Asset finance Australia 2026 — the complete guide to chattel mortgage, hire purchase, lease and novated lease.

Asset finance is a confusing market because product names are inconsistent across lenders, and the tax/accounting treatment of each is genuinely different. Here’s the canonical six:

Chattel mortgage — the workhorse

By far the most common business asset finance product since the 2012 GST changes that made it tax-favourable. Mechanic:

• Lender lends you money against the asset as security.
• Asset is yours from day one.
• You claim full GST credit on the purchase price upfront (recovered via your BAS).
• You claim depreciation on the asset.
• You make monthly P&I repayments; balloon optional.
• Standard residual term: 1–7 years.

For most ABN-holders buying business-use vehicles or equipment, chattel mortgage is the right answer 80% of the time.

Hire purchase

Pre-2012 dominant product; now largely supplanted by chattel mortgage. Asset is technically owned by the financier; you "hire" it and "purchase" it via the final payment. Tax treatment was changed in 2012 to align HP and chattel mortgage (both now treat the borrower as economic owner for tax). Functionally similar to chattel mortgage; chattel mortgage is now the default.

Finance lease

Asset is owned by the financier throughout. You pay rentals; depreciation is technically the lender’s but lease accounting treats you as economic owner under AASB 16. Less common since AASB 16 (2019) brought leases onto company balance sheets.

Operating lease

True rental — asset returned at end of term. Financier bears residual risk. Used for short-term equipment use (printers, IT, fleet vehicles where the leasing company runs the fleet). Cost is fully expensed; no asset on balance sheet.

Novated lease

Salary-packaging arrangement for PAYG employees. Three-way agreement between employee, employer, and financier. Employee chooses the car; employer pays the lease and FBT; cost is salary-packaged from gross income. Tax-effective in many cases under the Electric Vehicle FBT exemption (since July 2022, eligible EVs are FBT-exempt up to the luxury car tax threshold).

Personal loan (secured or unsecured)

For purchases that don’t qualify as business use — a private vehicle, family caravan, etc. Secured personal loan: vehicle is the security; rates 6–12% typical. Unsecured: higher rates 8–16% typical. No GST or depreciation — it’s a private purchase.

Chattel mortgage is the right answer for most business asset finance in 2026. Here’s how it actually works.

The structure

• Asset. Vehicle, truck, equipment, plant. Must be predominantly business use (>50% typically required for full deductibility, though policy varies).
• Borrower. Sole trader, company, trust, partnership. Must hold an active ABN.
• Financier. Bank or specialist asset finance lender (Pepper Asset Finance, Macquarie Leasing, ANZ, NAB, Westpac, Latitude, Money3, Plenti, RACV, Pepper Money, Westpac Auto Finance, etc.).

The mechanics

1. You select the asset and supplier (dealer or seller).
2. Lender approves you and the asset; you sign loan and security documents.
3. At settlement, lender pays the supplier; you receive the asset and the registration.
4. Lender registers a security interest on the PPSR (Personal Property Securities Register) — the lender has a charge over the asset until paid in full.
5. You make monthly P&I repayments over the term (typically 1–7 years).
6. Optional balloon residual (a final lump-sum payment at end of term, e.g., 30% of original asset price).
7. At final payment, the PPSR charge is removed and the asset is unencumbered.

Tax treatment (general guidance — confirm with your accountant)

• GST on purchase: the supplier charges GST at 10%. If you’re GST-registered, you claim the full GST credit on your next BAS after acquisition — typically a $9,090 GST credit on a $100,000 vehicle. This is the single biggest reason chattel mortgage wins for GST-registered businesses.
• Depreciation: you depreciate the asset over its effective life (e.g., 8 years for cars under ATO simplified rules). Decline in value is deductible.
• Interest deductible: the interest portion of repayments is deductible against business income.
• Instant asset write-off / temporary full expensing: historically (and under various incentive programs), eligible assets could be deducted in full in year of acquisition. As of 2026, the instant asset write-off threshold is generally $20,000 for small business (subject to legislative changes; check ATO current settings). Always verify with your accountant.

Worked example — GST and tax effect

Asset: Toyota HiLux for a tradie’s business. Drive-away price $72,000 incl. $6,545 GST. 80% business use.

Year 1:

• GST credit claimed via BAS: $6,545 (full GST on purchase, since vehicle is for use in carrying on enterprise).
• Depreciation under simplified rules (assuming car limit applies): the depreciable cost base is capped at the car cost limit for FY26 (~$70,000 for cars; check current threshold). Limited to business use percentage.
• Year-1 depreciation deduction (new vehicle, 25% diminishing value method): $70,000 × 25% × 80% = $14,000 deduction.
• Interest on $65,455 (price ex-GST) at 7.50% — say $4,900 in year 1, all deductible.

Total tax-deductible expense year 1: ~$18,900. At 30% company tax rate, tax saving ~$5,670.

Plus the $6,545 GST credit recovered.

Compared to a personal loan on a private vehicle: none of the above tax benefits apply. The chattel mortgage win is genuinely significant for GST-registered businesses.

Balloon residual options

Most chattel mortgages allow a balloon (also called residual or end-of-term payment). Common structures:

• No balloon: loan fully amortises over the term; highest monthly payment, lowest total cost.
• 30% balloon: balance of 30% of original price due at term end; lower monthly, refinance/sell/cash event at end.
• 50% balloon: very low monthly, but $40k+ event at term end on a $80k vehicle.

Rule of thumb: balloon should match expected residual value of the asset at term end. For a 5-year-old work ute, 25–30% residual is realistic. For a 5-year-old laptop, residual is near zero — don’t balloon it.

Novated lease is a salary-packaging arrangement available to PAYG employees whose employers offer salary packaging. It’s the only way to get many tax efficiencies on a vehicle as an employee — sole traders and most company directors don’t use novated leases (they use chattel mortgage instead).

How it works

1. Employee chooses a vehicle within their budget.
2. A novated lease provider (Smartleasing, Maxxia, Salary Sacrifice Australia, etc.) arranges the lease with a financier.
3. Three-way agreement: employee leases the vehicle; employer pays the lease and running costs from the employee’s pre-tax salary; financier owns the vehicle.
4. Employee uses the vehicle (private or business use).
5. At lease end (typically 3–5 years): pay the residual to keep the vehicle, refinance, return, or upgrade to a new lease.

The tax benefit

Lease costs (financing + running costs — fuel, insurance, registration, maintenance) come out of pre-tax salary, reducing the employee’s assessable income.

For a 37%-bracket employee, $15,000/year of vehicle running costs paid via novated lease saves approximately $5,550 in income tax — vs the $15,000 they would have paid post-tax to run the same car privately.

The FBT catch — historically

The catch was Fringe Benefits Tax. The employer paid FBT on the "private use" of the vehicle, which clawed back most of the tax saving for many employees. Two FBT methods:

• Statutory formula: FBT calculated as 20% of the car’s base value, irrespective of actual private use. Simple but typically high FBT.
• Operating cost method: FBT calculated on actual operating costs minus business use percentage. Requires log book; lower FBT for high-business-use vehicles.

For typical commuter vehicles, the FBT clawback meant novated lease was tax-neutral or only slightly positive vs financing privately.

The 2022 Electric Vehicle FBT exemption — game changer

From 1 July 2022, the federal government removed FBT entirely from eligible electric vehicles where the price is below the luxury car tax threshold for fuel-efficient vehicles ($91,387 for FY26; check the ATO’s current threshold).

For an eligible EV under the threshold:

• Zero FBT — the entire lease and running costs flow through pre-tax with no FBT clawback.
• For a 37% bracket employee leasing a $65,000 BEV with $25k/year of running costs over 5 years, the after-tax saving is $30,000–$50,000 over the lease term vs financing privately.
• This is the single most tax-effective way for PAYG employees to acquire a vehicle currently available in Australia.

The exemption applies to battery EVs and eligible plug-in hybrids (hybrid eligibility ended 1 April 2025; check the ATO page for current rules).

When novated leases work

• PAYG employees with stable employment.
• Vehicle costs $25k–$80k.
• Eligible EV under the LCT threshold (best case).
• Employer offers salary packaging.

When novated leases don’t work

• Sole traders or company directors paying themselves dividends — no PAYG salary to package.
• Vehicle over the LCT threshold — not eligible for FBT exemption; standard FBT applies and clawback can be material.
• Job is unstable — if you change employer mid-lease, the lease becomes a "personal lease" and tax effectiveness drops.

We refer novated lease enquiries to specialist providers (Smartleasing, Maxxia, etc.) because they handle the salary-packaging integration with employers — broker-arranged finance is generally for chattel mortgage and similar.

One of the most common asset finance mistakes is mismatching the finance term to the useful life of the asset. The mistake compounds when paired with an oversized balloon.

The principle

Asset depreciates over its useful life. Loan amortises over the loan term. If the loan outlasts the asset, you owe money on something that’s worth less than the loan balance — negative equity.

Worked example of the trap

Asset: Older fleet vehicle, $55,000 drive-away. Expected to be written off / replaced in 5 years.

Naive finance setup: 5-year term, 40% balloon, low monthly payment.

• Monthly: ~$715/month at 7.50%.
• Balloon at year 5: $22,000.
• Vehicle resale at year 5: ~$15,000 (heavy use, 5-year-old work vehicle).

The result at year 5:

• Owed: $22,000 balloon.
• Vehicle worth: $15,000.
• Negative equity: $7,000.
• Borrower must come up with $7,000 cash to pay the balloon, OR refinance the balloon to a new loan, dragging the debt forward.

This is a real and recurring outcome — chasing the lower monthly payment with an oversized balloon and an asset that depreciates faster than the financier’s assumption. The smaller monthly is a phantom saving.

How to size the balloon correctly

Balloon should approximate the expected residual value of the asset at term end, with a small margin of safety (5–10% below estimated residual).

Indicative residual values at end of term for typical asset categories:

Use these as a starting point; specific make/model/usage can shift residuals materially. The financier’s suggested balloon is sometimes optimistic to produce an attractive monthly figure — challenge it.

How to size the term correctly

Term should be slightly less than expected useful life. Rough guide:

• Vehicles for commuter or light commercial use: 4–5 years (vehicles serve 6–10 years total but resale moves fast).
• Heavy commercial vehicles: 4–6 years.
• Plant and machinery: align to depreciation schedule, often 5–7 years.
• IT equipment: 2–3 years (5-year IT is obsolete).
• Specialist equipment: aligned to operational replacement cycle.

If a financier offers a 7-year term on an asset that obviously won’t last 7 years, that’s a flag — check the residual sizing.

Composites built from real client scenarios with names and numbers altered. Illustrative only.

Case study A — Tradie chattel mortgage on a work ute

The borrower: Mark, sole trader plumber. ABN 6 years.

The asset: New Toyota HiLux work ute, drive-away $72,500 (incl. $6,591 GST). Expected business use 90%.

The structure:

• Chattel mortgage with major-bank asset finance arm.
• 5-year term; 30% balloon ($21,750 at term end).
• Rate: 7.65% (broker-arranged; better than 9.20% dealer offer).
• Monthly repayment: ~$928.
• Mark claims full $6,591 GST credit on his next BAS — effectively a refund.
• Year 1 depreciation deductible (90% business use, $70k cap, 25% diminishing value): ~$15,750.
• Year 1 interest deductible: ~$4,750.
• Total deductible year 1: ~$20,500. At Mark’s 32.5% marginal: ~$6,660 tax saving.
• Real after-tax cash cost year 1: $11,140 (cash out) – $6,591 GST credit – $6,660 tax saving + $11,140 monthly payments + interest = approximate net cost of $9,000 in year 1 vs sticker price.

At year 5:

• Pay $21,750 balloon from cash (or refinance to a new asset finance loan; or sell the vehicle and the finance is paid out of proceeds).
• Vehicle expected resale: $25,000–$30,000. Comfortable equity above balloon.

Key lesson: Chattel mortgage with sensible balloon is the textbook tradie asset finance setup. Broker arrangement saves 1.50%+ vs dealer finance.

Case study B — PAYG employee novated lease on an EV

The employee: Olivia, 33, marketing manager, PAYG income $145,000.

The vehicle: Tesla Model Y RWD, $68,900 drive-away (under the LCT fuel-efficient threshold of ~$91k).

The structure:

• 5-year novated lease through Smartleasing.
• Monthly lease cost (including running costs estimate): $1,650/month gross.
• Salary-packaged from pre-tax income; zero FBT under the EV exemption.
• Tax saving at 39% effective marginal (37% income tax + 2% Medicare): ~$643/month tax saving.
• Net monthly cost after tax: ~$1,007/month.

Vs financing privately:

• Same vehicle on personal loan: ~$1,420/month over 5 years (rate ~8.5% on $68,900).
• Plus running costs paid from after-tax: ~$430/month after-tax = $700/month pre-tax equivalent.
• Total privately financed: ~$2,120/month pre-tax equivalent.

Saving with novated lease over 5 years vs private finance: ~$67,000 over the term (varies with running costs and tax bracket).

At lease end: Olivia can pay residual ($16,500) to keep the vehicle, refinance, return, or roll into a new lease.

Key lesson: EV novated lease is the most tax-effective vehicle option in Australia 2026 for eligible PAYG employees. The FBT exemption changes the maths fundamentally.

Case study C — Company finance on heavy machinery

The business: Building company — small Pty Ltd, 8 employees. Buying a $185,000 mini excavator.

The structure:

• Chattel mortgage in company name.
• 6-year term; 25% balloon ($46,250).
• Rate: 8.20% (specialist asset finance lender; faster decision than majors).
• Monthly: ~$2,335.
• GST credit on purchase: ~$16,818, claimed via BAS.
• Depreciation under simplified business rules: full deduction in first year if eligible (instant asset write-off threshold dependent), or accelerated depreciation method otherwise. Worth $20–$50k of tax saving in year 1 depending on rules at the time.
• Interest deductible against company income.

Cash flow comfort:

• Estimated revenue contribution from machine: ~$120k/year.
• Annual finance + maintenance + fuel: ~$45k/year.
• Net contribution: ~$75k/year of additional gross profit.

Key lesson: Heavy machinery typically holds value well; balloon at 25% on a 6-year term aligns reasonably with expected residual. Specialist asset finance lender beat the majors on speed (8 days to settlement vs 4 weeks at NAB) which mattered for delivery scheduling.

1. Taking dealer finance without comparison. Convenient but typically 1–3% above broker market. Lost money for the same product.

2. Choosing product based on tax rumour without accountant input. "Lease is tax-deductible" — yes, but so is interest on chattel mortgage, and you also get GST upfront. Get accountant input on structure before signing.

3. Oversizing the balloon to chase a low monthly. Sets up a cash event at term end on negative-equity asset. Size balloon to expected residual.

4. Mismatching term to asset life. 5-year finance on a 3-year asset. The loan outlasts the asset.

5. Forgetting the GST cash flow at settlement. You pay GST at purchase and recover via BAS — fund the working capital gap.

6. Mixing personal and business use without records. ATO and lender both want clean separation. Keep a logbook.

7. Chasing the lowest rate on the wrong product. A 6.5% chattel mortgage that doesn’t fit your tax position is worse than a 7.5% chattel that does.

8. Not factoring in early-payout / break costs. Asset finance loans often have break fees if exited early. Check before committing.

• ATO — Asset finance and depreciation — the canonical depreciation reference.
• ATO — GST and motor vehicles — GST treatment.
• ATO — Electric vehicle FBT exemption — the EV FBT rule.
• ASIC MoneySmart — Vehicle and personal loans — consumer guide.
• Australian Finance Industry Association — industry standards.
• Personal Property Securities Register (PPSR) — the register where asset finance security is recorded.

Ready to talk?

Tell us what you’re buying, the rough price, your business structure, and your accountant’s preferred view on tax structure. Call me on 0400 77 77 55 or send a short enquiry and you’ll hear back on a business day.