Business Equipment Finance in Australia: A Strategic Approach for 2026

Business equipment finance in Australia comes in four main forms: chattel mortgage, hire purchase, finance lease and operating lease. Which one suits you depends on your tax position, the entity that will hold the asset and how long you intend to keep it. The structure you choose also affects whether you can claim the instant asset write-off.

The story we hear most often goes something like this. The ute has had it. The new production line is going in next quarter. The crusher needs replacing. You ring a broker, maybe one you have used before, maybe one a colleague recommended, and within the week the documents are signed.

Months later, someone in your accountant’s office mentions that the depreciation on this thing is sitting in the wrong entity, or that the repayment cadence is hurting your June quarter, or that the facility has made the next round of property lending materially harder.

The product was probably fine. The deal was probably reasonable. But the questions that needed asking before the documents were signed did not get asked, because those questions live in your accountant’s office and your adviser’s office rather than the broker’s.

This piece covers what those questions are, what the four equipment finance products in Australia do well and poorly, where the instant asset write-off sits in 2026, and what changes when equipment finance is treated as a strategy decision rather than a transaction.

What is a chattel mortgage, and what are the alternatives?

Most Australian business owners will encounter four structures.

Chattel mortgage

You own the asset from day one and the lender takes a registered security interest over it. You can generally claim the Goods and Services Tax (GST) credit on the purchase up front, plus depreciation and the interest component of your repayments from the start. That treatment is why it has become the default structure for most Australian SMEs buying machinery, vehicles or fixed plant they intend to keep. It works less well on assets that depreciate quickly or that you will cycle out of within three years.

Hire purchase

The lender buys the asset and you hire it with an obligation to purchase, with ownership transferring when the final payment lands. Hire purchase became less attractive for most buyers after 1 July 2012, when changes to the GST treatment of hire purchase agreements removed much of the advantage it previously held over a chattel mortgage. It still appears in specific equipment categories and in some dealer-arranged finance.

Finance lease

The lender buys the asset, you lease it for a fixed term, and at the end you can buy out the residual, return the asset, or extend. Lease payments are generally deductible where the asset is used to produce assessable income. A finance lease tends to suit businesses that want fixed cost certainty and do not need to own the asset at the end. It works less well when the residual value at the end of the term is genuinely uncertain.

Operating lease

Closer to a true rental. How it sits on your balance sheet depends on the accounting standards your entity applies and the exemptions for short-term and low-value leases. Payments are deductible and you walk away at the end of the term. This suits IT equipment, fleet vehicles in high-utilisation use and anything you intend to refresh on a continuous cycle.

The product itself is rarely the hard part. Matching the right product to the right entity, the right tax position and the right point in the business cycle is where the value sits.

Chattel mortgage vs hire purchase: what is the difference?

Both structures end with you owning the asset. The difference is when ownership passes and how the tax treatment falls out.

Under a chattel mortgage you take ownership immediately, so the asset sits on your balance sheet from day one and you claim depreciation and interest from the start. Under hire purchase the lender retains ownership until the final payment, and you are hiring the asset with a contractual obligation to buy it.

Since the 2012 GST changes, the chattel mortgage generally produces a cleaner outcome for a business registered for GST on an accruals basis. The GST credit on the full purchase price can usually be claimed in the period the asset is acquired rather than spread across the term. That single difference is why most brokers now default to chattel mortgage, and why hire purchase turns up mainly where a particular lender or dealer program favours it.

If you are being offered hire purchase, the question worth asking is what it does for you that a chattel mortgage would not.

Chattel mortgage vs finance lease: the actual decision

This comes up constantly, and the answer depends on three things rather than the headline rate.

First, do you want to own the asset? If it will still earn for you in five years, ownership has value. If you will cycle out of it before then, ownership adds complication. Chattel mortgage suits the first case, finance lease the second.

Second, can you actually use the depreciation? A chattel mortgage gives you depreciation and interest. A finance lease gives you the lease payment as a deduction. Which is more valuable depends on your taxable income this year and next, the entity holding the asset and whether the depreciation will be fully utilised in the year it falls. We see clients with chattel mortgages where the depreciation sits in an entity that cannot use it, which is a different problem to solve.

Third, what does it do to the rest of your lending? A chattel mortgage adds an asset and a liability that the next lender will see. An operating lease may keep both off your balance sheet depending on the standards your entity applies, though a lender assessing serviceability will generally still factor the commitment in. If you have an active commercial property facility or a working capital line, this can matter more than the rate.

For most owner-operators in trades, agriculture, manufacturing and logistics buying equipment they intend to use for a decade, the chattel mortgage is the usual answer. For owners running a fleet they refresh every three years, an operating lease usually fits better.

What is the instant asset write-off, and where does it stand in 2026?

The instant asset write-off lets an eligible small business immediately deduct the business portion of the cost of an eligible asset, rather than depreciating it over several years. It has been one of the most used tax incentives available to Australian small business, and one of the most frequently changed.

For the 2025-26 income year the threshold was $20,000 per asset for businesses with aggregated annual turnover under $10 million. That was legislated.

The position for 2026-27 is not yet settled, and it is worth understanding before you sign anything. In the 2026-27 Budget on 12 May 2026 the Government announced it would make the $20,000 threshold permanent from 1 July 2026. The Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 was introduced to the House of Representatives in late June 2026 to give effect to that. As at late July 2026 it has not passed the Senate, where it requires crossbench support. The Coalition has argued for a $50,000 threshold instead.

This matters because the earlier threshold was legislated on a temporary basis and expired on 30 June 2026. If the Bill does not pass, the threshold for the current income year falls to $1,000.

So a business installing equipment today is making a decision whose deduction depends on legislation that has not yet passed. Necessary equipment should not be deferred on that basis. But it is worth modelling the purchase at both thresholds and timing it with the installed-and-ready-for-use test in mind.

Several mechanics apply regardless of where the threshold lands. The asset has to be first used or installed ready for use within the income year, not merely purchased or paid for. The write-off applies per asset, so a business buying three qualifying items can claim each separately. An asset costing the threshold or more goes into the small business simplified depreciation pool instead, where it is depreciated at 15% in the first year and 30% in each year after. Passenger vehicles are subject to the car limit, which is easy to miss, and assets used partly for private purposes must be apportioned.

Where most owners come unstuck is the interaction between the write-off and the finance structure. A chattel mortgage generally preserves the deduction, because you own the asset. A finance lease often does not, because the lender does. So the choice of finance product can determine whether you get the deduction at all, which is exactly the kind of detail that belongs in the conversation before you sign.

How does equipment finance affect the rest of your business?

When you finance a piece of equipment, you are making a decision that quietly affects four other parts of the business at the same time.

Your tax position comes first. What depreciation, GST and interest you can claim depends on the structure you choose and on which entity ends up holding the asset.

Then your cashflow rhythm. Repayment frequency interacts with seasonal income in ways that rarely get pressure-tested when the deal is signed.

Then your borrowing capacity. Asset finance appears on the debt schedule the next lender reads, and a poor structure here can cost you a property facility eighteen months later.

And finally what happens at the other end, when you sell or hand over the business. Clean asset structures present well to a buyer. Mixed structures create work.

In many firms those four things sit with three or four different people who have never been in the same room. At Lumos they are one conversation.

What should you ask before signing an equipment finance facility?

If you are about to sign a commercial equipment finance facility, the conversation should cover at least these points.

• Which entity should hold the asset? Operating company, trading trust or holding structure, each with different tax, succession and asset protection implications.
• Will the depreciation land somewhere that can use it? Worth checking before, not after.
• Does the repayment schedule line up with how cash actually moves through your business across the year?
• What does this facility do to your borrowing capacity over the next eighteen months? If a property purchase or working capital top-up is coming, this matters.
• If a sale or restructure is on the horizon in five years, will this asset’s structure help or complicate it?

If your existing arrangement was not run through these questions, that does not make it wrong. It means the strategic implications were not part of the decision, which is worth knowing before the next facility goes in.

What changes when the structure is right

When equipment finance sits inside a coordinated strategy rather than as a standalone transaction, several things shift. The depreciation lands where it can be used. Repayment timing reflects how the business actually earns through the year. Your asset register and your loan book agree with each other twelve months later. The next lending decision is not already compromised by this one. And when the time comes to sell or transition, the asset structure does not slow the conversation down.

None of this is exotic. It requires the lender, the accountant and the business owner to be in the same conversation before the documents are signed, which is not the experience most business owners have.

What to watch in the 2026 lending environment

Two practical things to keep in mind for equipment finance in Australia right now.

Borrowing costs are materially higher than they were between 2020 and 2022, when the Reserve Bank of Australia (RBA) cash rate sat at historic lows. Pricing in 2026 should be tested for affordability across the whole term rather than at origination alone, and at more than today’s rate. The facilities that look comfortable today and become difficult in eighteen months are the ones to watch.

The instant asset write-off threshold also continues to move. What was deductible last year may not be this year, which can change which finance structure makes the most sense. Essential equipment investment should not be delayed on that basis, but the structure does need to be current, particularly for businesses where machinery finance represents a meaningful share of capital expenditure each year.

How Lumos approaches equipment finance

Equipment finance sits inside Lumos’s Finance & Lending capability, and it is not handled in isolation. Every facility is reviewed against the client’s tax position, business structure and direction before recommendations are made, with input from Accounting & Tax Strategy at the same time. That coordination changes the outcome more than the rate does.

If you are about to sign a facility, or you have one in place that has never been looked at against the rest of your business, that is the conversation to have before the next decision gets made.

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