Four Potential Tax Outcomes to Check
A chattel mortgage can produce different GST and income-tax outcomes, but none is automatic. Registration, business use, the asset, purchase contract, accounting method and legislation applying in the relevant income year all matter.
A credit may be available for the creditable business-use portion, subject to tax-invoice and car-limit rules.
The interest on every repayment is potentially deductible, subject to current tax law and the taxpayer’s circumstances each financial year.
Claim annual depreciation of the asset under ATO effective life rules.
A proposed permanent $20K threshold for 2026–27 was still before Parliament on 11 August 2026.
Key point: Finance structure does not create a tax entitlement by itself. Use the contract and current law to establish ownership, creditable use, deductions and timing.
1. GST Input Tax Credit
If the purchase is a creditable acquisition, a GST-registered business may claim the creditable business-use portion through its BAS. The available amount can be reduced by private use, the GST car limit, the absence of GST on a private sale or other exceptions.
How Much?
For a fully creditable, GST-inclusive acquisition with no relevant cap, the simplified calculation is purchase price ÷ 11. The examples below assume 100% creditable business use and do not model the car limit.
| Asset Price (inc. GST) | GST Credit | Net Cost to Business |
|---|---|---|
| $33,000 | $3,000 | $30,000 |
| $55,000 | $5,000 | $50,000 |
| $110,000 | $10,000 | $100,000 |
| $220,000 | $20,000 | $200,000 |
When Is the Credit Attributed?
The BAS period depends on your GST accounting basis, when consideration is provided, when an invoice is issued and the normal attribution rules. A finance settlement date does not by itself determine the BAS period. Confirm the tax invoice and attribution timing with your registered tax adviser.
Under a finance lease, eligible credits generally follow GST included in taxable lease charges under the normal attribution rules. A residual purchase is a separate transaction.
For more on this benefit, see the full GST guide.
2. Interest Deduction
Every repayment you make has two components: principal (loan balance repayment) and interest (the cost of borrowing). The interest component is potentially deductible, subject to current tax law and the taxpayer’s circumstances as a business expense.
How It Works
On a 5-year chattel mortgage at 7.5% p.a., the interest content of your repayments is highest in year one and reduces each year as the loan balance falls. Your lender provides an annual interest statement.
| Year | Deductible Interest (on $100K, 7.5%, 5yr) |
|---|---|
| Year 1 | ~$6,800 |
| Year 2 | ~$5,600 |
| Year 3 | ~$4,200 |
| Year 4 | ~$2,800 |
| Year 5 | ~$1,200 |
| Total | ~$20,600 deductible over 5 years |
*Indicative only. Exact figures depend on rate, term, balloon and payment frequency. Ask your lender for an interest schedule.
The cash value of any allowed interest deduction depends on the entity's taxable position, tax rate, timing and business-use percentage. Do not add a GST credit and nominal tax deductions together as if they were equivalent cash savings.
3. Depreciation
Because the borrower owns the asset, it may be entitled to claim decline in value when the asset is used for a taxable purpose and the current rules are met. The depreciable cost, method, effective life, start date and business-use percentage all matter.
Two Methods
Can produce larger deductions in earlier years. The applicable formula and start date depend on current law and the asset's effective life.
Claim equal amounts each year over the asset's effective life. More predictable. ATO rate = 100% ÷ effective life.
Illustrative Effective-Life Inputs — Verify Before Use
Asset descriptions and effective lives can be more specific than these broad labels. Use the current ATO effective-life determination for the exact asset and acquisition date; do not copy this table into a tax return without verification.
| Asset | ATO Effective Life | DV Rate p.a. |
|---|---|---|
| Motor vehicle (new) | 8 years | 25% |
| Heavy truck | 7.5 years | 26.67% |
| Forklift | 10 years | 20% |
| Excavator / earthmoving | 12 years | 16.67% |
| Computer / IT equipment | 4 years | 50% |
Important: You always depreciate the ex-GST cost — not the GST-inclusive price. If you paid $110,000 for a vehicle and claimed $10,000 GST back, you depreciate $100,000.
4. $20,000 Instant Asset Write-Off — Bill Status
The enacted $20,000 extension applied through 30 June 2026. The 2026–27 Budget proposes a permanent threshold from 1 July 2026, but the relevant bill remained before Parliament when this page was reviewed on 11 August 2026.
Proposed 2026–27 Rules — Not Yet Law
Historical 2025–26 Example
A business bought and first used a $19,800 (ex-GST) trailer on or before 30 June 2026. If it satisfied the enacted 2025–26 eligibility rules:
- A potential GST credit would depend on the acquisition being creditable
- The eligible business-use portion could be immediately deducted in 2025–26
- The cash value of a deduction depends on the entity's taxable position and tax rate
- Eligible business-use interest may be deductible over the finance term
Do not treat the Budget announcement as enacted law: for assets first used from 1 July 2026, check the Parliament bill tracker and current ATO guidance before relying on the proposed threshold.
Read the current status guide: $20K Instant Asset Write-Off — Proposal and Bill Status
Worked Planning Example
A construction business finances a $110,000 (including $10,000 GST) heavy truck over five years at an assumed 7.50% p.a. with no deposit, balloon or fees. The truck is assumed to be used 100% in creditable, income-producing activities.
| Planning item | Amount | When |
|---|---|---|
| Maximum simple GST illustration | Up to $10,000 | Relevant BAS period under attribution rules |
| Total scheduled interest over five years | ~$22,250 | Eligible business-use interest considered as incurred |
| Depreciable cost and method | Not determined by the finance contract | Tax adviser confirms cost, effective life, method and start date |
| Cash tax outcome | Not calculated | Depends on taxable position, tax rate and allowed deductions |
Repayment interest is rounded and excludes fees. The GST illustration assumes the acquisition is fully creditable and no special limit applies. Always confirm with a registered tax adviser.
Model Your Scenario in the Calculator →How Chattel Mortgage Compares: Tax Treatment
| Tax Benefit | Chattel Mortgage | Finance Lease |
|---|---|---|
| GST | An eligible credit may be available upfront to the creditable business-use extent | Eligible credits may arise with lease payments |
| Interest or payments | Eligible business-use interest may be deductible | The eligible business-use portion of payments may be deductible |
| Depreciation | The business may claim eligible depreciation as owner | The lessor generally claims tax depreciation |
| Accounting treatment | Usually recognised as an asset and liability | Contract and AASB 16 treatment must be assessed |
| Instant write-off | May be available only if the law and every eligibility test are met | Generally not claimed by the lessee as non-owner |
For a detailed breakdown: Chattel Mortgage vs Finance Lease — full comparison →
Who Can Claim These Tax Benefits?
Potential treatment depends on the entity, asset, structure and business-use evidence. Confirm the outcome against current law.
Eligible deductions may be claimed through the relevant return, with private use apportioned. See the sole trader guide.
The asset must be used primarily for business (>50%). Mixed-use assets: deductions are apportioned.
The upfront GST credit requires GST registration. Interest and depreciation deductions are available regardless.
Frequently Asked Questions
A GST-registered business may claim the creditable business-use portion if the acquisition satisfies the GST rules. The available credit may be reduced by private use, car-limit rules or the absence of GST on the transaction. Confirm the tax invoice and BAS attribution with a registered adviser.
Yes. The interest component of every repayment is potentially deductible, subject to current law and circumstances as a business expense. Your lender will provide an annual interest statement for tax time. The principal component is not deductible.
The enacted $20,000 extension ended on 30 June 2026. A permanent threshold from 1 July 2026 is proposed but was not law when this page was reviewed on 11 August 2026. Confirm the legislation in force and every eligibility test before claiming an immediate deduction.
You depreciate the ex-GST cost. Because you claimed the GST back via your BAS, the net cost to your business is the ex-GST price — and that's what you depreciate. This avoids double-counting the GST benefit.
For most businesses, the diminishing value (DV) method is better because it gives larger deductions in the early years when the asset is new and most valuable. Ask your accountant which method suits your situation — it depends on your income profile and tax position.
Yes. Sole traders claim the same deductions — GST on the BAS, interest and depreciation on the tax return. The key difference from a company is that deductions are offset against individual taxable income. See the sole trader guide for full details.
A balloon payment (residual) reduces your monthly repayments but doesn't change your tax position significantly. You still claim interest on the full loan amount, and you depreciate the full ex-GST cost of the asset regardless of whether there's a balloon. See the balloon payment guide.