Chattel Mortgage from 4.99% p.a.

How a Chattel Mortgage Works

A chattel mortgage is a type of secured business loan where the "chattel" (moveable property, i.e., equipment) is used as security for the loan. The borrower takes full ownership of the equipment at the time of purchase, and the lender registers a security interest (mortgage) over the asset using the Personal Property Securities Register (PPSR). Once the loan is fully repaid, the lender removes the security interest, and you hold the asset free and clear.

This structure is fundamentally different from a lease arrangement where the finance company owns the equipment and you make rental payments. With a chattel mortgage, you are the legal owner from day one, which has significant implications for GST treatment, depreciation claims, and your balance sheet presentation.

Chattel mortgages are available for virtually any type of business equipment including vehicles, trucks, trailers, excavators, forklifts, medical equipment, manufacturing machinery, IT equipment, and commercial fitout. Both new and quality used equipment can be financed under a chattel mortgage.

GST and Tax Benefits of Chattel Mortgage

The headline benefit of a chattel mortgage for GST-registered businesses is the ability to claim the full GST input credit upfront. Because you purchase the equipment (with the loan providing the funds), the full GST-inclusive price generates an input credit on your next BAS return.

For example, if you purchase a truck for $110,000 (including $10,000 GST) via chattel mortgage, you can claim the $10,000 GST input credit on your next quarterly BAS. This effectively reduces your Day 1 cost by $10,000 and provides an immediate cash flow benefit.

Beyond GST, chattel mortgages offer two additional ongoing tax benefits. First, you can claim depreciation on the equipment over its effective life, reducing your taxable income each year. If the asset qualifies under the instant asset write-off provisions (which in the 2025-26 financial year allows businesses with aggregated turnover under $10 million to immediately deduct the full cost of eligible depreciating assets up to $20,000), the entire cost can be written off in the year of purchase.

Second, the interest component of your chattel mortgage repayments is tax-deductible as a business expense. Combined with depreciation, these deductions can significantly reduce the after-tax cost of equipment acquisition.

Balloon Payments Explained

One of the attractive features of a chattel mortgage is the option to include a balloon payment (also called a residual value). A balloon is a larger final payment due at the end of the loan term that reduces your regular monthly, fortnightly, or weekly repayments during the loan period.

For example, on a $100,000 chattel mortgage over 5 years at 6% p.a., monthly repayments without a balloon would be approximately $1,933. With a 30% balloon ($30,000), the monthly repayments drop to approximately $1,449 — a saving of $484 per month. At the end of the term, you have four options: pay the balloon in cash, refinance the balloon for another term, trade the equipment and use the proceeds to cover the balloon, or sell the equipment and settle the balloon.

Choosing the right balloon amount depends on the expected resale value of the equipment, your cash flow preferences, and your equipment replacement cycle. Our brokers can model different scenarios to help you find the optimal structure.

Chattel Mortgage vs Other Finance Structures

Choosing between a chattel mortgage, hire purchase, operating lease, and finance lease depends on your tax situation, cash flow needs, and preferences around ownership. A chattel mortgage is generally the best choice for GST-registered businesses that want ownership and upfront GST benefits. It offers the most flexibility in terms of balloon payments and is the most straightforward structure for tax purposes.

If you are not GST-registered (turnover under $75,000), a hire purchase may be more suitable as the GST advantage of a chattel mortgage does not apply. If you prefer to keep the equipment off your balance sheet and want 100% deductible payments, an operating lease might be better. Our finance specialists can recommend the optimal structure based on your specific business and tax circumstances.