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What is the difference between a chattel mortgage and a finance lease?
Short answer
With a chattel mortgage the business owns the asset from day one and the lender takes security over it; GST on the purchase can usually be claimed upfront and interest and depreciation are deductible to the business-use share. With a finance lease the lender owns the asset, the business rents it, and a residual is paid or refinanced at the end of the term.
Last reviewed 8 September 2026 by AssetMX.
Direct answer
A chattel mortgage and a finance lease are two common ways to finance a business asset, and the main difference is who owns the asset during the loan. Under a chattel mortgage, the business owns the asset from settlement and the lender simply takes security over it, similar to a mortgage over a car or piece of equipment. Under a finance lease, the lender owns the asset and the business pays to use it, with a residual value payable, refinanced or otherwise settled at the end of the term.
Chattel mortgage
The business takes ownership of the asset immediately and the lender registers security against it. If the business is registered for GST on a cash basis, the GST on the purchase can usually be claimed upfront on the next BAS; on an accruals basis it is typically the following BAS. Interest and depreciation on the business-use share of the asset are generally deductible to the business.
Finance lease
The lender retains ownership and the business makes lease payments to use the asset, with a residual (balloon) set at the start of the lease. At the end of the term the business can typically pay the residual to take ownership, refinance the residual, or return the asset, depending on how the lease was structured.
Operating lease or rental
A third option, an operating lease or rental, keeps the asset with the financier throughout and the business simply returns it at the end. This is generally treated as off balance sheet in practice for small business.
Comparison at a glance
| Feature | Chattel mortgage | Finance lease |
|---|---|---|
| Ownership | Business, from settlement | Lender |
| Security | Lender registers security interest | Asset itself |
| GST timing | Usually upfront on the BAS | Depends on structure |
| End of term | Loan paid out, asset fully owned | Residual paid, refinanced or asset returned |
Where to next
For how the end-of-term residual works in either structure, see what is a balloon payment.
This is general information only and does not take your circumstances into account. It is not financial, tax or legal advice.
Sources
Related questions
Which structure is more common for tradies and transport operators?
A chattel mortgage is common because the business owns the asset outright from settlement and can generally claim the GST upfront, which suits businesses that want the asset on their books.
Can I claim GST upfront on a finance lease?
Structuring differs from a chattel mortgage. Speak with your accountant about how GST and deductions apply to a finance lease for your specific circumstances.
What about an operating lease or rental?
An operating lease or rental is generally treated as off balance sheet in practice for a small business, with the asset returned at the end of the term rather than owned.
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