Your accountant says chattel mortgage. The finance desk at the dealership has quoted a hire purchase. Both agreements cover the same ute, both finish with the vehicle in your name, and the repayments sit close enough together that it is genuinely hard to see what you are being asked to choose between. The difference is not in the monthly figure. It sits in who holds legal title while you are paying the thing off, and in how the GST lands on your BAS.
Short answer: Under a chattel mortgage you own the asset from day one and the lender registers a security interest over it. Under a hire purchase, the financier owns it and hires it to you until the final payment. The main practical differences are GST timing, balance sheet treatment and early payout flexibility.
What is the actual difference between a chattel mortgage and hire purchase?
Ownership. With a chattel mortgage, the asset is yours the moment you buy it and the lender registers a security interest against it. With a hire purchase, the financier buys the asset and hires it to your business, and title only passes across once the last instalment has been paid.
“Chattel” is just an old legal word for movable property: a truck, a trailer, an excavator, a delivery van. The lender lends you the money, you buy the asset in your own name, and the lender protects itself by registering its interest on the Personal Property Securities Register. If you stop paying, that registration is what lets them recover the asset. A useful side effect is that anyone doing a PPSR check on your gear can see the encumbrance, which matters when you go to sell.
Hire purchase works the other way around. The financier is the legal owner for the life of the agreement. You have possession and use, you carry the running costs, and you pick up title automatically at the end. Hire purchase dominated Australian business asset finance for decades. Since 2012 it has become far less common, largely because of a GST change. If you want the longer background on the dominant structure, our companion piece on what a chattel mortgage is covers it in more detail.
How is GST treated under each option?
A chattel mortgage is treated as a straight purchase with a loan attached, so a GST registered business can generally claim the GST on the purchase price as an input tax credit in the BAS period the asset is acquired. The repayments themselves carry no GST, because interest is an input taxed financial supply.
Hire purchase used to be handled quite differently. For agreements entered into on or after 1 July 2012, the credit component became subject to GST, and the GST on the full agreement is generally claimable upfront rather than dribbled out across the repayment stream. That change stripped away most of the cash flow advantage hire purchase once held, particularly for businesses reporting GST on a cash basis, and it explains why most lenders quietly stopped promoting it.
Two things worth being blunt about here. First, your GST reporting method and your registration status both affect the outcome, so your accountant is the right person to confirm the specifics before you sign. Second, neither structure changes how much GST you pay in total. It changes when you get it back, which is a cash flow question, not a tax saving.
How do the two structures sit on your books?
In tax terms the two land in a similar place. Hire purchase is treated as a notional sale and loan, so the hirer generally claims depreciation on the asset and the interest portion of the repayments, much as a chattel mortgage borrower does. The real divergence is legal, not accounting: who can sell the asset, and who has to consent.
That distinction bites in the situations nobody plans for. Selling a piece of gear mid term is simpler when the title is already yours and you are dealing with a payout figure and a PPSR discharge. Under hire purchase you need the financier to release an asset it legally owns. Same with modifications, subletting equipment to another operator, or restructuring the entity that holds the asset.
Because you hold title from the outset under a chattel mortgage, the asset is on your balance sheet and the depreciation claim is yours, which is what makes the structure relevant to instant asset write-off planning. Thresholds and eligibility rules change, so check the current position before you commit to a purchase on that basis.
Chattel mortgage vs hire purchase: how do they compare side by side?
The table below sets out the practical differences most business owners actually care about. Features and ranges are indicative only and vary considerably between lenders, so treat this as a starting point for the conversation rather than a specification sheet.
| Feature | Chattel mortgage | Hire purchase |
|---|---|---|
| Who holds legal title during the term | You, from settlement | The financier, until the final payment |
| Lender’s security | Security interest registered on the PPSR | Retained title, also registered on the PPSR |
| GST on the purchase price | Generally claimable as an input tax credit in the BAS period of acquisition | Generally claimable upfront for agreements from 1 July 2012 |
| GST on the repayment stream | No GST on repayments | Credit component subject to GST for agreements from 1 July 2012 |
| Typical terms offered | 12 to 84 months | 12 to 60 months |
| Balloon or residual | Commonly available, often up to around 30% to 40% | Available as a final balloon instalment |
| Lender availability in Australia | Offered by most asset finance lenders | Offered by a smaller pool of lenders |
| Selling the asset mid term | Payout figure and PPSR discharge | Requires financier consent and a termination figure |
Figures and features above are indicative only and vary by lender, asset type and applicant profile.
Which businesses suit a chattel mortgage?
Most asset-backed operating businesses land on a chattel mortgage, and for good reason. If you are GST registered, want the input tax credit back early, want the asset on your own books, and want the freedom to sell or trade without a third party holding title, the structure lines up neatly with how you actually run the business.
It tends to be the natural fit for:
- Transport operators buying prime movers, rigids or trailers where fleet turnover is common
- Civil and construction businesses purchasing plant that may be sold or upgraded mid term
- Trades buying utes, vans and light commercials with high business use percentages
- Agricultural operators acquiring tractors, headers or handling equipment
- Any GST registered business that wants the input tax credit reflected in the next BAS
The flexibility on term and balloon also helps. Structuring the repayment around what the asset earns, rather than around a lender’s default template, is usually where the real value sits. Our article on balloon payments walks through how that lever works and where it can bite.
Is hire purchase ever the better choice?
Occasionally, yes. Some businesses prefer the financier to hold title for internal or governance reasons. Some accountants have a settled preference based on how a client’s books are structured. And a small number of specialist financiers and equipment vendors still write hire purchase agreements as their standard product, particularly on certain machinery lines.
What has changed is that hire purchase no longer wins on GST, which was its historic advantage. If someone is steering you toward it, ask them to explain the specific benefit in your circumstances. A good answer exists sometimes. A vague one usually means it is simply the product that lender happens to write.
What should you check before you sign either agreement?
Read past the repayment figure. The monthly number is the easiest thing to compare and the least informative. What determines whether the deal actually works for you sits in the terms and conditions, and in how the agreement behaves when your plans change.
- The total amount payable across the term, not just the periodic repayment
- Establishment and ongoing account fees, and whether they are capitalised
- Early payout terms and whether break costs or a termination figure apply
- Any balloon or residual amount, and what you intend to do with it
- Whether the interest rate is fixed for the full term
- Insurance requirements the lender imposes as a condition
Rates and terms vary based on the lender, the age and type of asset, the term you choose and your credit profile, so two quotes on the same truck can look quite different for reasons that have nothing to do with the structure you picked. You can see how TYG Finance approaches this on our business vehicle finance page, and there is more background across the Vehicle & Fleet Finance section of the Knowledge Centre.
Frequently Asked Questions
Can I switch from a hire purchase to a chattel mortgage partway through?
Not directly. You would generally need to pay out the hire purchase agreement, take title, and refinance the asset under a new chattel mortgage. That means a fresh credit assessment and possibly a termination figure on the original agreement. It can be worth modelling, but it is a new transaction rather than a conversion.
Does a chattel mortgage require a deposit?
Not always. Many lenders will consider financing the full purchase price for established businesses with a solid credit history, particularly on newer assets. Older assets, newer ABNs and private sales are more likely to attract a deposit requirement. It depends on the lender and how the application presents.
Which option gives me a better tax outcome?
In most cases the tax deductions land in a similar place, because hire purchase is treated as a notional sale and loan for tax purposes. The bigger difference is GST timing and legal ownership. Your accountant should confirm the position for your entity and reporting method before you sign anything.
Can I use a chattel mortgage for a vehicle I also drive privately?
Yes, provided the vehicle is predominantly for business use. Deductions are generally apportioned to the business use percentage, so accurate logbook records matter. Lenders will also want to see that the purpose of the finance is genuinely commercial rather than personal.
Are both options available for used equipment?
Generally yes, though asset age affects what lenders will consider. Older assets often attract shorter maximum terms, a deposit requirement, or a smaller pool of willing lenders. A valuation or inspection may be requested on private sales and higher value used plant.
Still weighing up the two? Send your numbers through the TYG Finance contact page or ring 1300 894 894, and we will walk through what each structure would look like against the actual purchase you have in front of you.