Chattel mortgage or lease: which suits your ABN

Under a chattel mortgage you own the asset from day one and the lender takes security over it. Under a lease the lender owns it and you pay for the use of it, with an option at the end.

That ownership difference drives everything else. Because you own the asset under a chattel mortgage, it sits on your balance sheet, you claim the depreciation, and — if you are registered for GST — you generally claim the GST on the purchase price in the quarter you buy it rather than across the term.

Under a lease, the payments are typically treated as an operating expense instead, and GST is charged on each payment. For a business that is not GST-registered, or one that would rather have a flat cost than manage depreciation, that can be the simpler arrangement.

Neither is universally cheaper. Which one wins depends on your GST position, how you are taxed, whether the asset is likely to outlive the term, and whether you want it on your books at all.

This is the point where an accountant earns their fee. Bring them the two structures side by side rather than asking them to review one after it is signed.