If you're an ABN holder or business looking to finance a vehicle or piece of equipment, two products will come up again and again: chattel mortgage and finance lease. Both offer significant tax advantages. But they work very differently — and choosing the wrong one could mean you're leaving money on the table.

Here's a clear, jargon-free breakdown of both products and how to choose the right one for your business.

What is a Chattel Mortgage?

A chattel mortgage is the most popular business vehicle finance product in Australia. Despite the somewhat old-fashioned name, it's a straightforward concept: you own the asset from day one, and the lender takes a "mortgage" (security interest) over it until the loan is repaid.

Key features of a chattel mortgage:

  • Ownership: You own the vehicle immediately upon purchase
  • GST: You can claim the GST on the purchase price upfront in your BAS
  • Tax deductions: Interest charges and depreciation are both tax-deductible
  • Balloon payments: A residual (balloon) amount can be set to reduce monthly repayments
  • Flexibility: Loan terms from 1–7 years, with optional early repayment
  • Ideal for: Businesses that want to own the asset and maximise tax deductions
🏛️ GST benefit: On a $55,000 vehicle, a chattel mortgage allows you to claim approximately $5,000 in GST upfront in your next BAS — a significant cash flow advantage compared to a finance lease.

What is a Finance Lease?

A finance lease works differently. Instead of owning the asset, the finance company owns the vehicle and leases it to your business for an agreed term. At the end of the lease, you can purchase the vehicle at residual value, re-lease it, or return it.

Key features of a finance lease:

  • Ownership: The lender owns the vehicle; you have use of it
  • GST: No upfront GST claim — instead, GST is included in lease payments (which are deductible)
  • Tax deductions: Full lease payments are tax-deductible (not just interest)
  • Residual value: Set by the lender (ATO guidelines), not by you
  • At end of term: Option to buy, re-lease, or return
  • Ideal for: Businesses that prefer off-balance-sheet treatment or want fully deductible repayments

Side-by-Side Comparison

  • Ownership during loan: Chattel Mortgage = You | Finance Lease = Lender
  • GST on purchase: Chattel Mortgage = Claim upfront | Finance Lease = Claimed on repayments
  • Tax deduction: Chattel Mortgage = Interest + Depreciation | Finance Lease = Full repayments
  • Balloon/Residual: Chattel Mortgage = You set it | Finance Lease = Lender sets it (ATO guidelines)
  • Balance sheet: Chattel Mortgage = On balance sheet | Finance Lease = Can be off balance sheet
  • End of term: Chattel Mortgage = Full ownership | Finance Lease = Buy, re-lease or return

Which Should You Choose?

The honest answer is: it depends on your specific business situation. But here are some practical guidelines:

Choose a Chattel Mortgage if:

  • You're registered for GST and want to claim it upfront
  • You want clear ownership of the asset from day one
  • You want flexibility on the balloon/residual amount
  • You plan to keep the vehicle long-term
  • Your accountant prefers on-balance-sheet treatment

Choose a Finance Lease if:

  • You're not GST-registered (or prefer spreading the GST benefit)
  • You want fully deductible repayments (simpler for some accounting setups)
  • You prefer off-balance-sheet treatment
  • You cycle through vehicles regularly and like end-of-term flexibility

👔 Always Consult Your Accountant

While we can explain how each product works, the right choice depends on your specific tax situation, GST registration status, and business structure. Always confirm the decision with your accountant or tax adviser before proceeding.

What About Novated Lease?

A novated lease is a third option — most commonly used when an employer agrees to make lease payments on behalf of an employee from their pre-tax salary. This is a separate product that works under a salary packaging arrangement. If you're an employee wanting a tax-effective vehicle, this may be worth exploring with your employer's HR or a salary packaging provider.

How We Can Help

At Drive Select Finance, our brokers are experienced in structuring business vehicle finance across chattel mortgage, finance lease, and other products. We work with you (and your accountant if needed) to identify the most suitable structure — then go to market across our 30+ lender panel to find the best rate for that structure.