Chattel mortgage: how it works for Australian businesses, GST and the lease question

A chattel mortgage is a loan a business uses to buy a vehicle or piece of equipment, with the asset itself as security. “Chattel” is an old legal word for movable property. You take ownership at settlement, the lender records its interest on the Personal Property Securities Register, and that interest is removed once the loan is paid off.

In practice, the chattel mortgage is the workhorse of Australian vehicle and equipment finance. business.gov.au describes it as similar to hire purchase, except that the business owns the asset from the start. That single difference — ownership from day one — drives most of what makes it attractive: GST timing, depreciation and the freedom to treat the asset as yours.

How does a chattel mortgage work?

A chattel mortgage works like a secured loan with the asset as collateral:

1. You choose the vehicle or equipment and agree a price with the dealer or seller.
2. The lender assesses you and the asset, then pays the seller directly at settlement.
3. You take ownership; the lender registers a security interest over the asset on the PPSR.
4. You repay over an agreed term — typically monthly — with or without a balloon at the end.
5. When everything is paid, the lender’s registration is removed and the asset is unencumbered.

Pricing is usually fixed for the term, so repayments are predictable. You can generally choose a deposit, a trade-in, or no deposit at all, depending on the lender, the asset and your profile.

How does chattel mortgage GST work?

Chattel mortgage GST works on the purchase, not the repayments. Because you’re buying the asset, the GST included in the price is part of a purchase, and a GST-registered business can generally claim it as a credit — in proportion to how much the asset is used for business.

For cars there’s a ceiling. The ATO caps the GST credit on a car at one-eleventh of the car limit, which for 2026–27 means a maximum credit of $6,353 (one-eleventh of $69,883). Trucks, heavy vans and most equipment aren’t subject to the car limit in the same way, so check with your accountant how your particular vehicle is classified.

The finance itself is different. Under ATO rules, lending money is an input-taxed financial supply, so the interest and loan charges on a chattel mortgage don’t include GST, and there’s no credit to claim on them.

Chattel mortgage vs lease: which is better?

Neither is better in general; they suit different goals. The core difference is ownership, and the rest follows.

	Chattel mortgage	Finance lease	Novated lease
Who owns the asset	You, from day one	The financier	The financier; the employee uses the car
GST	Credit on the purchase price, if registered	GST in each lease payment, claimed per payment	Handled through the employer’s salary packaging
Tax	Depreciation plus interest deduction, generally	Lease payments generally deductible	Salary-packaging arrangement
End of term	Pay any balloon; asset is yours	Pay the residual, refinance or return	Pay the residual or refinance
Best for	Businesses keeping the asset long-term	Businesses upgrading regularly	Employee vehicles

The ATO confirms that if you lease a car, you may be able to claim a GST credit for the GST in each lease payment, and that those credits aren’t limited to one-eleventh of the car limit. For an expensive car, that can make a lease look more attractive on GST alone — but it’s only one part of the comparison. Your accountant is the right person to run the full numbers.

Who suits a chattel mortgage?

It suits GST-registered businesses buying an asset they intend to keep and use mainly for business. Typical buyers include:

• tradies buying utes, vans and trailers;
• transport operators financing prime movers and rigid trucks (see truck finance);
• earthmoving, agricultural and manufacturing businesses buying plant;
• professionals financing a car used mostly for work (see business car loans);
• medical, dental and hospitality businesses buying equipment.

It suits less well if you upgrade every two or three years, if the asset is mainly for private use, or if the business isn’t registered for GST and therefore can’t claim the purchase credit.

Want to know whether a chattel mortgage or a lease fits your purchase better? Ask a specialist — there’s no credit check when you first make contact.

How does a balloon payment change the picture?

A balloon is an agreed lump sum left owing at the end of the term. It lowers every regular repayment, which helps cash flow, but it doesn’t make the asset cheaper: you pay interest on the balloon amount for the whole term and still owe it at the finish.

A balloon works well when you’re confident the asset will be worth at least the balloon amount at the end — common with popular vehicles — so you can sell or trade it to clear the debt. It works badly when the asset depreciates faster than expected, leaving you with a payout bigger than the asset’s value. Keep the balloon realistic and plan for it from day one.

Illustrative example: a plumber’s new van

Purely illustrative, no real business: a GST-registered plumbing business buys a new van for $66,000 including $6,000 of GST, used solely for business. It finances the full $66,000 on a chattel mortgage over five years with a small balloon.

The van is rated to carry a load of one tonne or more, so under the ATO’s definition it isn’t a “car” and the car limit doesn’t apply. The business’s accountant confirms this, and the full $6,000 GST credit is claimed on the next BAS. Monthly repayments contain no GST because they’re loan repayments. The van costs more than the $20,000 instant asset write-off threshold, so it goes into the small business depreciation pool. At the end of the term, the business pays the balloon from cash reserves and owns the van outright.

Can you use a chattel mortgage for a used or private-sale vehicle?

Yes. Chattel mortgages are regularly written on used vehicles and equipment from dealers, and many lenders also fund private sales. Private purchases need a few extra steps, because there’s no dealer standing behind the transaction:

• a PPSR search on the VIN or serial number to confirm no earlier financier still has a registered interest — if one does, it’s paid out from the loan at settlement;
• proof the seller owns the asset, such as registration papers matched to their ID;
• sometimes an inspection or valuation, especially for older or high-value items.

Lenders may limit the term on older assets so the loan finishes while the vehicle still has a sensible resale value. GST is another wrinkle: a private seller who isn’t registered for GST doesn’t charge it, so there’s no GST credit to claim on that purchase. Factor that into your sums before comparing a private deal with a dealer one.

What should you check before signing?

• Total cost in dollars across the term, including fees and the balloon.
• Early payout terms — whether future interest is rebated and what fees apply.
• The balloon amount compared with a realistic future value.
• Insurance requirements — most lenders require comprehensive cover with their interest noted.
• Business-use percentage and the records you’ll keep to support GST and tax claims.

For the broader view of funding business assets, see equipment finance, equipment and vehicle funding and our explainer on the PPSR. For how a chattel mortgage sits beside every other option, visit the business loans hub.

Ready to drive away with the right structure?

If you’ve found the vehicle or equipment and want the finance to match how your business runs, we can help. See what you could qualify for with a 60-second enquiry. There’s no credit check to start, your file stays with us instead of being circulated to every financier in town, and a specialist — an actual person — sorts out the right structure with you. Accurate details about the asset, price and business use mean we can get it right first time.