What Not to Do With Your Asset Finance Before EOFY

The worst thing you can do is sign a finance agreement on June 28 without checking how the GST treatment works for your structure.

End of financial year creates pressure. Accountants are booked solid. Equipment suppliers push deadlines. The temptation is to move fast and assume the detail will sort itself out. It usually doesn't. The decision you make between now and June 30 will affect your cashflow for the next three to five years, so getting the structure right matters more than getting the deal done quickly.

Don't Lock In a Chattel Mortgage If You're Not Claiming GST

A chattel mortgage only delivers the GST benefit if you're registered for GST and can claim input tax credits. You pay the full amount including GST upfront, then claim it back in your next Business Activity Statement. If you're not registered or you're using the cash accounting method and won't lodge your BAS for another quarter, you've just funded $10,000 on a $50,000 asset that you can't recover for months. That ties up working capital you might need elsewhere.

Consider a plumber buying a $55,000 ute on a chattel mortgage in late June. If the business is GST-registered and lodges monthly, the $5,000 GST credit comes back in July. But if the business lodges quarterly and uses cash accounting, that credit might not hit the bank until October. The finance repayments start immediately. For three months, the business is carrying the cost of the GST while waiting for the refund.

If your BAS cycle doesn't line up with settlement, a finance lease or hire purchase can spread the GST across the term instead of requiring it all upfront. That keeps your working capital intact.

Don't Choose a Finance Lease Just Because Someone Said It's Tax-Effective

A finance lease allows you to claim the full repayment amount as a tax deduction, but you don't own the asset during the lease term. That sounds appealing until you realise the lender owns the equipment, and you'll need to either pay a residual or refinance at the end to keep it. If the equipment is something you plan to use long-term, a hire purchase or chattel mortgage might reduce your total cost even if the annual deduction is smaller.

In our experience, a cafe owner looking to finance $40,000 worth of commercial kitchen equipment might be steered toward a finance lease because the repayments are fully deductible. But if that equipment has a working life of ten years and the lease term is five, the residual at the end could be $12,000 or more. If the business intended to keep using that equipment, it now has to find another $12,000 or enter a new finance agreement. A hire purchase would have resulted in ownership at the end with no residual, even though the tax deduction each year was lower.

Your accountant should model both structures with your actual taxable income and depreciation schedule before you commit.

Don't Forget That Instant Asset Write-Off Has Conditions

Instant asset write-off allows eligible businesses to immediately deduct the cost of assets up to a certain threshold, but it only applies to assets that are purchased and installed ready for use before June 30. If you sign the paperwork on June 29 but the equipment doesn't arrive until July, you've missed the window. The deduction moves to the next financial year, or you'll need to depreciate it under the standard rules.

The other condition is that the asset must be used primarily for business purposes. If you're financing a vehicle that will also be used privately, only the business-use percentage qualifies. A $60,000 ute that's used 80% for work and 20% for personal trips means you can only claim $48,000 under instant asset write-off. The remaining $12,000 doesn't disappear, it just doesn't qualify for the immediate deduction. You need to account for that when calculating the actual tax benefit.

Don't Sign Vendor Finance Without Comparing It to Direct Lending

Vendor finance and dealer finance are convenient because the supplier arranges everything and you can drive away the same day. The cost of that convenience is often a higher interest rate and less flexibility on the structure. Vendors and dealers receive a commission from the finance company, and that commission is built into your rate. In some cases, the difference is one or two percentage points over the life of the loan, which can mean thousands of dollars on a $100,000 piece of machinery.

We regularly see this with construction equipment finance. A builder might finance an excavator through the dealer at 9.5% when a direct lender would offer the same loan at 7.8%. Over a five-year term on $120,000, that's a difference of more than $10,000 in interest. The dealer's finance might include a balloon payment that looks manageable now but becomes a problem at refinance time if the asset has depreciated faster than expected.

If you're comparing vendor finance to a direct loan, ask for the comparison rate and the total repayable amount, not just the monthly figure. The monthly repayment can look identical while the total cost differs by $15,000.

Don't Structure a Balloon Payment Based on What Keeps the Monthly Amount Low

A balloon payment reduces your monthly repayments by deferring a lump sum to the end of the term. That lump sum doesn't vanish. It either needs to be paid in cash, refinanced, or covered by selling the asset. If the asset is a vehicle or a piece of machinery that depreciates quickly, the balloon might be higher than the resale value when the term ends. You're then refinancing an amount that's more than the asset is worth, and most lenders won't do that without additional security.

A 30% balloon on a $70,000 truck loan means you owe $21,000 at the end. If the truck is worth $18,000 at that point, you'll need to find $3,000 in cash or provide other security to refinance the gap. That's a problem that gets created in June and doesn't surface until three or five years later when the term ends.

Structure the balloon based on what the asset will actually be worth, not what makes the monthly payment fit your budget. If you need lower repayments, extend the term or reduce the loan amount rather than inflating the balloon.

Don't Assume You Can Claim Depreciation and Lease Repayments on the Same Asset

Under a finance lease, the lender owns the asset and you claim the lease repayments as an operating expense. You can't also claim depreciation because you don't own it. Under a chattel mortgage or hire purchase, you own the asset from day one, so you claim depreciation and the interest portion of the repayment, but not the principal. Claiming both is a mistake that gets picked up in an audit and results in amended returns and interest on the underpaid tax.

If you're not clear on which structure allows which deduction, your accountant needs to confirm it before settlement. The finance company won't correct this for you because they're not providing tax advice, and the mistake won't show up until the ATO reviews your return.

Don't Rush the Application Without Checking What the Lender Actually Needs

Lenders need financials, trading history, and in some cases a director's guarantee before they'll approve business loans or asset finance. If your financials are from two years ago and you haven't lodged last year's tax return, the lender will either decline the application or request more recent management accounts. That adds a week or more to the approval process, and if you're trying to settle before June 30, a week is the difference between claiming the deduction this year or next.

If you're applying in the last two weeks of June, assume the lender will need current financials, two years of tax returns, and a breakdown of how the equipment will be used. Have those ready before you submit. Waiting for the lender to request them after the fact means you're already behind.

Call one of our team or book an appointment at a time that works for you. We'll structure the finance to match your tax position and make sure the paperwork is in place before the deadline.

Frequently Asked Questions