Equipment finance and tax

Common types of equipment finance

• Chattel mortgage: the business owns the asset from the start and the lender takes security over it. Commonly used for vehicles and equipment.
• Finance lease: the lender owns the asset and leases it to the business, with an option to buy it at the end for a set residual.
• Operating lease: the business rents the asset for a set period and returns or upgrades it at the end.
• Commercial hire purchase: the lender owns the asset until the final payment is made.

Balloon payments

A balloon, or residual, is a lump sum due at the end of the loan. It lowers your regular repayments but you will need to pay it, refinance it or sell the asset when the term ends. Lenders set maximum balloons based on the asset type and the term.

Tax points to discuss with your accountant

• With a chattel mortgage, a GST-registered business may be able to claim the GST on the purchase price in its next BAS, and claim depreciation and interest.
• With a lease, the lease payments may be tax deductible instead.
• Small businesses may be able to use the instant asset write-off for eligible assets under the current threshold.
• Limits apply to some vehicles, such as the car depreciation limit.

Tax treatment depends on your business so confirm the right structure with your accountant before you buy.

What lenders look for

For many assets, lenders can approve finance with limited documents if the business has held an ABN and GST registration for a set period and has a clean credit history. Larger amounts or newer businesses may need financial statements.