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Equipment finance: funding vehicles, machinery and business assets

Christian Tucker
Oct 14
6 min read

Updated: Oct 22

Insights from AGFB · Checked 2 October 2026 · About 6 minutes

In brief

  • The key difference between the four common structures is who owns the equipment: your business from day one, your business after the final payment, or the financier.

  • Ownership largely decides the tax treatment. Owners and hire purchase hirers generally claim depreciation and interest, while lessees generally claim the lease payments.

  • The $20,000 instant asset write-off for small businesses with aggregated turnover under $10 million applied in 2025–26 and is permanent from 1 July 2026.

  • Keep the term and any balloon within the equipment's working life, and search the PPSR before buying used.

Four ways to fund equipment

A work ute, an excavator or a dental chair can be financed in four common ways. Repayments may look similar, but ownership, tax and the end of the term differ.

Chattel mortgage (equipment loan)

The business buys the equipment and owns it from the start. A lender funds the purchase, less any deposit or trade-in, and takes a mortgage over the equipment as security until the loan is repaid.

Hire purchase

The financier buys the equipment and hires it to your business for a fixed term. You use it while you pay, and ownership passes to you with the final instalment.

Finance lease

The financier owns the equipment and leases it to your business for a fixed term, with a residual value set at the start. At the end, depending on the agreement, you may pay the residual to buy it, refinance or return it, and you may have to cover any shortfall if it sells for less.

Operating lease or rental

You pay to use the equipment for a set period, sometimes with servicing included, then return it. The provider takes the risk on its future value, which can suit equipment you plan to upgrade often, although leasing may cost more overall.

Balloons and residuals

A balloon (on a loan or hire purchase) or residual (on a lease) is a lump sum left until the end. It lowers the regular repayment, but you pay interest on it for the whole term, so the total cost is generally higher.

Lenders usually limit how large it can be. Before choosing one, check that the equipment's likely value at the end would cover it, and plan how you would pay it.

How GST works on each structure

With a chattel mortgage, a GST-registered business can generally claim the GST in the purchase price upfront, once it holds a tax invoice. Loan interest is a financial supply with no GST in it, so there is no credit on it.

With hire purchase, GST applies to the whole agreement, including the interest, and the full GST credit can generally be claimed upfront, even if you account for GST on a cash basis. With a lease or rental, GST is included in each payment, and you claim one-eleventh of each payment as you go.

Credits are limited to the business-use share. If you buy from a private seller who isn't registered for GST, there is no GST in the price to claim.

Depreciation and interest, or lease payments

Generally, only the holder of an asset can claim depreciation (the ATO calls it decline in value), and the legal owner is usually the holder. Under a chattel mortgage, the business may claim depreciation and the loan interest, to the extent the equipment is used to earn income.

Hire purchase is treated for income tax much like a purchase with a loan. Where it's reasonably likely the business will end up owning the equipment, the business is treated as the holder, and the interest component may be deductible.

Under a lease or rental, the financier generally holds the asset, and the payments are typically claimed as an operating expense instead. Passenger cars have extra rules, such as the car limit ($69,883 for 2026–27), which caps depreciation and the GST credit on a car purchase.

The instant asset write-off for 2025–26 and 2026–27

Small businesses with aggregated turnover under $10 million that use the simplified depreciation rules can immediately deduct the business portion of eligible assets costing less than $20,000 each. For 2025–26, that applied to assets first used or installed ready for use from 1 July 2025 to 30 June 2026. From 1 July 2026 the $20,000 threshold is permanent, and this is now law.

The limit applies per asset, and if you can claim a full GST credit the cost is measured excluding GST. Assets costing $20,000 or more go into the small business pool, depreciated at 15% in the first year and 30% after that.

The write-off generally goes to whoever holds the asset: usually your business under a chattel mortgage or hire purchase, but the financier under a lease. The deduction falls in the year the asset is first used or installed ready for use, not the year you sign.

New or used, and the age of the equipment

Lenders assess the equipment as well as your business. New equipment from a dealer usually suits the widest range of lenders and may support a longer term. For used equipment, lenders often set a maximum age at the end of the term, and may want an inspection, a valuation or a larger deposit on specialised items.

Match the term to the equipment's working life

Try not to still be paying for equipment after it has stopped earning its keep. The ATO's effective life determinations are one reference point for how long many asset types can be used to earn income, although heavy use can shorten that and a lender's maximum term may be shorter.

A longer term lowers the repayment but usually adds interest overall. A shorter term costs less in total but asks more of your monthly cash flow.

Why the PPSR matters

The Personal Property Securities Register (PPSR) is the national register of security interests over personal property such as vehicles and business assets. Financiers usually register their interest, and should end the registration once the final repayment is made, generally within five business days.

Before you buy used, run a $2 PPSR search, using the serial or chassis number or the seller's details, depending on the equipment. If a lender's registration shows up, have it cleared at or before settlement, or the equipment could later be repossessed.

A practical checklist

  • Decide whether the business needs to own the equipment or only use it.

  • Get a quote or tax invoice in the name of the entity that will buy or lease it.

  • Ask your accountant how each structure affects GST, deductions and the instant asset write-off.

  • Keep the term within the equipment's realistic working life.

  • Decide whether a balloon or residual suits, and how you would pay it.

  • For used equipment, check age, condition and history, and search the PPSR.

  • For leases, check what's included, the return conditions and early exit costs.

  • Arrange insurance that meets the financier's requirements.

Common questions

Can I claim the instant asset write-off on financed equipment?

Financing doesn't in itself rule it out, because the deduction depends on the asset's cost and who holds it. A business that leases equipment generally isn't the holder, so check with your accountant.

Can I pay the finance out early?

Many agreements allow it, but break costs or other charges may apply, especially on fixed-rate finance and leases. Check the early termination terms before you sign.

Try the numbers

Use our Equipment finance comparison to compare terms and a balloon against your cash flow. Not sure where to start? Find Your Next Step asks a few short questions and points you to the right tool or enquiry, and our equipment and asset finance page explains how Christian can help.

Talk it through

Choosing a structure is easier with the specific equipment and your figures in front of you.

Sources

General information only. This article does not take into account your objectives, financial situation or needs. Your full financial situation and requirements must be considered before any offer or acceptance of a loan product. It is not tax or legal advice; speak with your accountant or adviser. All lending is subject to the lender's assessment and criteria, and fees and charges apply. Figures and rules are correct as at the checked date shown and can change.

Avantgarde Financial Brokerage Pty Ltd, Corporate Credit Representative 580346, authorised under Australian Credit Licence 389328 held by Connective Credit Services Pty Ltd.

FINANCE YOUR NEXT EQUIPMENT PURCHASE

Compare options in the equipment finance calculator, then ask Christian for a quote. No credit check to enquire. Christian replies the same business day.

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