Choosing between a chattel mortgage vs lease — or a hire purchase agreement — can feel overwhelming. Each option treats ownership, tax, and cash flow differently, so the “best” choice depends entirely on your business goals. This guide breaks down the key differences so you can move forward with confidence.
Understanding Your Equipment Finance Options
At its core, equipment lease vs loan decisions come down to one question: do you want to own the asset outright, or would you prefer to use it and return it when you’re done? A chattel mortgage and hire purchase both lead to ownership, while a finance lease keeps the asset with the lender until the end of the term. If you’re weighing up an equipment loan, it may help to compare how each structure affects repayments, tax treatment, and long-term flexibility. An operating lease goes a step further — you simply hand the equipment back and upgrade when you’re ready.
Each structure also affects your balance sheet, your monthly cash flow, and your end-of-year tax position. For businesses that rely heavily on machinery, vehicles, or technology, getting this decision right can save thousands over the life of the agreement.
Chattel Mortgage, Finance Lease & Hire Purchase — Key Differences
Chattel Mortgage Equipment Finance
With a chattel mortgage, you take ownership of the equipment from day one. The asset acts as security for the loan, and you make regular repayments — with the option of a balloon payment at the end to keep monthly costs lower. Because you own the asset immediately, you can claim depreciation, claim the GST on the purchase price upfront, and deduct interest charges. This makes chattel mortgage equipment finance particularly attractive for GST-registered businesses wanting to maximise their tax position early.
Finance Lease Equipment
Finance lease equipment arrangements work differently. The lender purchases the asset and leases it to you for an agreed term. You have full use of the equipment but the lender retains legal ownership. At the end of the lease, you can purchase the asset for the residual value, refinance, or return it. Lease payments are generally tax-deductible, and GST is claimed progressively on each payment — suiting businesses that prefer to spread cash flow commitments evenly.
Hire Purchase Equipment
Hire purchase equipment agreements sit in between. You take possession of the asset immediately and make installment payments over an agreed term. Ownership transfers once the final payment is made. Like a chattel mortgage, you can claim depreciation and interest deductions — but legal title doesn’t pass until the contract is fully paid, which can affect balance sheet treatment during the term.
Operating Lease Equipment
An operating lease equipment arrangement is ideal when you need an asset for a shorter period or want to upgrade regularly. The lender owns the equipment and you make rental payments for use of it. At the end of the term, you return the asset with no residual obligation. Repayments are fully tax-deductible, and running costs can often be bundled into the lease.
Tax, GST & Claiming Deductions on Equipment Finance
One of the most common questions business owners ask is whether an equipment loanvs lease is better for tax. With a chattel mortgage or hire purchase, you claim depreciation on the asset over its effective life and deduct interest separately. With a finance lease, the entire lease payment is typically deductible as an operating expense — simplifying your bookkeeping.
When it comes to claiming GST equipment loan arrangements, a chattel mortgage lets you claim the full GST credit on the purchase price in your next BAS — a significant cash flow advantage. Under a finance lease, GST is claimed progressively with each payment. For businesses weighing up an equipment finance agreement vs loan, it’s worth modelling both scenarios with your accountant to see the real after-tax cost. Whether an equipment loan expense is deductible also depends on the proportion of business use, so accurate record-keeping is essential.
The way interest, depreciation and borrowing costs are treated can differ depending on the finance structure and business use, and it can also be helpful to be familiar with general principles around tax deductions on business lending.
How to Choose the Right Equipment Finance for Your Business
If outright ownership, upfront GST credits, and maximum depreciation deductions matter most, a chattel mortgage is hard to beat. If you prefer lower upfront costs and the flexibility to upgrade or return equipment, a finance lease or operating lease may be the better fit. Hire purchase offers a middle ground — possession from day one, with ownership confirmed once the final payment lands.
The right choice comes down to your cash flow, your tax position, and how long you plan to keep the equipment. We recommend speaking with a finance specialist who can model the numbers for your situation — because the cheapest monthly repayment isn’t always the most cost-effective option overall.
Ready to find the right equipment finance solution? Our team can help you compare chattel mortgage, lease, and hire purchase options tailored to your business. Contact us today for a free, no-obligation consultation.
Disclaimer: The information provided is general in nature and does not take into account your personal objectives, financial situation or needs. Lending criteria, policies and assessment processes vary between lenders and may change at any time without notice. You should consider whether this information is appropriate for your circumstances and seek independent professional advice where necessary.
Frequently Asked Questions (FAQs)
With a chattel mortgage, you own the equipment from day one and the asset secures the loan. With a finance lease, the lender retains ownership and you make rental payments for use of the asset. The main practical differences are ownership, GST timing, and balance sheet treatment — a chattel mortgage lets you claim GST upfront, while a lease spreads GST credits across each payment.
It depends on your business structure. An equipment loan (such as a chattel mortgage) lets you claim depreciation and interest deductions, plus an upfront GST credit. A finance lease allows you to deduct the full payment as an expense. Both are legitimate — the best option aligns with your overall tax strategy, so it’s worth discussing with your accountant.
Yes. Under a chattel mortgage, you can claim the full GST credit on the purchase price in your next BAS. Under a finance lease, GST is included in each payment and claimed progressively. The total GST recovered is similar over time, but the timing differs — which can meaningfully affect your short-term cash flow.