Understanding Chattel Mortgages: A Practical Guide for Australian Businesses

Dec 16, 2025

A chattel mortgage is one of the most commonly used asset finance structures in Australia, particularly for businesses purchasing vehicles, machinery, and equipment. Despite its popularity, it is often misunderstood or selected without fully considering how it fits within a broader financial strategy.

What Is A Chattel Mortgage?

A chattel mortgage is a form of business loan used to purchase an asset where the borrower takes ownership of the asset from the outset. The lender provides funds to purchase the equipment, and the asset itself is used as security for the loan.

The term chattel refers to a movable item - such as a vehicle, piece of machinery, or equipment - as opposed to property or land. Under a chattel mortgage, the business owns and uses the asset while making regular repayments to the lender over an agreed term.

Once the loan is repaid in full, the lender's interest in the asset is removed.

How a Chattel Mortgage Works

Under a chattel mortgage structure:

The business purchases the asset in its own name
The lender advances funds to pay the supplier
The asset is registered as security under the Personal Property Securities Register (PPSR)
The business makes regular principal and interest repayments

Loan terms typically range from one to five years, depending on the type of asset and its expected useful life. A balloon or residual payment can also be included at the end of the term to reduce ongoing repayments.

Common Assets Financed with a Chattel Mortgage

Chattel mortgages are widely used across many industries due to their flexibility and straightforward structure. Common examples include:

Commercial vehicles and fleets
Manufacturing and production equipment
Earthmoving and construction machinery
Agricultural plant and equipment
Medical and professional equipment

Because ownership sits with the borrower, chattel mortgages are particularly suited to assets that form a core part of business operations.

Cash Flow and Ownership Advantages

One of the key benefits of a chattel mortgage is immediate ownership of the asset. This can be important for businesses that want full control over how an asset is used, modified, or eventually sold. From a cash flow perspective, chattel mortgages allow businesses to spread the cost of an asset over time rather than paying the full purchase price upfront. Repayments are fixed and predictable, making it easier to budget and forecast.

Businesses can also tailor the structure by:

Choosing repayment frequencies
Including a balloon payment to reduce regular commitments
Aligning loan terms with the asset's productive life

Tax Treatment and GST Considerations

Chattel mortgages are often favoured for their tax efficiency, although outcomes depend on individual circumstances and professional advice.

In general terms:

GST on the purchase price can usually be claimed upfront (for GST-registered businesses)
Interest charges may be tax deductible
The asset can typically be depreciated over its effective life

Because the business owns the asset, depreciation is claimed by the borrower rather than the lender. Planning the timing and structure of a chattel mortgage can therefore play an important role in overall tax and cash flow management.

Chattel Mortgage vs Other Finance options

Chattel mortgages are often compared with finance leases and operating leases. While each structure has its place, the key distinction is ownership.

With a chattel mortgage:

The business owns the asset from day one
The asset appears on the balance sheet
The business bears the residual value risk

The structure is generally best suited to businesses that intend to retain the asset long-term and derive ongoing value from its use.

Is a Chattel Mortgage Right for Your Business?

A chattel mortgage can be a strong fit for businesses that:

Want immediate ownership of equipment or vehicles
Have predictable cash flow to support regular repayments
Are looking to optimise GST and depreciation outcomes
Prefer a straightforward, transparent finance structure

As with any finance decision, the right structure depends on the asset, the business's financial position, and long-term objectives.

Final Thoughts

Chattel mortgages remain one of the most practical and widely used equipment finance solutions in Australia. Their combination of ownership, flexibility, and potential tax efficiency makes them particularly appealing for businesses investing in essential assets.