Financing a work vehicle: the tax that decides it
For a business, the question isn't just "what does the car cost" — it's "what can I deduct, when, and how much GST do I get back." The three common ways to fund a work vehicle are taxed quite differently, and the gap between them can be thousands.
Chattel mortgage — you own it, you depreciate it
With a chattel mortgage the business borrows to buy the vehicle and owns it from day one. That means you can claim the GST credit up front (capped for cars), depreciate the vehicle, and deduct the interest on the loan — all apportioned to your business-use percentage. Because you own it, an eligible small business can also use the instant asset write-off — but only if the car's cost is under the threshold, which most aren't.
Finance lease — you deduct the payments
With a lease the financier owns the car and you rent it. You can't depreciate it or claim the GST credit on the purchase, but the lease payments are deductible (business portion) and you claim GST on each payment. At the end there's a residual to pay if you want to keep the car. Leasing often spreads the deduction more evenly, which can suit cash flow even when the headline cost is similar.
Cash — simple, but not free
Paying cash means no interest and you still depreciate the vehicle and claim the GST credit. The hidden cost is opportunity: the money is locked in a depreciating asset instead of working elsewhere, so the calculator counts a return on the cash you tie up.
How we calculate this
- Net cost = total cash you pay, minus the GST credits you receive, minus your tax deductions multiplied by your tax rate.
- Chattel & cash claim depreciation (write-off or pool) plus running costs; chattel adds interest deductions, cash adds an opportunity cost on the money tied up.
- Lease deducts the payments instead of depreciation, and adds the residual at the end.
- Your business-use % apportions every deduction and GST credit; all three end with you owning the vehicle.