Chattel Mortgage Explained, in Plain English
If you have ever financed a ute, a truck or a piece of machinery for a business, there is a good chance it was a chattel mortgage, even if nobody used the words. It is the workhorse of business asset finance in Australia.
Here is what it actually is, how the tax works, and how it stacks up against the other ways to fund an asset.
What a chattel mortgage actually is
A chattel mortgage is a loan to buy a business asset, the "chattel". You own it from day one, and the lender registers a security interest over it (on the PPSR) until the loan is paid out. You finance the full purchase price, so your cash stays in the business.
It is used mostly for vehicles and equipment that are used mainly for business: utes, trucks, trailers, tractors, headers and other machinery.
How the tax works
Because you own the asset, the tax treatment is generally favourable:
Depreciation. You can claim the decline in value of the asset over time.
GST. If you are registered for GST, you can usually claim the GST credit on the purchase price, often up front.
Interest. The interest portion of your repayments is generally deductible.
This is general information, not tax advice. Your accountant confirms what applies to your situation.
Chattel mortgage vs hire purchase vs lease
| Chattel mortgage | Hire purchase | Finance lease | |
|---|---|---|---|
| Who owns it | You, from day one | Lender, until final payment | Lender owns it |
| Claim depreciation | Yes | Yes | No (lessor does) |
| GST on purchase | Claim up front | Claim up front | Claimed on repayments |
| Balloon / residual | Optional | Optional | Residual required |
General comparison only. The right structure depends on your business and tax position.
Balloon payments, the trade-off
A balloon (or residual) is a lump sum left owing at the end of the term. Set one and your regular repayments drop, because you are paying off less along the way. The catch is you have to pay or refinance that lump at the end, so it is a cash flow lever, not free money. Balloons of around 20 to 40 percent are common on vehicles, lower on gear that depreciates fast.
Why it suits a seasonal business
I grew up on a wheat farm at Terry Hie Hie, so I am partial to the bit that matters most on the land: a chattel mortgage can be set up with repayments structured around your season, not a flat monthly schedule. For a grower whose income lands at harvest, that is the difference between finance that fits and finance that fights you.
Not sure which structure fits?
That is exactly what a broker is for. Have a quick, no-obligation chat and I will help you weigh up the structure, the tax and the repayments for your situation.
Book a free chatMatty Teague, Mortgage and Finance Broker, Powered by Flint. Credit Representative 573962. Flint Group Pty Ltd ACL 488313.
FAQs
What is a chattel mortgage?+
A chattel mortgage is a business loan used to buy a vehicle or equipment. You own the asset (the chattel) from day one, while the lender holds a security interest over it until the loan is repaid. It is one of the most common ways Australian businesses finance utes, trucks and machinery.
Who can use a chattel mortgage?+
Businesses, sole traders and primary producers with an ABN, where the asset is used mainly for business purposes. It is widely used by tradies, transport operators and farmers.
What is a balloon or residual?+
A balloon is a lump sum left owing at the end of the term. It lowers your regular repayments because you are paying off less of the loan along the way, but you have to pay or refinance that amount at the end. Balloons of around 20 to 40 percent are common on vehicles and lower on fast-depreciating plant.
What are the tax benefits?+
Because you own the asset, you can generally claim depreciation, claim the GST credit on the purchase price if you are registered, and deduct the interest on the loan. This is general information, not tax advice, so confirm the detail with your accountant.
Chattel mortgage or lease, which is better?+
It depends on whether you want to own the asset and how you want the tax and balance sheet to look. A chattel mortgage suits businesses that want ownership and the depreciation and GST benefits. A lease can suit those who prefer not to own and want the full payment treated as an expense. A broker helps you weigh it up.
Matty arranges vehicle and equipment finance for businesses and farms, and helps clients pick the structure that actually fits how they earn.
Farm & Equipment Finance