Chattel Mortgage, Explained

The chattel mortgage is the default equipment finance product for owner-operated Australian SMEs in 2026. It puts you in the position of legal owner from day one, lets you claim GST up front, and treats the asset as yours for depreciation and write-off purposes. This guide walks through how it works, why it has largely replaced hire purchase, and when a different structure fits better.

How it works in practice

In a chattel mortgage, the lender advances funds to the supplier and you take delivery of the asset as the legal owner. The lender registers a security interest over the asset on the PPSR. You make scheduled repayments of principal and interest over the term, often with a balloon at the end. Once the final payment is made, the lender removes the PPSR registration. There is no end-of-term ownership decision: you already own it.

The structure is documented as a goods mortgage, similar in legal mechanics to a residential mortgage but secured against a movable asset rather than real property. Most modern Australian lenders use a standard form that allows balloons, deposits, and variable or fixed rates.

GST treatment

The full GST on the purchase price of a chattel mortgage asset is claimable up front, in the BAS period the asset is acquired. For a $50,000 (GST-inclusive) piece of equipment, that is $4,545.45 of input tax credit available on the next BAS. The repayments themselves are split into principal and interest components for tax purposes, with no GST on the repayment.

By contrast, an operating lease or finance lease has GST charged on each lease payment, claimable as you go. For a business that needs the GST refund up front (cashflow timing), chattel mortgage is the structure.

Depreciation and the instant asset write-off

Because you are the tax owner, you claim depreciation on the asset using the relevant ATO effective life (or the simplified depreciation method if you are a small business entity). Interest paid on the chattel mortgage is also deductible. For SMEs with aggregated turnover under $10 million, eligible assets first used or installed by 30 June 2026 can be fully written off under the $20,000 instant asset write-off threshold.

The interaction between immediate write-off and the financing structure is important. The write-off applies to the cost of the asset, not the financing arrangement. So a $19,000 piece of equipment financed under a chattel mortgage gives you both the cash-flow benefit of financing and the tax benefit of the immediate full write-off in the year of purchase.

A worked example

Chattel mortgage vs hire purchase

Hire purchase used to be the dominant SME equipment finance product. The mechanics: the lender owns the asset during the term, title transfers at the final payment. For tax purposes, hire purchase is treated as a purchase from day one (you depreciate the asset and claim interest), but for legal title purposes you do not own it until end of term.

Chattel mortgage simplifies this by giving you legal ownership from day one alongside the existing tax-ownership treatment. The cash-flow and tax outcomes are essentially identical between the two products. Hire purchase still exists for specific situations (some lenders prefer it for new entities, some asset classes), but for most SMEs in 2026 chattel mortgage has replaced it.

When chattel mortgage is not the right fit

• You will replace the asset before end of useful life: Operating lease usually wins because you avoid the disposal risk. Most IT equipment fits here.
• You want the asset off the balance sheet (within AASB 16 limits): Operating lease with a term under 12 months can stay off-balance.
• Your accountant has flagged that lease payments are deductible at a rate that suits your tax position better: Worth modelling both before deciding.