The Core Difference
When you buy an asset (using cash or a chattel mortgage), you own it. You get the depreciation, the equity — and the risk that it loses value. When you take an operating lease, you rent the asset for a fixed period and return it at the end. The lessor carries the residual value risk.
The right choice depends on how you use the asset, how quickly it becomes obsolete, and whether cash flow or equity matters more to your business.
Side-by-Side Comparison
| Factor | Buying (Chattel Mortgage) | Operating Lease |
|---|---|---|
| Ownership | You own from settlement | Lessor owns; you return at end |
| Balance sheet | Asset + liability on books | Expense only (pre-AASB 16) |
| Monthly cost | Higher (full asset value) | Lower (only usage cost) |
| GST treatment | Eligible upfront credit may be available | Eligible credits may arise with payments |
| Tax deduction | Depreciation + interest | eligible business-use portion may be deductible |
| Residual risk | You bear it | Lessor bears it |
| Flexibility | Locked in; sell to exit | Return at end; upgrade easily |
| End of term | You own a depreciating asset | Walk away or lease new |
When an Operating Lease Wins
- Technology assets — vehicles and equipment that become obsolete quickly (e.g., Euro 6 truck engines replacing Euro 5)
- Project-based work — you need the asset for a specific contract, not forever
- Cash flow priority — lower monthly payments preserve working capital
- Fleet rotation — companies that replace vehicles every 3–5 years anyway save on disposal costs
- Maintenance bundling — some operating leases include servicing, making total cost predictable
- Accounting profile — the contract must be assessed under the entity's reporting framework; AASB 16 generally recognises a right-of-use asset and lease liability for lessees, subject to exemptions
When Buying Wins
- Long-term use — if you'll keep the asset for 10+ years, owning avoids paying perpetual rental fees
- Residual-value exposure — ownership lets you retain sale proceeds, but you also bear the downside if condition, demand or technology reduces resale value
- Depreciation treatment — an owner may claim eligible depreciation; an immediate write-off is available only when legislation in force and every eligibility test are met
- Customisation — heavy modifications are easier when you own the asset (lessors may restrict modifications)
- Emotional/strategic preference — many owner-drivers prefer to build equity in their fleet
Total Cost Example
$150,000 Truck Over 5 Years
Chattel Mortgage (6.9%, 30% balloon):
Monthly repayments: ~$2,225
Total paid over 5 years: ~$133,500 + $45,000 balloon = $178,500
Asset value at end: ~$60,000–$80,000
Net cost after resale: ~$98,500–$118,500
Operating Lease (same truck):
Monthly lease: ~$2,800 (includes maintenance)
Total paid over 5 years: ~$168,000
Asset value at end: $0 (returned)
Net cost: $168,000
In this example, buying is cheaper if the truck resells for $60K+ — but the operating lease eliminates resale risk and maintenance headaches.
AASB 16 & Balance Sheet Impact
Since 2019, AASB 16 requires most leases (including operating leases) to be recognised on the balance sheet for reporting entities. This means the traditional "subject to contract-specific accounting" advantage of operating leases has diminished for companies that report under Australian Accounting Standards.
However, for small businesses using simplified reporting, operating leases may still be treated as expenses without balance sheet recognition. Check with your accountant whether AASB 16 applies to your business.
Frequently Asked Questions
Some operating leases offer a purchase option at end of term, but it's not guaranteed. If buying at end is important, a finance lease (which always includes a purchase option) may be more suitable.
It depends. Eligible business-use interest and depreciation may be deductible under ownership finance, while eligible business-use lease payments may be deductible under a lease. Any immediate write-off depends on legislation in force and all eligibility tests.
You're responsible for maintaining the asset in good condition. At return, the lessor will assess wear and tear. Excess damage results in an end-of-lease charge. Comprehensive insurance covers major damage, but cosmetic wear may still incur fees.
Compare Buy vs Lease in Numbers
Our calculator models Chattel Mortgage, Finance Lease, and Operating Lease side-by-side with tax deductions and total cost.
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