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Chattel mortgage is an awkward name for a straightforward idea. A chattel is a movable item of property, and a mortgage is a security interest taken over it. Put together, the term describes an arrangement where your business buys an asset outright and the lender holds a registered claim over that asset until the loan is repaid. That single structural fact, that you own the asset from the beginning, is what determines almost everything else about how it is treated.
TLDR
- Your business takes ownership of the asset at purchase, not at the end of the term.
- The lender registers a security interest on the Personal Property Securities Register.
- Because you own the asset, it sits on your balance sheet and you claim depreciation and the interest component, to the extent of business use.
- If registered for GST, the business generally claims a GST credit on the purchase price through its BAS. The repayments themselves do not attract GST.
- A car limit caps the depreciable cost of passenger vehicles, but does not apply to vehicles with a payload of one tonne or more.
- A balloon payment lowers repayments and increases total interest, leaving a lump sum due at the end.
- Thresholds and limits change. Check the current figures on ato.gov.au and with your accountant before relying on them.
What a chattel mortgage is
In a chattel mortgage, the lender advances the funds and your business purchases the asset. Title passes to you at that point. The lender secures the loan by taking a mortgage over the asset itself, which it releases once the debt is discharged.
This differs from arrangements where the financier retains ownership and you make payments for the use of the asset. It is the same distinction as buying a house with a home loan rather than renting it, and it produces similar consequences for how the asset appears in your accounts.
Chattel mortgages are generally available where the asset will be used predominantly for business purposes. That threshold matters, and it is one of the first questions a lender will ask.
How the security interest works
The lender’s claim is registered on the Personal Property Securities Register, established under the Personal Property Securities Act 2009. The register is public, and it exists so that anyone dealing with the asset can see whether someone else has a prior claim over it.
Practically, this means you cannot sell the asset free of the lender’s interest while the loan is outstanding. It also means that if you buy a second-hand vehicle privately, a PPSR search is worth the few dollars it costs, because an unreleased security interest attaches to the asset rather than to the person who owed the money.
Once the loan is repaid, the lender discharges its registration. The asset was always yours. What changes is that the encumbrance over it disappears.
Ownership from day one
Ownership is not a technicality here. It is the mechanism that produces the tax treatment people associate with chattel mortgages.
Because the asset is yours, it goes on your balance sheet as an asset and the loan appears as a liability. You claim depreciation on the asset and you claim the interest component of your repayments, in each case to the extent the asset is used for business purposes rather than privately.
The principal component of a repayment is not deductible, because it is repayment of borrowed money rather than an expense. This trips people up regularly, particularly when comparing a chattel mortgage against a lease, where the whole lease payment may be deductible instead.
How GST is treated
If your business is registered for GST and entitled to a full GST credit on the purchase, you generally claim that credit through your Business Activity Statement, and you exclude the GST amount when calculating the asset’s cost for depreciation purposes. The ATO states this directly in its guidance on depreciating assets.
The timing of that claim depends on whether you account for GST on a cash or accruals basis, which is a question for your accountant rather than for a blog. The broader point is that the GST sits on the purchase, not on the repayments. Interest does not attract GST.
If your business is not registered for GST, you include the GST you paid in the asset’s cost. Different starting figure, different depreciation base.
Depreciation, interest and vehicle limits
Depreciation is where a common and expensive misunderstanding lives, and it concerns vehicles specifically.
The ATO applies a car limit to passenger vehicles designed to carry fewer than nine passengers and a load of less than one tonne. Where it applies, the car limit is the maximum cost you can use to calculate the vehicle’s decline in value, and the excess cannot be claimed under any other depreciation rule. For the 2025-26 income year the ATO published a car limit of $69,674.
The car limit does not apply to vehicles that are not passenger vehicles, or to vehicles modified for use by people with disability. This is why payload capacity matters to tradespeople. The ATO defines payload capacity as gross vehicle mass, as shown on the compliance plate, less the basic kerb weight. A ute with a payload of one tonne or more falls outside the car limit, and two vehicles that look similar in a dealership can be treated quite differently.
Where the car limit does apply and the business is registered for GST, the maximum GST credit claimable on the purchase is one-eleventh of the car limit. Using the ATO’s own 2025-26 example, that was $6,334.
The instant asset write-off
The instant asset write-off allows eligible businesses to claim an immediate deduction for the business portion of an asset’s cost in the year the asset is first used or installed ready for use, rather than depreciating it over several years. It applies to new and second-hand assets, and to multiple assets, provided each individual asset costs less than the relevant limit.
Two conditions catch people out. The entire cost of the asset must be below the limit, even though you can only deduct the business-use portion. And if the cost equals or exceeds the limit, the asset goes into the small business pool instead, depreciating at 15 per cent in the first year and 30 per cent in each subsequent year.
Now the important caveat. The limit has changed repeatedly, and the ATO’s published table sets a $20,000 limit for assets first used or installed ready for use between 1 July 2023 and 30 June 2026. Figures for the current income year should be confirmed on ato.gov.au and with your accountant before you rely on them. Any article that states a threshold without a date attached is telling you less than it appears to.
It is also worth noting that a chattel mortgage does not create the deduction. Ownership does. The write-off is available because your business bought the asset, and the finance structure is what made the purchase possible.
Balloon payments and cash flow
A balloon, sometimes called a residual, is a lump sum deferred to the end of the term. Setting one reduces your regular repayments, which is why it is popular, and increases the total interest paid over the life of the loan, which is why it deserves thought.
The balloon must be dealt with when the term ends. You can pay it out, refinance it, or sell the asset and settle from the proceeds. That last option carries a risk worth naming: if the asset is worth less than the balloon at that point, the shortfall is yours.
Whether a balloon suits a business depends on how predictable its cash flow is and how long it intends to keep the asset. There is no universally correct answer, and anyone who offers one without asking about your circumstances is guessing.
How it compares to alternatives
The structures below differ mainly in who owns the asset, and that difference cascades through the accounting and tax treatment.
Structure | Who owns the asset | Typical treatment |
Chattel mortgage | Your business, from purchase | Asset and liability on balance sheet. Claim depreciation and the interest component. GST credit on the purchase price. |
Finance lease | The financier, for the term | Lease payments generally deductible. A residual applies at the end of the term. |
Operating lease or rental | The financier | Payments generally deductible as an operating expense. Asset returned at the end. |
Novated lease | The financier, with the employer making payments from the employee’s salary | A salary packaging arrangement between employee, employer and financier. Not a business asset purchase. |
Novated leases in particular are often mentioned in the same conversation as chattel mortgages despite answering a completely different question. Understanding how a novated lease works is useful mainly for ruling it in or out, since it is an employee arrangement rather than a way for a business to buy an asset.
Which structure produces the better outcome depends on your entity type, GST registration, accounting basis, business use percentage and how long you plan to hold the asset. That is a conversation for your accountant, and it is worth having before you sign anything.
Who a chattel mortgage suits
The structure tends to suit businesses that want to own the asset, use it predominantly for business, and can make use of the depreciation and interest deductions that ownership produces.
- Businesses registered for GST that can claim the credit on the purchase price
- Operators intending to keep the asset well beyond the finance term
- Tradespeople buying vehicles with a payload of one tonne or more, which fall outside the car limit
- Businesses buying equipment, machinery or commercial vehicles rather than passenger cars
- Owners who want the asset on the balance sheet rather than off it
- Businesses with predominantly business use, rather than mixed or largely private use
It suits others less well. A business with unpredictable revenue may prefer the flexibility of a rental arrangement. A business that upgrades its fleet every two years may find leasing simpler. Thinking through commercial vehicle finance against how the asset will actually be used is more useful than choosing a structure first and fitting the business to it.
Ready to explore your options?
A chattel mortgage is a purchase with a security interest attached. Ownership from settlement drives the GST, depreciation and interest treatment, a balloon shifts cost between the present and the end of the term, and the vehicle limits turn on payload rather than on what the vehicle looks like.
None of that tells you what your business should do. Thresholds change, eligibility depends on your circumstances, and the tax questions belong with your accountant.
What a broker can do is explain how different lenders structure these facilities and what documentation each will want. If you are weighing an asset purchase, reading what to know before applying for a business loan alongside business lending options is a reasonable way to arrive at that conversation prepared.
Sources: Australian Taxation Office, Instant asset write-off for eligible businesses (last updated 27 May 2026); Australian Taxation Office, Simpler depreciation for small business, including car limit and small business pool guidance; Australian Taxation Office, GST and motor vehicles; Personal Property Securities Act 2009 (Cth) and the Personal Property Securities Register (ppsr.gov.au); ASIC Moneysmart.
This article is intended for general information purposes only. It does not take into account your objectives, financial situation or needs, and it does not constitute financial, credit, tax or legal advice. Tax thresholds, limits and eligibility criteria change between income years, and the figures referenced here are cited with the income year to which the ATO applied them. Confirm current figures at ato.gov.au and seek advice from a registered tax agent before making a decision. Eligibility, interest rates, fees and terms vary between lenders and depend on your individual circumstances, and no outcome is guaranteed. Thor Finance is a Credit Representative (ACR 557246) of AFAS Group Pty Ltd (Australian Credit Licence 414426).
