Asset finance is one of the most common and accessible forms of business lending in Australia — and chattel mortgage and finance lease are the two structures you will encounter most often. Understanding the difference is essential for any broker, accountant, or business owner evaluating equipment and vehicle finance options.
The right structure depends on the client's tax position, GST registration status, whether they want to own the asset, and their preference for on or off balance sheet treatment. Getting this wrong costs clients money — getting it right builds trust and referrals.
A chattel mortgage is an asset finance product where the borrower owns the asset immediately from the date of purchase. The lender registers a security interest over the asset on the PPSR (Personal Property Securities Register) as collateral for the loan — hence the name "mortgage" over a "chattel" (a moveable asset).
Key features:
A finance lease is an asset finance product where the lender (financier) owns the asset throughout the term of the agreement. The borrower makes regular lease payments and, at the end of the term, typically has the option to purchase the asset for a residual value, return it, or refinance the residual.
Key features:
Always involve the client's accountant in the structure decision. The tax implications of chattel mortgage versus finance lease vary significantly based on the client's tax position, business structure, and the nature of the asset. Your role as a broker is to understand both structures well enough to have an informed conversation — not to give tax advice.
The Instant Asset Write-Off (IAWO) allows eligible businesses to immediately deduct the full cost of qualifying assets rather than depreciating them over time. This makes chattel mortgage particularly attractive when the IAWO is available — the business can claim the full asset cost as a tax deduction in the year of purchase while only making the first loan repayment.
IAWO eligibility thresholds and rules change regularly with the federal budget. Always verify current thresholds before advising clients on this strategy.
Both chattel mortgages and finance leases can include a balloon or residual payment — a lump sum due at the end of the loan term. This reduces regular repayments during the loan but requires the client to either pay the balloon, refinance it, or sell the asset to cover it at maturity.
The balloon amount should be set based on the expected residual value of the asset at the end of the term. Setting it too high creates negative equity. Setting it too low misses the cash flow benefit. Most lenders have guidelines on maximum balloon percentages by asset type and term.
The Commercial Finance Masterclass covers chattel mortgage, finance lease, operating lease, hire purchase, novated lease, and sale-and-leaseback — plus GST treatment, balloon structuring, and PPSR. 43 modules, $97 one-time access.
Get Instant Access — $97 →The Commercial Finance Masterclass is an independent educational resource and is not affiliated with any RTO, ASIC-licensed entity, MFAA, FBAA, or any other regulatory body. Content is for general educational purposes only and does not constitute financial, legal, credit, or investment advice. Always seek advice from a qualified tax professional.