Chattel Mortgages Explained: GST, Depreciation & Cash Flow for ABN Holders

For Australian business owners, choosing how to finance a vehicle or piece of equipment can have a significant impact on tax, GST and cash flow. One structure stands out for its simplicity and tax efficiency: the chattel mortgage. It is the most popular form of business asset finance in Australia, used by sole traders, partnerships, companies and trusts alike.

At Asset Finance Partners, we specialise in structuring chattel mortgages that help ABN holders keep cash in the business while maximising the benefits available to them.

Make your next business asset work harder at tax time. Talk to Asset Finance Partners about a chattel mortgage today.

What Is a Chattel Mortgage?

A chattel mortgage is a business loan used to purchase a moveable asset, or "chattel", such as a vehicle, truck, machinery or equipment. You take ownership of the asset from the day of purchase, and the lender registers a mortgage over it as security until the loan is repaid.

How it works

• The lender advances funds to purchase the asset.

• You own the asset immediately and it appears on your balance sheet.

• The lender holds security over the asset until the final repayment.

• You make regular repayments over a fixed term, typically one to seven years.

• An optional balloon payment can reduce regular repayments.

Who Is Eligible?

Chattel mortgages are designed for business use. Typical lending criteria include:

• An active ABN, with GST registration usually required to claim GST credits

• The asset used more than 50% for business purposes

• Recent BAS statements, financials or bank statements, although low-doc options exist

• A satisfactory credit history for the business and its directors

The Tax and GST Advantages

1. Claim GST upfront

Because you own the asset from day one, GST-registered businesses can generally claim the full GST credit on the purchase price in the BAS period the asset is acquired, rather than spreading it over the term. On a $110,000 truck, that can mean up to $10,000 back in your next BAS, an immediate cash flow boost.

2. Depreciation deductions

As the owner, you can claim depreciation on the business-use portion of the asset. Eligible small businesses may also access the instant asset write-off.

3. Interest deductions

The interest component of your repayments is generally tax-deductible to the extent the asset is used for business. Interest is input-taxed, so it carries no GST.

4. Instant asset write-off

The 2026-27 Federal Budget announced that the $20,000 instant asset write-off would be made permanent from 1 July 2026 for businesses with aggregated turnover under $10 million. It applies per asset, and the full cost of the asset must be below the threshold. Confirm the current legislative status and your eligibility with your accountant.

Know the Limits: Car Limit and GST Cap

For passenger vehicles, the ATO caps the amount you can claim:

• Car limit for 2026-27: $69,883. Depreciation on a passenger car is calculated on no more than this amount.

• Maximum GST credit: one-eleventh of the car limit, or $6,353 for 2026-27.

• Luxury car tax: cannot be claimed as a GST credit, even for business use.

• Business-use apportionment: GST credits and depreciation are limited to the business-use percentage.

Commercial vehicles such as utes with a payload of one tonne or more, vans designed to carry goods, and trucks are generally not subject to the car limit. This is one reason they are popular with tradies and fleet operators.

Chattel Mortgage vs Other Finance Options

Chattel mortgage

• You own the asset from day one

• GST credit generally claimed upfront

• Depreciation and interest may be deductible

• Best for: most GST-registered businesses buying vehicles or equipment

Finance lease

• The lender owns the asset

• GST is charged on each lease payment

• Lease payments may be deductible

• Best for: businesses wanting off-balance-sheet flexibility or regular upgrades

Hire purchase

• Ownership transfers on the final payment

• Tax treatment broadly similar to a chattel mortgage for many businesses

• Best for: businesses wanting fixed terms with eventual ownership

Using a Balloon Payment Strategically

A balloon, or residual, payment is a lump sum due at the end of the term. It lowers your regular repayments, freeing up monthly cash flow. Many businesses set the balloon close to the asset's expected resale value, so it can be refinanced or covered by trading the asset in. Lenders typically cap balloons based on the asset type and loan term.

Common Assets Financed with a Chattel Mortgage

• Business cars, utes and vans

• Trucks, trailers and prime movers

• Fleet vehicles for growing businesses

• Construction and earthmoving machinery

• Agricultural equipment

• Medical, manufacturing and technology equipment

Supporting ABN Holders Across Australia

We help sole traders, tradies, companies and trusts in Sydney, Melbourne, Brisbane, Perth and Adelaide, as well as regional business hubs including Newcastle, Wollongong, Geelong, Toowoomba and the Gold Coast.

Get the Structure Right from Day One

A well-structured chattel mortgage can improve cash flow, sharpen your tax position and help your business grow. Asset Finance Partners will compare options across our lender panel and work alongside your accountant to find the right fit. Contact our team today.

This article is general information only and does not take into account your personal circumstances. Speak with your accountant or tax adviser before making financial decisions.