GST on equipment finance: chattel mortgage vs lease vs hire purchase

If you’re registered for GST, the way GST works on a chattel mortgage, lease or hire purchase can change your cashflow by tens of thousands of dollars. Chattel mortgages usually let you claim all the GST on the purchase price at once, leases spread GST across each repayment, and hire purchase often sits in between. The asset cost and interest are generally deductible over time, but the timing of GST credits is what hits cashflow this quarter.

In plain English: if you want a big GST refund next BAS, chattel mortgage usually delivers it. If you prefer smoother, smaller GST in and out, leasing can make more sense.

How GST works on equipment finance in Australia

Core GST rules you need to know

For most standard business equipment (vehicles, machinery, IT):

1. Chattel mortgage – You buy the asset. GST is calculated on the full purchase price. If you’re registered and the asset is for a creditable purpose, you can usually claim the full GST on your next BAS.
2. Finance lease (operating lease) – The financier owns the asset. You pay GST on each lease payment and claim it back each BAS.
3. Hire purchase / commercial hire purchase – Similar to buying on instalments. GST may be payable upfront on the financed amount (including any balloon), but interest is usually GST‑free.

ATO treatment can be nuanced, especially if you’re on cash vs accruals for GST, or using simplified accounting. Always confirm with your accountant.

GST timing differs between chattel mortgages, leases and hire purchase – and so does cashflow.

Cashflow impact: chattel mortgage vs lease vs hire purchase

Worked example: $110,000 piece of equipment (incl. $10,000 GST)

Assume:

• Price including GST: $110,000 (so GST is $10,000)
• Term: 5 years
• Interest rate: indicative only, say 9% p.a. on chattel/hire purchase, 9% equivalent on lease
• You’re fully GST‑registered, using the asset 100% for business

1. Chattel mortgage

• You finance $110,000 (often 100% of price).
• GST impact: You can usually claim the full $10,000 GST on your next BAS.
• Cashflow:
  • Upfront: No deposit if 100% financed.
  • BAS: $10,000 GST credit reduces your net BAS payment (or gives a refund).
  • Repayments: Principal + interest, no GST on the repayment itself.

Indicative monthly repayment over 5 years at 9%: about $2,285 per month.

2. Finance lease

• The financier buys the asset and leases it to you.
• GST impact: GST applies to each lease repayment. You claim the GST back in each BAS.
• Cashflow:
  • No big GST refund upfront.
  • GST is spread across repayments, improving predictability but not giving a one‑off boost.

If the pre‑GST lease rental is, say, $2,100 per month, you’d pay $2,310 incl. GST, and claim $210 GST each month (or $630 per quarterly BAS).

3. Hire purchase

• You agree to buy over time, often with a balloon.
• GST impact: GST is usually calculated on the principal / asset price and any balloon at the start. Interest is GST‑free.
• You can typically claim the full GST on the asset component on your next BAS, similar to a chattel mortgage.

So for $110,000 including $10,000 GST, you’d normally be able to claim that $10,000 upfront.

Side‑by‑side comparison

For a deeper dive into how repayments, balloons and total cost compare, see the worked numbers in /insights/true-cost-equipment-finance-rates-fees-residuals-explained.