Commercial Hire Purchase Explained: How It Works in Australia

A commercial hire purchase is an equipment finance agreement where a lender buys the asset on your behalf and you make fixed repayments to hire it, with ownership transferring to you at the end. The ATO treats it as if you purchased the asset outright, so you claim the full GST credit upfront, deduct the interest, and depreciate the asset from day one. Terms run from one to seven years.

Why businesses use commercial hire purchase

Commercial hire purchase is one of the most common equipment finance structures in Australia, particularly for vehicles, trucks, and heavy machinery. The average equipment finance request in Australia sits at $117,394, with construction, transport, and agriculture driving the bulk of demand. CHP suits these industries because it is straightforward: fixed repayments, a clear end date, and ownership at the finish. There are no surprises about who owns the asset or what happens at the end of the term.

How commercial hire purchase works step by step

1. You choose the asset

You select the vehicle, truck, or equipment you want to buy and agree on a price with the supplier. You can negotiate the purchase price independently before involving the lender.

2. The lender buys it on your behalf

Once your finance is approved, the lender pays the supplier directly. The lender takes legal title to the asset at this point. You take physical possession and start using the asset in your business immediately.

3. You make fixed repayments

Your repayments cover the principal (the purchase price) plus interest. These are fixed for the life of the agreement, so your cash flow is predictable. You can also set a balloon payment (residual value) to reduce your monthly repayments, with the remaining lump sum due at the end.

4. Ownership transfers at the end

When you make the final repayment, or pay out the balloon, legal title passes from the lender to you. Some agreements include an automatic transfer; others require you to exercise a purchase option. Either way, the asset is yours free and clear.

The lender registers their interest on the Personal Property Securities Register (PPSR) for the duration of the agreement. Once you pay it off, the registration is removed.

How the ATO treats commercial hire purchase

This is where CHP gets interesting. Under Division 240 of the Income Tax Assessment Act, the ATO treats a commercial hire purchase as a notional sale and loan, not as a rental. In plain English: even though the lender technically owns the asset, the ATO acts as if you bought it with a loan. This gives you three tax benefits that mirror a standard purchase.

GST input tax credit

You claim the full GST component of the purchase price as an input tax credit on your next BAS. For agreements entered into on or after 1 July 2012, this applies regardless of whether you account for GST on a cash or accruals basis. On a $120,000 truck, that is $10,909 back on your next BAS.

For passenger vehicles, the ATO car depreciation limit of $69,674 (2025-26) caps the GST credit at $6,334. This cap does not apply to commercial vehicles, trucks, utes with a load capacity over one tonne, or equipment.

Depreciation

Because the ATO treats you as the owner from the start, you can claim depreciation on the asset. Small businesses with turnover under $10 million can use the instant asset write-off for assets costing less than $20,000: the full cost is deductible in the year you first use the asset. Assets over $20,000 go into the small business depreciation pool at 15% in the first year and 30% each year after.

For larger businesses, the general depreciation rules under Division 40 apply. The effective life of the asset determines the annual deduction.

Interest deduction

The interest component of each repayment is tax-deductible as a business expense. Note: the full repayment is not deductible, only the interest portion. The principal component is a capital repayment and is not a deduction. Your lender or accountant can provide a schedule showing the split for each period.

What commercial hire purchase actually costs

Here is what CHP looks like at three common price points. All examples assume a five-year term with no balloon.

The Year 1 tax saving on a $250,000 excavator is $13,433. That is real cash back through your tax return, on top of the $22,727 GST credit you already claimed on your BAS.

How a balloon payment changes the numbers

A balloon (or residual) reduces your monthly repayments by deferring part of the principal to the end of the term. On a $120,000 truck at 8% over five years, a 30% balloon of $36,000 drops your monthly repayment from $2,433 to $1,943. That frees up $490 per month in cash flow.

The trade-off: you owe $36,000 at the end. Your options are to pay it in cash, refinance it, or sell the asset and clear the balance. If the asset has depreciated below $36,000, you are underwater and will need to find the difference. For assets that hold value well (late-model trucks, specialised equipment), a balloon works. For assets that depreciate quickly, keep the balloon conservative or skip it entirely.

When commercial hire purchase is the right choice

CHP works well for businesses that:

• Want fixed repayments and a clear ownership timeline
• Are buying vehicles, trucks, or equipment that will be used for more than three years
• Want the tax benefits of ownership (GST credit, depreciation, interest deductions) without paying the full price upfront
• Operate in industries where asset finance is standard: construction, transport, agriculture, manufacturing
• Need predictable cash flow and do not want the complexity of a lease arrangement

When to consider something else

A CHP may not be the best fit if:

• You want to own the asset from day one with no ambiguity about title: a chattel mortgage gives you immediate ownership
• You plan to sell or trade the asset before the term ends: selling an asset under CHP requires the lender's consent because they hold title
• You are unsure whether you want the asset long-term: a finance lease or operating lease may be more appropriate
• You need to compare structures side by side: see our guide to hire purchase vs chattel mortgage

The practical difference between CHP and a chattel mortgage

For most small businesses, commercial hire purchase and chattel mortgage produce identical financial outcomes. The same rate, term, and deposit will give you the same repayments and the same tax deductions. The difference is who holds legal title during the loan. Under CHP, the lender holds title until you pay it off. Under a chattel mortgage, you own from settlement. If this distinction matters to your business, our comparison guide breaks it down with worked examples.

This article is general information only and is not financial advice.