The Four Tax Benefits of a Chattel Mortgage
A chattel mortgage is the most tax-effective way for most Australian businesses to finance a vehicle or piece of equipment. The reason? You get four separate tax advantages — all at once.
Claim 1/11th of the purchase price back on your next BAS — in one hit.
The interest on every repayment is fully tax deductible each financial year.
Claim annual depreciation of the asset under ATO effective life rules.
Eligible businesses can write off the full cost in year one — no depreciation schedule needed.
📌 Key point: Benefits 1 and 4 are immediate cash-flow events. Benefits 2 and 3 are annual deductions. A good broker and accountant will help you time purchases to maximise each one.
1. GST Input Tax Credit
If your business is registered for GST, you can claim back the full GST component of the asset purchase price on your next Business Activity Statement (BAS). This happens in one lump sum — not spread over the loan term.
How Much?
The formula is simple: GST credit = purchase price ÷ 11
| 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 Do You Get It?
You claim it on your next BAS after settlement. The ATO processes BAS within 28 days, so the credit typically arrives within 1–3 months of purchase. On a $110,000 vehicle, that's $10,000 back in your account — real cash, fast.
Compare this to a finance lease, where GST is claimed over the repayment period — one small amount per payment instead of a lump sum upfront.
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 fully tax deductible 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.
At a 30% tax rate, that $20,600 of interest translates to roughly $6,180 in tax saved over the loan term — on top of the GST credit and depreciation.
3. Depreciation
Because you own the asset from day one under a chattel mortgage, you also claim depreciation. Depreciation is a non-cash deduction — you don't spend extra money, but you get an additional tax deduction each year that the asset declines in value.
Two Methods
Claim a higher percentage in early years — better for cash flow. ATO rate = 200% ÷ effective life. Most popular for businesses.
Claim equal amounts each year over the asset's effective life. More predictable. ATO rate = 100% ÷ effective life.
ATO Effective Life — Common Assets
| 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 (2026)
The instant asset write-off allows eligible small businesses to deduct the full cost of an asset in the year of purchase — bypassing the normal depreciation schedule entirely.
Current Rules (2026–27 Budget)
Example
Your business buys a $19,800 (ex-GST) trailer on a chattel mortgage in June 2026. Under the $20K write-off:
- GST credit of $1,980 back on your next BAS
- Full $19,800 written off as a deduction in FY2026
- At 25% tax rate, that's a $4,950 tax reduction in year one
- Plus interest deductions in future years
⚠️ Each asset separately: The $20K threshold applies per asset — not total spend. You can claim multiple assets under the write-off in the same year, as long as each individual asset costs under $20,000 (ex-GST).
Read the full guide: Instant Asset Write-Off 2026 — AFA Guide
Full Worked Example
Let's put it all together. A construction business finances a $110,000 (inc. GST) ute on a 5-year chattel mortgage at 7.5% p.a. with no balloon.
| Tax Benefit | Amount | When |
|---|---|---|
| GST credit (1/11th × $110,000) | $10,000 | Next BAS (within ~28 days) |
| Total interest deductions over 5 years | ~$20,600 | Each tax return (years 1–5) |
| Depreciation DV over 5 years (8yr effective life) | ~$75,000+ | Each tax return (ongoing) |
| Cash value at 30% tax rate | ~$28,700+ net benefit | Over loan term |
*Indicative only. Actual figures vary. Always confirm with your accountant.
Model Your Scenario in the Calculator →How Chattel Mortgage Compares: Tax Treatment
| Tax Benefit | Chattel Mortgage | Finance Lease |
|---|---|---|
| GST | Claimed upfront in full | Spread over repayments |
| Interest | Fully deductible | Implicit in lease payments |
| Depreciation | Yes — you own the asset | No — lender owns it |
| Lease payments | Not deductible | 100% deductible |
| Instant write-off | Yes (if eligible) | No |
For a detailed breakdown: Chattel Mortgage vs Finance Lease — full comparison →
Who Can Claim These Tax Benefits?
Full access to all four tax benefits. Tax savings are against company or trust tax rate.
Full access to all four benefits. Deductions claimed on personal tax return. See 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
Yes — if your business is GST-registered. You claim 1/11th of the purchase price as an input tax credit on your next BAS, in full, upfront. For a $110,000 vehicle that's $10,000 back on your next BAS.
Yes. The interest component of every repayment is fully deductible as a business expense. Your lender will provide an annual interest statement for tax time. The principal component is not deductible.
Yes. If your turnover is under $10 million and the asset costs under $20,000 (ex-GST), you can write off the full cost immediately — instead of depreciating it over several years. This is in addition to the GST credit.
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.