Equipment finance and the instant asset write-off
Equipment finance lets a business acquire vehicles, machinery or fit-out and pay for it over time instead of up front. The instant asset write-off is a separate tax measure that lets eligible businesses deduct the cost of a qualifying asset sooner rather than depreciating it over years. The two often work together, but the tax rules change regularly, so treat the numbers as an accountant question, not a settled figure.
How equipment finance is usually structured
Chattel mortgage. You own the asset from the start and the financier takes security over it. It sits on your balance sheet, and you may be able to claim depreciation and the interest portion of repayments. This is the structure most often paired with the write-off.
Finance lease. The financier owns the asset and you pay to use it, usually claiming the lease payments as a deduction rather than depreciation. Ownership may transfer at the end depending on the contract.
Rental / operating lease. Closest to renting: you use the asset, hand it back at the end, and typically deduct the rental payments. No write-off, because you never own it.
Where the write-off fits
When you buy an asset outright or via a chattel mortgage, it can be eligible for the instant asset write-off in the year it's first used or installed ready for use, provided it meets the current rules. Financing the purchase doesn't generally remove that eligibility, because you own the asset, even though the cash leaves your account over the loan term. That combination, deduct now, pay over time, is why the two are so often discussed together. The catch is entirely in the detail: the threshold, whether your business turnover qualifies, and timing all change, so the deduction you're counting on has to be confirmed for the specific financial year.
Before you commit
- Ask your accountant which structure suits your tax position before you sign, not after.
- Confirm the current write-off threshold and eligibility for the relevant financial year with the ATO.
- Compare the total cost of the finance in dollars, the same way you would any business loan.
- Check the balloon or residual payment on leases and chattel mortgages, if any.
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Common questions
- Can I use the instant asset write-off if I finance the equipment?
- Generally yes. With a chattel mortgage you typically own the asset from day one, so it can be eligible for the write-off in the year it's first used or installed, even though you're paying it off over time. The rules and thresholds change year to year, so confirm your eligibility with your accountant or the ATO before relying on it.
- What's the difference between a chattel mortgage and a lease?
- With a chattel mortgage you own the asset and borrow against it, so it sits on your balance sheet and you may claim depreciation and the interest portion. With a finance lease the financier owns the asset and you pay to use it, claiming the lease payments instead. Which is better depends on your tax position and cash flow, so it's an accountant question.
- What's the current write-off threshold?
- It changes with each federal budget and has been set at different levels in different years. Rather than quote a figure that may be out of date, check the current threshold and eligibility on the ATO website or with your accountant.