There is a quote sitting on your desk for a machine you have already decided to buy, and the dealer has sent through two finance documents. One is called a chattel mortgage. The other is a lease. The monthly repayments look close enough to be interchangeable, so it is tempting to sign whichever arrives first. They are not interchangeable. Ownership, GST timing and the way the asset sits on your balance sheet all shift depending on which one you choose, and you live with that decision for the next three to five years.
Short answer: With equipment finance, usually a chattel mortgage, your business owns the asset from the day it settles and the lender simply registers security over it. With a lease, the financier owns the asset and you pay for the right to use it, often with a purchase option at the end. The real differences sit in ownership, GST claiming and how deductions flow through your tax return, not in the repayment amount.
What is the difference between equipment finance and a lease?
Equipment finance transfers ownership to your business at settlement, with the lender holding a registered interest until the loan is repaid. A lease keeps title with the financier for the full term. You get use of the machine and a contractual pathway to buy it, but you do not own it while payments are running.
That single distinction drives almost everything else. Because a chattel mortgage puts the asset on your books, the machine appears in your accounts, you claim depreciation, and you claim the interest portion of each repayment. Under a lease, the payment itself is generally the deductible item and the asset sits with the financier until the residual is dealt with. Neither is inherently better. They suit different businesses, different accounting positions and different plans for the machine at the end of the term.
How do the main structures compare side by side?
Most commercial asset finance in Australia falls into four shapes: chattel mortgage, finance lease, operating lease and straight rental. Each treats ownership, GST and end-of-term differently. The table below sets out the practical differences a business owner tends to care about when comparing them.
| Feature | Chattel mortgage | Finance lease | Operating lease / rental |
|---|---|---|---|
| Who owns the asset during the term | Your business | The financier | The financier |
| Appears on your balance sheet | Yes, as an asset with matching liability | Usually, depending on your accounting standards | Often treated as an operating expense |
| GST on the purchase price | Generally claimable upfront in your next BAS if registered | GST generally applies to each rental payment | GST generally applies to each rental payment |
| What you usually deduct | Depreciation plus the interest component | The lease payment, subject to residual rules | The rental payment |
| End of term | You already own it, security is released | Pay the residual, refinance, or return the asset | Return, upgrade or extend |
| Common fit | Machines you intend to keep and work hard | Assets you may upgrade on a cycle | Short project needs or fast-obsoleting equipment |
Comparison is indicative only and simplified for general guidance. Tax and accounting treatment depends on your circumstances and your accounting standards. Confirm with your lender and your accountant before committing.
How does the tax and GST treatment differ?
Under a chattel mortgage, a GST-registered business can generally claim the GST on the purchase price in the BAS period the machine is acquired, then depreciate the asset and deduct interest. Under a lease, GST is usually spread across the rentals, and the payment itself is the deduction rather than depreciation.
For a business with a large GST liability in the current quarter, the upfront GST position of a chattel mortgage can be genuinely useful. For a business that wants a flat, predictable expense line with no depreciation schedule to manage, a lease can be simpler. Depreciation rules also interact with concessions that change from year to year, so it pays to read our explainer on the instant asset write-off before you settle on a structure. Your accountant is the right person to sign off on the final call. Nothing here is tax advice.
Which option is better for cash flow?
Cash flow depends less on the structure name and more on the term, the deposit and whether a balloon or residual is used. A lease with a high residual can produce a lower monthly payment than a fully amortised loan, but you carry a lump sum at the end. A chattel mortgage with no balloon costs more monthly and finishes clean.
A few practical points worth weighing:
- A larger balloon or residual lowers the monthly figure but increases the total interest paid across the term.
- Longer terms reduce the repayment but risk leaving you owing more than the machine is worth if you sell early.
- Seasonal or structured repayments can be available on some products, which matters if your income arrives in bursts.
- Rental and operating lease payments are an expense line rather than a debt you clear, so the machine never becomes an asset you can sell.
If you want to see how each of those levers moves the number, our machinery finance calculator guide walks through the arithmetic in plain terms.
When does a lease make more sense than a loan?
Leasing tends to suit businesses that upgrade on a set cycle, run equipment that dates quickly, or need a machine for a defined contract rather than for the long haul. It can also suit operators who would rather not carry the disposal risk when the asset comes off the books.
Ownership through a chattel mortgage generally suits operators who intend to run a machine well past the finance term. Earthmoving gear, tractors and heavy plant often stay productive for a decade or more, which makes paying rent on an asset you will never own harder to justify. If your machine is a long-term working asset, look first at equipment finance structures built around ownership.
What do lenders assess, regardless of structure?
Lenders look at broadly the same things either way: how long the business has been trading, its ABN and GST registration history, the credit profile of the directors, the age and type of the asset, and whether the sale is through a dealer or a private party. Structure choice rarely changes the assessment much.
What does change between lenders is appetite. Some are comfortable with older machines, private sales or newer ABNs. Others are not. With access to more than 80 lenders, a broker can match your circumstances to the credit policies most likely to fit rather than testing one policy at a time. If you are weighing that up, our article on using an equipment finance broker versus going direct to a lender covers the trade-offs, and the wider Machinery & Equipment Finance hub covers asset-specific detail.
Before you sign either document, get your accountant’s view on the tax position and get a broker’s view on the credit position. The two together usually make the answer obvious. TYG Finance is an FBAA member and an AFCA member, and our team can talk through both structures against your actual numbers. Call 1300 894 894 or get in touch with our team before the dealer’s paperwork deadline forces the decision for you.
Can I switch from a lease to a chattel mortgage partway through?
Not usually mid-term. You would generally need to pay out the lease, which may involve a break cost, then arrange new finance. It is far easier to get the structure right at the start, so raise it with your accountant before settlement.
Does a chattel mortgage affect my borrowing capacity for other lending?
It can. The liability appears on your balance sheet and other lenders will see the commitment. Rentals and some operating leases may be treated differently, though most credit assessors will still factor the ongoing payment into serviceability.
Is a residual the same thing as a balloon payment?
They work similarly in that both leave a lump sum at the end of the term, but the terminology differs by product. Balloon is the common term under a chattel mortgage, residual under a lease. Both increase total interest paid.
Can I finance used equipment under either structure?
Often yes, though asset age influences maximum term and lender appetite. Many lenders limit the age the machine can reach by the end of the term rather than at purchase, which is why older gear tends to attract shorter terms.
What happens if I want to sell the machine before the term ends?
Under a chattel mortgage you own it, so you can sell and pay out the loan, subject to any early payout figure. Under a lease the financier owns the asset, so a sale generally has to be arranged through them.