Chattel mortgage vs lease for a business car: how to choose
For a business buying a vehicle, the finance structure changes what you can claim and when. Here is how a chattel mortgage and a lease compare.
When a business finances a vehicle, the structure you choose changes your tax deductions, your GST timing and whether you actually own the asset. The two most common options — a chattel mortgage and a lease — suit different situations. Here is the difference.
Chattel mortgage
With a chattel mortgage, the business owns the vehicle from the start and the lender takes security over it. Because you own it, you can claim depreciation (including the instant asset write-off, subject to the car cost limit of $69,883 for 2026-27) and the interest on the loan, for the business-use portion. If you are registered for GST, you can typically claim the GST credit up front on the purchase.
Lease
With a lease, a financier owns the vehicle and the business rents it. The lease payments are deductible for the business-use portion, and GST is claimed on each payment rather than up front. The catch: because you do not own the asset, you cannot claim depreciation or the instant asset write-off on it.
The key trade-offs
A chattel mortgage front-loads the tax benefit — big depreciation and an up-front GST credit — and leaves you owning the asset. A lease spreads deductions evenly and keeps the asset off your books, which some businesses prefer for cash flow or balance-sheet reasons. Your GST reporting cycle, cash position and whether you want to own the vehicle at the end all feed into the choice.
Which suits you
Owner-operators who want the depreciation and write-off, and who are happy to own the vehicle, usually favour a chattel mortgage. Businesses prioritising even, predictable costs and off-balance-sheet treatment may prefer a lease. It genuinely depends on your numbers.
Worked example
A tradie buys a $50,000 ute used 90% for business. Under a chattel mortgage, they own it, so they can claim depreciation (potentially the full amount via the instant asset write-off, applied to the 90% business share), claim the GST credit up front, and deduct the interest. Under a lease, they instead deduct 90% of each lease payment as it is made and claim GST per payment — steadier, but with no up-front write-off because they do not own the vehicle.
Compare vehicle finance options
Our business vehicle calculator weighs a chattel mortgage, a lease and paying cash — with depreciation and the write-off for 2026-27.
Business tax depends on your circumstances, and your accountant can confirm what suits your situation. See also our guide to the instant asset write-off in 2026-27.
Frequently asked questions
Can I claim the instant asset write-off on a leased car?
No. The write-off applies only to assets you own. A chattel mortgage gives you ownership, so it can use the write-off (subject to the $69,883 car limit); a lease cannot.
Which has better cash flow?
It depends. A lease spreads costs and deductions evenly, which some businesses prefer. A chattel mortgage front-loads the tax benefit — a big deduction and an up-front GST credit in year one — which can help at tax time.
Do I own the car at the end?
With a chattel mortgage you own it throughout (the lender just holds security). With a lease you do not own it during the term, and what happens at the end depends on the lease type and any residual.
Can I claim the GST on a chattel mortgage?
If you are registered for GST, you can generally claim the GST credit on the purchase up front, based on your business-use percentage. On a lease, you claim GST on each payment instead.