private-sale price
• Auction price

The cheapest advertised purchase price may not always have the same overall tax position.

What Is a Balloon Payment on a Chattel Mortgage?

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

For example:

Amount financed: $100,000
Finance term: 5 years
Balloon: $20,000

Rather than paying down the complete $100,000 through regular repayments, $20,000 remains at the end.

This generally lowers the regular repayment.

At the end of the term, the business needs to manage the balloon.

This may involve:

• Paying it from cash
• Trading the asset
• Selling the asset
• Refinancing the amount, subject to approval

Is a Balloon Payment Tax Deductible?

A balloon payment generally represents loan principal rather than a separate operating expense.

It does not automatically create an additional tax deduction simply because it is paid at the end of the finance term.

A larger balloon may change the amount of interest paid over the finance term, but that is separate from the tax treatment of the balloon itself.

Should You Use a Balloon Payment?

A balloon can be useful where the business wants to reduce regular repayments.

This may be particularly relevant for businesses with significant ongoing operating costs.

For example, a transport business may want to retain more cash each month for:

• Diesel
• Tyres
• Registration
• Insurance
• Maintenance
• Repairs
• Driver costs

A civil contractor may need money available for:

• Fuel
• Operators
• Repairs
• Transport
• Project costs

Before selecting a balloon, consider:

• Expected asset value at the end of the term
• How long you plan to keep the asset
• Expected usage
• Maintenance
• Replacement plans
• Expected trade-in value
• Ability to manage the final payment

The lowest regular repayment is not automatically the best finance structure.

Does a Larger Deposit Improve the Tax Outcome?

Not automatically.

A deposit mainly changes how much money is financed.

For example:

Purchase price: $100,000
Deposit: $25,000
Finance amount: $75,000

The larger deposit can reduce:

• Amount borrowed
• Regular repayments
• Interest cost

But it also uses more business cash upfront.

The tax treatment of the asset should be considered separately.

A business should consider how much working capital it wants to retain after settlement.

Can a Trade-In Be Used With a Chattel Mortgage?

Yes, subject to the transaction.

A trade-in can contribute toward the purchase of the replacement asset.

For example:

New truck: $180,000
Old truck trade-in: $60,000
Existing finance payout: $25,000
Potential remaining equity: $35,000

That equity may contribute toward the new purchase.

The existing finance generally needs to be paid out as part of the transaction.

The tax treatment of the trade-in should be discussed with your accountant.

What Is Chattel Mortgage Equipment Financing?

Equipment financing simply refers to using commercial finance to purchase business equipment.

A chattel mortgage is one form of equipment financing.

It can be suitable where a business:

• Wants to own the equipment from settlement
• Wants to preserve working capital
• Intends to use the asset for business
• Wants to spread the purchase cost over time
• Wants flexibility around deposit and balloon
• Expects to keep the asset

TAFS primarily arranges chattel mortgage finance for business equipment rather than rent-to-own or hire purchase structures.

Chattel Mortgage vs Hire Purchase

Chattel mortgage and hire purchase are different structures.

The biggest difference is ownership.

Chattel Mortgage

With a chattel mortgage:

• The business owns the asset from settlement
• The lender takes security over the asset
• The business repays the loan over time

Hire Purchase

Under a traditional hire purchase arrangement:

• The finance provider generally owns the asset during the agreement
• The customer makes agreed payments
• Ownership generally transfers once the terms of the agreement have been completed

The exact terms depend on the agreement.

TAFS primarily arranges chattel mortgage finance, so the hire purchase comparison is provided for educational purposes rather than as a TAFS product recommendation.

Chattel Mortgage vs Rent to Own

Rent-to-own also uses a different ownership structure.

Chattel Mortgage

The business owns the asset from settlement.

Rent to Own

The provider generally owns the asset during the rental period, with ownership potentially transferring later under the terms of the agreement.

A business comparing the two should consider:

• When ownership begins
• Regular payments
• Total cost
• End-of-term position
• Flexibility
• Tax treatment
• Long-term plans for the asset

TAFS primarily arranges chattel mortgage finance rather than rent-to-own.

Chattel Mortgage vs Hire Purchase vs Rent to Own

The legal and tax treatment of individual agreements can vary.

Speak with your accountant before choosing a finance structure based on tax outcomes.

Is Chattel Mortgage Better Than Hire Purchase?

There is no universal answer for every business.

However, a chattel mortgage can be suitable where the business wants ownership from settlement.

Businesses comparing structures should consider:

• Ownership
• Finance cost
• Repayment
• Term
• Deposit
• Balloon
• Tax treatment
• End-of-term position

TAFS focuses primarily on chattel mortgage finance for business asset purchases.

Is Chattel Mortgage Better Than Rent to Own?

Again, it depends on what the business wants.

A chattel mortgage may suit a business that wants to:

• Own the asset immediately
• Keep the asset long term
• Spread the purchase price over time
• Structure a deposit or balloon
• Use the equipment to generate business income

Rent-to-own follows a different ownership model and should be assessed according to the specific agreement.

What Is the Difference Between Chattel Mortgage and Equipment Leasing?

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

Under a typical equipment lease, the finance or leasing provider generally owns the asset and the business pays for the right to use it.

What happens at the end depends on the lease agreement.

TAFS primarily arranges chattel mortgage finance rather than equipment leasing.

Can Sole Traders Use a Chattel Mortgage?

Yes.

Sole traders can use chattel mortgage finance to purchase eligible business vehicles and equipment.

The lender may consider:

• ABN history
• Business income
• Industry experience
• Bank statements
• Credit history
• Existing debts
• Asset value
• Deposit

Where the asset has both personal and business use, the tax treatment may need to reflect the business-use percentage.

Speak with your accountant about recordkeeping.

Can a New ABN Get a Chattel Mortgage?

Potentially.

Selected lenders will consider applications from newer businesses.

Where the business has limited trading history, the lender may consider:

• Previous industry experience
• Current contracts
• Upcoming work
• Personal credit profile
• Bank statements
• Available working capital
• Deposit
• Asset being purchased

The right lender depends on the complete application.

Can You Get a Low Doc Chattel Mortgage?

Potentially.

Selected lenders can assess eligible applications without requiring complete financial statements.

A low doc application may instead use:

• Recent business bank statements
• ABN information
• Industry experience
• Credit history
• Existing business activity
• Assets and liabilities
• Asset details

Low doc does not mean no assessment.

The lender still needs to determine whether the business can manage the proposed repayment.

Can You Finance Used Equipment With a Chattel Mortgage?

Yes.

Used vehicles and machinery can be financed through selected lenders.

The lender may consider:

• Asset age
• Condition
• Kilometres
• Operating hours
• Purchase price
• Market value
• Remaining working life

Older assets may have:

• Fewer lender options
• Shorter available terms
• Valuation requirements
• Inspection requirements

The finance should suit both the business and the remaining working life of the equipment.

Can You Use a Chattel Mortgage for a Private Sale?

Potentially.

Selected lenders can finance privately purchased equipment.

Additional checks can include:

• Seller identity
• Proof of ownership
• VIN or serial number
• Existing security
• Purchase price
• Asset condition
• Market value

TAFS can coordinate these requirements between the buyer, seller and lender.

Can Auction Equipment Be Financed?

Yes, through selected lenders.

Pre-approval may also be available before bidding.

This can help the business understand:

• Approximate finance amount
• Deposit requirements
• Acceptable asset age
• Finance term
• Expected repayment

Final approval will depend on the asset actually purchased.

What Documents Do You Need for a Chattel Mortgage?

The required documents depend on the business and lender.

For an initial assessment, you may need:

• Driver's licence
• ABN details
• Recent business bank statements
• Existing finance information
• Industry experience
• Information about current work
• Assets and liabilities

Additional information may include:

• BAS
• Financial statements
• Tax returns
• Contracts
• Accountant information

Once the asset has been selected, the lender may also need:

• Dealer invoice
• Make and model
• Purchase price
• Year
• VIN or serial number
• Registration information
• Private seller details
• Auction invoice
• Inspection or valuation

How Are Chattel Mortgage Repayments Calculated?

Repayments depend on several factors.

These include:

• Purchase price
• Finance amount
• Deposit
• Interest rate
• Finance term
• Balloon
• Lender fees

For example, changing the deposit changes the amount borrowed.

Changing the term changes how quickly the finance is repaid.

Adding a balloon can lower regular repayments but creates a larger final payment.

When comparing chattel mortgage options, look at the complete structure rather than just the monthly repayment.

How Long Can a Chattel Mortgage Run For?

Available terms depend on the lender, asset and business.

A lender may consider:

• Asset type
• Asset age
• Expected working life
• Finance amount
• Applicant profile
• Balloon

The term should generally make sense against how long the business expects to keep the asset.

For example, an older truck approaching replacement may not suit the same finance term as a brand-new machine expected to remain productive for many years.

Does a Chattel Mortgage Preserve Working Capital?

It can.

This is one of the main reasons businesses finance assets rather than paying the entire purchase price upfront.

For example, if a business has $200,000 in cash and wants to buy a $150,000 machine:

Paying Cash

The business is left with $50,000.

Financing the Machine

The business retains more cash but takes on finance repayments and interest.

That retained cash might be needed for:

• Payroll
• Fuel
• Materials
• Repairs
• Tax
• Insurance
• New contracts

The business should compare the cost of finance against the value of retaining that capital.

What Should You Ask Your Accountant Before Using a Chattel Mortgage?

Before settlement, ask:

1. Which business entity should purchase the asset?
2. What percentage will be used for business?
3. Can the business claim GST?
4. How will depreciation be calculated?
5. When can depreciation begin?
6. Is the eligible interest deductible?
7. How should the principal component be treated?
8. How should finance fees be treated?
9. Does a deposit affect the tax outcome?
10. Does a balloon affect the tax outcome?
11. Does private use need to be apportioned?
12. Does buying used change anything?
13. Does buying privately affect GST?
14. What happens when the asset is sold or traded?
15. What records should the business keep?

TAFS arranges the asset finance rather than providing tax advice.

What Should You Ask TAFS About a Chattel Mortgage?

When discussing the finance, ask:

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 is the regular repayment?
6. What term is available?
7. Should I use a balloon?
8. What will the balloon amount be?
9. What lender fees apply?
10. What is the total estimated amount repayable?
11. Can used equipment be financed?
12. Are private sales accepted?
13. Can auction purchases be financed?
14. What documents are required?
15. How quickly can approval happen?

How TAFS Arranges Chattel Mortgage Finance

TAFS primarily arranges chattel mortgage finance for eligible business vehicles and equipment.

The process generally works like this.

1. Initial Assessment

TAFS reviews the business, proposed asset purchase and available documentation.

2. Soft Credit Check

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

3. Internal Credit Review

The TAFS internal credit team assesses the application against lender criteria.

4. Compare Suitable Lenders

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

5. Structure the Finance

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

6. Formal Application

The application is submitted to the selected lender.

7. Approval and Settlement

TAFS coordinates the lender requirements, finance documents and payment to the approved asset seller.

Frequently Asked Questions

What Is a Chattel Mortgage?

A chattel mortgage is business asset finance where the business owns the vehicle, machinery or equipment from settlement while the lender registers security over it until the finance has been repaid.

What Does Chattel Mean in a Chattel Mortgage?

The chattel is the movable asset being financed.

Examples include a truck, excavator, tractor, ute or piece of commercial machinery.

Is a Chattel Mortgage Tax Deductible?

Parts of the transaction may be deductible.

Eligible business-use interest may be deductible, and depreciation may be available on the asset.

The entire finance repayment should not automatically be treated as one deduction.

Is the Whole Chattel Mortgage Repayment Tax Deductible?

Generally, no.

The repayment includes principal and interest.

Eligible interest may be deductible, while the principal reduces the outstanding finance balance.

The asset itself is considered separately for depreciation and other applicable tax treatment.

Is Chattel Mortgage Interest Tax Deductible?

Eligible interest may be deductible to the extent the borrowed funds are used for business purposes.

Speak with your accountant about the treatment that applies.

Are Chattel Mortgage Fees Tax Deductible?

Some finance costs may have tax consequences, but different fees can be treated differently.

Your accountant should confirm how establishment and other finance costs should be recorded.

Can I Claim Depreciation on a Chattel Mortgage?

Potentially.

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

Eligible depreciation will depend on the asset, business use and applicable tax rules.

Can I Claim GST on a Chattel Mortgage?

Potentially.

A GST-registered business may be able to claim the eligible business-use portion of GST included in the purchase where the relevant requirements are met.

The seller and transaction matter.

Can I Claim GST on a Private-Sale Asset?

It depends on whether GST was actually included in the sale.

A private seller may not charge GST.

Confirm the position with your accountant before relying on an expected GST credit.

Is a Balloon Payment Tax Deductible?

A balloon generally represents loan principal left until the end of the finance term.

It does not automatically create an additional deduction.

Does a Larger Balloon Increase Tax Deductions?

Not automatically.

A larger balloon changes the repayment structure and may affect total interest, but it does not by itself create a larger deduction.

What Is the Difference Between Chattel Mortgage and Hire Purchase?

The main difference is ownership.

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

Under a traditional hire purchase arrangement, the finance provider generally retains ownership during the agreement, with ownership transferring according to the terms of the agreement.

What Is the Difference Between Chattel Mortgage and Rent to Own?

With a chattel mortgage, the business owns the equipment from settlement.

Under a typical rent-to-own arrangement, the provider generally retains ownership during the rental period, with ownership potentially transferring later.

Does TAFS Offer Hire Purchase or Rent to Own?

TAFS primarily arranges chattel mortgage finance for eligible commercial vehicles, machinery and business equipment.

The hire purchase and rent-to-own comparisons in this guide are provided to explain the differences between common equipment financing structures.

Can Sole Traders Use a Chattel Mortgage?

Yes.

Sole traders can apply for chattel mortgage finance for eligible business vehicles and equipment, subject to lender approval.

Can a New ABN Get a Chattel Mortgage?

Potentially.

Selected lenders consider newer businesses based on factors such as industry experience, expected work, financial position, credit history and the asset being purchased.

Can I Get a Low Doc Chattel Mortgage?

Potentially.

Selected lenders can consider eligible low doc applications using bank statements and other business information instead of requiring complete financial statements in every case.

Can Used Equipment Be Financed?

Yes.

Used commercial vehicles, machinery and equipment can be financed through selected lenders, subject to asset age, condition and value requirements.

Can Private-Sale Equipment Be Financed?

Yes, through selected lenders.

Additional seller, ownership and asset checks may be required.

Can I Finance Auction Equipment?

Yes.

Selected lenders finance auction purchases, and pre-approval may be available before bidding.

Is a Chattel Mortgage Good for Business Equipment?

A chattel mortgage can be well suited to businesses that want to own an income-producing asset from settlement while spreading the purchase price over an agreed finance term.

Whether it is appropriate for your business depends on the asset, cash flow, finance cost and long-term plans.

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 GST, depreciation, tax deductibility and the correct treatment for your business.

Arrange a Chattel Mortgage With TAFS

A chattel mortgage can allow your business to purchase and own the truck, vehicle, machinery or equipment it needs while spreading the purchase cost over an agreed finance term.

TAFS can assess the business, asset and available documentation before comparing suitable chattel mortgage options through access to more than 80 lenders.

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.