If you’re buying a ute, truck or a big piece of gear for the business, the finance structure you choose matters almost as much as the price you negotiate. The three options most tradies weigh up — a chattel mortgage, a lease, and hire purchase — all get you the asset and spread the cost, but they treat ownership, GST and tax deductions very differently. Pick the wrong one and you can tie up cash flow or miss deductions you were entitled to.
This guide breaks down chattel mortgage vs lease vs hire purchase in plain terms, with an Australian tradie’s situation in mind, so you can walk into the dealership (or the equipment yard) knowing which structure actually fits how you run your books.
The 30-second version
A chattel mortgage means you own the asset from day one and the lender takes security over it until you’ve paid it off. A lease means the financier owns the asset and you pay to use it, with a decision to make at the end of term. Hire purchase sits in between — you hire the asset and ownership transfers to you once the final payment is made. For most tradies who are GST-registered and use the vehicle mainly for work, a chattel mortgage is the popular default, but it isn’t automatic — leasing can win on cash flow, and the right answer depends on your accounting method and how long you’ll keep the asset.
How a chattel mortgage works
With a chattel mortgage, the lender advances the funds, you buy the asset and take ownership immediately, and the lender registers an interest over the “chattel” (the vehicle or equipment) as security. You make fixed repayments over a set term, often with a balloon (residual) payment at the end to lower the monthly cost.
The big drawcards for tradies are the GST and tax treatment. Because you own the asset, if you’re registered for GST and report on a cash or accruals basis, you can generally claim the GST contained in the purchase price as an input tax credit on your next BAS — not drip-fed over the term. You can typically claim depreciation and the interest portion of your repayments as a deduction to the extent the asset is used for business. Repayments themselves are fixed, which makes budgeting predictable.
It links neatly with the asset itself, which is why our chattel mortgage hub goes deeper on rates, balloon options and eligibility — including for truck finance where chattel mortgages are the workhorse structure.
How a lease works
Under a lease (commonly a finance lease), the financier buys and owns the asset and leases it to you for a fixed term. You make regular lease payments, and at the end you usually pay a residual value to take ownership, extend the lease, or hand the asset back and upgrade.
Leasing can be attractive when you want to preserve working capital — there’s often little to no deposit, and the lease payment is generally claimable as a business deduction (rather than claiming depreciation and interest separately, as you would when you own the asset). GST is typically charged on each lease payment and on the residual, rather than claimed upfront on the full purchase price. That can suit a business that values smaller, smoother outgoings over a big day-one GST credit.
The trade-off is ownership: you don’t own the asset during the term, and the residual at the end is a real cost you need to plan for.
How hire purchase works
Hire purchase (sometimes called a commercial hire purchase) is the middle path. The financier buys the asset and “hires” it to you across the term. You use it as if it’s yours, make fixed repayments, and legal ownership transfers to you automatically with the final payment.
For tax, hire purchase is often treated similarly to a chattel mortgage for a business buyer — you can generally claim depreciation and the interest component, and the GST treatment depends on your accounting method. The practical difference is that you don’t hold title until the end, which can matter if you want to sell or trade the asset mid-term.
Chattel mortgage vs lease vs hire purchase — side by side
| Feature | Chattel mortgage | Finance lease | Hire purchase |
|---|---|---|---|
| Who owns it during the term | You | The financier | The financier (until final payment) |
| Ownership at the end | Yours throughout | Pay residual to own, or hand back | Transfers automatically on last payment |
| Typical deposit | Optional; nil-deposit common | Often nil | Often nil |
| GST on purchase price | Generally claimable upfront on BAS (subject to your method) | Not upfront — GST on each payment + residual | Treatment depends on method; often like a chattel mortgage |
| What you typically deduct | Depreciation + interest (business-use portion) | The lease payments | Depreciation + interest (business-use portion) |
| Balloon / residual | Optional balloon to lower repayments | Residual required to take ownership | Optional balloon on some products |
| Shows on balance sheet as your asset | Yes | Varies by accounting treatment | Yes (asset + liability) |
| Best for | GST-registered tradies who want ownership + the upfront GST credit | Preserving cash flow, regular upgrades | Owning at the end without claiming upfront GST |
This table is general guidance only — your accountant will confirm the treatment for your structure and accounting method.
Which one should a tradie choose?
There’s no single winner, but a few rules of thumb help:
Lean chattel mortgage if you’re GST-registered, the asset is mostly for business, you want to own it outright, and the upfront GST input tax credit would genuinely help your cash position. This is why it’s the default for most utes, trailers and trucks.
Lean lease if cash flow is king, you upgrade your vehicles or gear on a regular cycle, and you’d rather claim a single, smooth lease deduction than manage depreciation. Just budget for the residual.
Lean hire purchase if you want to end up owning the asset but the upfront-GST advantage of a chattel mortgage doesn’t apply to your situation, or your financier offers better terms on HP for that asset type.
Whichever way you go, the deduction only applies to the business-use portion. If the ute does weekend duty too, you apportion. And if your paperwork is light — new ABN, or you don’t have full financials yet — a low doc option can still get the deal done.
A quick worked example
Say you’re financing a $66,000 (inc. GST) dual-cab used as 100% business. Under a chattel mortgage, you own it on day one and could claim the GST component (roughly $6,000) on your next BAS, then depreciate the vehicle and claim the interest on repayments over the term. Under a finance lease, you’d skip the upfront GST credit, claim GST on each lease payment instead, and deduct the lease payments — handing back or paying out the residual at the end. Same truck, very different cash-flow shape. The “cheaper” option is the one that matches how your business actually manages money — which is a conversation worth having before you sign, not after.
Don’t forget EOFY. Asset purchases can interact with instant asset write-off and depreciation timing — see our EOFY tax deductions guide for tradies and check the timing with your accountant before 30 June.
Frequently asked questions
What is the difference between a chattel mortgage and a lease?
With a chattel mortgage you own the asset from day one and the lender holds security over it until you’ve repaid the loan. With a lease, the financier owns the asset and you pay to use it, deciding at the end whether to pay the residual and take ownership or hand it back. Ownership and GST timing are the main differences.
Is a chattel mortgage better than a lease for a tradie?
For many GST-registered tradies who want to own the asset, a chattel mortgage is popular because you can often claim the GST upfront and deduct depreciation and interest. A lease can suit businesses that prioritise cash flow and regular upgrades. The better option depends on your accounting method, so confirm with your accountant.
What is the difference between a chattel mortgage and hire purchase?
Both let you finance an asset with fixed repayments, but under a chattel mortgage you own the asset immediately while the lender holds security. Under hire purchase, the financier owns the asset and title transfers to you only when you make the final payment. Tax treatment for a business buyer is often similar.
Can I claim GST on a chattel mortgage?
If you’re registered for GST and use the asset for business, you can generally claim the GST included in the purchase price as an input tax credit, often on your next BAS rather than over the loan term. The timing depends on your accounting method, so check with your accountant or the ATO.
Do I own the vehicle with a chattel mortgage?
Yes. With a chattel mortgage you take ownership of the vehicle or equipment from the start. The lender registers a security interest over it, which is removed once the loan is fully repaid. This is the key difference from a lease, where the financier owns the asset during the term.
What is a balloon payment on a chattel mortgage?
A balloon (or residual) is a lump sum left at the end of the loan term that reduces your regular repayments. You pay it out, refinance it, or sell the asset to cover it when the term ends. A larger balloon means lower monthly payments but more to pay or refinance later.
Which is better for cash flow — lease or chattel mortgage?
A lease often suits cash flow better because deposits are typically low and you spread GST across payments rather than claiming it upfront. A chattel mortgage can deliver a larger early benefit through the upfront GST credit. The right choice depends on whether you value smooth outgoings or an early cash injection.
Written and reviewed by the Finance Director at Tradie Finance.
This article is general information only and does not constitute credit or financial advice. It does not take into account your personal objectives, financial situation or needs. Consider whether the information is appropriate for you and seek professional advice before acting. Tradie Finance operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Lending is subject to approval, lending criteria, terms, conditions and fees. Tax treatment depends on your individual circumstances and accounting method — confirm with your accountant or the ATO.