How to Claim Tax Deductions on Equipment Finance in Australia

Introduction

If you’re using finance to buy tools, vehicles, or equipment for your business, you may be entitled to some serious tax deductions. But understanding what you can and can’t claim—especially when juggling loan types, GST, and depreciation—can feel overwhelming.

This guide breaks down exactly how to claim tax deductions on equipment finance in Australia. Whether you’re a tradie, farmer, or small business owner, this is your go-to resource to ensure you’re not leaving money on the table.

1. What Expenses Can Be Claimed on Equipment Finance?

When financing business equipment through a loan, chattel mortgage, or lease, the ATO allows you to claim several deductions depending on the structure used.

Here’s what you may be able to claim:

1. Interest on the loanOnly the interest component of your repayments—not the full instalment.
2. Depreciation of the assetClaimable using either the diminishing value or prime cost method, depending on your accountant’s advice.
3. Lease or rental paymentsIf you’re using finance lease or rental finance, your monthly payments may be fully deductible.
4. GST on the purchaseFor GST-registered businesses, you may claim the full GST amount upfront through your BAS when using a chattel mortgage or hire purchase.
5. Running costsMaintenance, fuel, insurance, and other operating expenses are usually deductible if the equipment is used for business.

2. Instant Asset Write-Off and Temporary Full Expensing

The ATO offers generous tax breaks under the instant asset write-off and temporary full expensing measures (subject to annual thresholds and eligibility).

If you qualify, you may be able to:

1. Write off the full cost of eligible business assets in the same year they’re first used
2. Include financed assets (provided you legally acquire the asset during the relevant period)
3. Apply the write-off to individual items, including vehicles, machinery, or technology

This is especially powerful when combined with equipment finance services because you can deduct the asset’s full cost upfront—without paying the full amount upfront.

3. Which Finance Structures Offer the Best Tax Outcomes?

Chattel Mortgage

1. Most popular for GST-registered businesses
2. GST claimable upfront
3. Interest and depreciation claimable
4. Asset appears on your balance sheet

Hire Purchase

1. Similar to chattel mortgage
2. May suit non-cash accounting methods
3. Ownership transfers at the end of term

Finance Lease

1. Asset remains with the lender
2. Lease payments claimable
3. Residual payment required at end of term

We break these down further in our finance comparison guide.

4. Common Mistakes to Avoid

1. Not keeping detailed recordsEnsure you retain all finance contracts, supplier invoices, and usage logs—especially for partial-use assets.
2. Not apportioning for private useIf equipment is used partially for personal purposes, you can only claim the business-use percentage.
3. Claiming the wrong structureMixing up your loan type or claiming depreciation on a leased asset can raise red flags. Speak with your accountant to confirm you’re using the right approach.
4. Overlooking older equipmentYou may still be able to claim deductions on used equipment finance, provided it meets ATO guidelines.

5. When to Claim and How to Report It

1. Interest and lease payments are usually claimed in your annual tax return.
2. GST input credits are claimed through your Business Activity Statement (BAS).
3. Depreciation and instant asset write-offs are included in your year-end reporting.

Always consult a qualified tax adviser or bookkeeper to confirm your claims.

Final Thoughts

Used properly, equipment finance is one of the most tax-effective ways to grow your business. From utes and trucks to farm machinery fitouts and technology, your investment can generate tax benefits long after the purchase.

Want to make sure your next asset purchase is set up correctly from day one? Apply online or use our Equipment Finance Calculator to estimate repayments and tax impact.