The asset
| Buy outright | Chattel mortgage | Lease / rental |
|---|
Costs over the term are nominal totals; the "cash kept working" row values keeping the purchase price in the business at the return entered. Tax rows are general descriptions only; the instant asset write-off threshold, depreciation method and the business's structure change the outcome, and that is advice from your accountant.
How each one works
Buy outright. The business owns the asset, claims the GST in the next BAS, and depreciates it (or writes it off under the instant asset write-off rules in force at the time). The cost is the cash, and the cash is no longer available for the trading cycle. The working capital calculator shows what that cycle needs.
Chattel mortgage. The business owns the asset from day one and the lender holds a mortgage over it. GST on the price is claimed up front in the next BAS, interest and depreciation are the deductions, and a balloon can lower the repayment. The most common structure for vehicles and plant; the chattel mortgage calculator works it in more detail.
Finance lease. The lender owns the asset and the business leases it, with a residual value at the end that the business usually pays to take ownership. The lease payments are the deduction; GST is claimed on each payment rather than up front. Used where ownership at the start is not wanted.
Operating lease or rental. The business pays to use the asset and hands it back; maintenance is sometimes included. No ownership, no balloon, the payments are the deduction, and usually the highest total cost for an asset kept the whole term. Suits assets that date quickly or a fleet that is turned over.
What decides it in practice
- How long the asset will earn. Match the term to the working life; a balloon makes sense where the asset holds value at the end.
- Cash in the trading cycle. A business that runs short between customer payments should not spend its buffer on an asset it could finance at 8 or 9 per cent.
- Age and type. Lenders finance new and used vehicles and plant with limits on age at the end of the term; specialised or second-hand equipment may need a valuation.
- Low-doc thresholds. For an established ABN with a clean file, approvals to about $150,000 per item usually need no financials, which is often faster than finding the cash.
Understanding that the choice is about where the cash does the most work, not about the headline price, is what makes the decision clear.