Chattel Mortgage Explained

What Is a Chattel Mortgage?

A chattel mortgage is a loan secured against a movable asset (called a "chattel"). The lender provides funds to purchase the asset, and the borrower takes ownership from day one. The lender holds a mortgage over the asset until the loan is repaid.

It's the most common way Australian businesses finance trucks, utes, equipment, and machinery. Think of it like a home mortgage — but for a business asset instead of property.

How a Chattel Mortgage Works

Choose your asset — new or used truck, ute, equipment, or machinery
Apply for finance — through a bank, lender, or finance broker
Lender pays the seller — the full purchase price (minus your deposit)
You own the asset immediately — registered in your name from settlement
Make regular repayments — fixed monthly payments over the loan term (typically 2–7 years)
Optionally set a balloon payment — a lump sum at the end to reduce monthly repayments
Mortgage is discharged — once you've repaid in full, the lender has no further claim on the asset

Ownership & GST

This is the key difference from leases: you own the asset from day one. That means:

The asset appears on your balance sheet
You can claim the full GST credit on the purchase price in your next BAS (if registered for GST)
You control the asset — modify, sell, or use it however your business needs

GST Example

Purchase a $110,000 (inc. GST) truck via chattel mortgage → claim $10,000 GST credit on your next BAS. This credit is available even though the lender paid for the asset — because you are the owner.

Tax Deductions

Chattel mortgages offer three key tax deductions:

1. Interest Deductions

The interest portion of every repayment is tax-deductible as a business expense. Over a 5-year loan at 7% on $100,000, that can total $18,000–$20,000 in deductible interest.

2. Depreciation

Because you own the asset, you can claim depreciation on it. The ATO allows various methods:

Prime cost (straight line) — equal deductions each year
Diminishing value — larger deductions in earlier years
Instant asset write-off — the full cost in one year (for eligible small businesses and eligible assets)

3. GST Credits

As noted above, the full GST on the purchase price is claimable in the quarter of purchase.

Balloon & Residual Payments

With a chattel mortgage, you can set a balloon payment (larger final payment) to reduce your monthly repayments. For example:

Scenario	Monthly Repayment	Balloon at End
$100K, 5yr, 7%, no balloon	$1,980	$0
$100K, 5yr, 7%, 30% balloon	$1,533	$30,000

Unlike finance leases, chattel mortgages have no ATO-mandated minimum balloon. You can set it anywhere from 0% to whatever your lender allows (typically up to 40–50%).

Who Does a Chattel Mortgage Suit?

GST-registered businesses who want to claim the upfront GST credit
Sole traders and partnerships who prefer to own assets outright
Businesses wanting to claim depreciation, including instant asset write-off
Operators who modify or customise assets (you own it, you can do what you want)
Businesses planning to keep the asset long-term

Pros & Cons

Pros	Cons
Own the asset from day one	Asset appears on balance sheet (affects borrowing capacity)
Claim full GST credit upfront	Responsible for all maintenance and running costs
Deduct interest + depreciation	Depreciation rules can be complex — consult your accountant
No ATO-mandated residual minimum	Balloon payment can be a cash flow surprise at end of term
Flexible term lengths (2–7 years)	Higher monthly repayments than some lease structures (without balloon)

Chattel Mortgage vs Other Structures

Not sure if a chattel mortgage is right? Compare it directly:

Frequently Asked Questions

Yes. Chattel mortgages are available to sole traders, partnerships, companies, and trusts — any entity using the asset primarily for business purposes.

You can sell the asset, but you'll need to repay the outstanding loan balance first (called "payout"). The lender will provide a payout figure that includes any early termination fees.

Yes. Chattel mortgages can finance both new and used assets. Lenders may apply age and condition limits — typically the asset should be no older than 12–15 years at the end of the loan term.