What is an EV Chattel Mortgage?
An EV chattel mortgage is the most popular business vehicle finance option in Australia. It's a secured loan where you own the electric vehicle immediately, but the lender holds a mortgage (charge) over it until the loan is repaid. This structure provides maximum tax benefits whilst giving you full control of the asset from day one.
Unlike a lease where you don't own the vehicle during the term, a chattel mortgage makes you the legal owner from the start. The vehicle appears on your balance sheet as an asset, allowing you to claim depreciation, and you can claim the GST immediately if your business is GST registered.
Key Benefits
- Immediate Ownership: You own the EV from day one, giving you full control over the asset
- Claim GST Upfront: If GST registered, claim the GST component on the full purchase price immediately
- Depreciation Benefits: Claim depreciation on the vehicle value as a business expense
- Interest Deductions: Interest payments are tax-deductible business expenses
- Flexible Terms: Finance periods from 1-7 years with balloon payment options
- Lower Running Costs: EVs have significantly lower fuel and maintenance costs than traditional vehicles
How an EV Chattel Mortgage Works
Step 1: Purchase & Ownership
You select your electric vehicle and we arrange the chattel mortgage. The lender pays the dealer or seller, and you immediately become the legal owner of the vehicle. The lender registers a charge over the vehicle as security for the loan.
Step 2: Claim Tax Benefits
As the owner, you can immediately claim tax benefits:
- Claim the full GST component on your next BAS (if GST registered)
- Claim depreciation on the vehicle's value each year
- Claim interest expenses as business deductions
- Claim running costs (electricity, insurance, maintenance) if used for business
Step 3: Make Repayments
You make regular repayments (monthly, fortnightly, or weekly) consisting of principal and interest. These payments are made from your post-tax income, but the interest component is tax-deductible.
Step 4: Balloon Payment (Optional)
If you choose a balloon payment structure, you'll have lower monthly repayments during the loan term. At the end, you can:
- Pay the balloon amount and own the vehicle outright
- Refinance the balloon for another term
- Sell the vehicle and use proceeds to pay the balloon
- Trade in the vehicle for a newer model
Who is it For?
An EV chattel mortgage is ideal for:
- Businesses with an ABN and 6+ months trading history
- GST-registered businesses wanting to claim GST upfront
- Companies wanting to own their business vehicles
- Businesses planning to keep the vehicle long-term
- Fleet operators purchasing multiple electric vehicles
Balloon Payment Options
A balloon payment (residual value) can significantly reduce your monthly repayments. The Australian Tax Office (ATO) sets maximum balloon payment amounts based on the loan term:
- 1 year: Up to 65% balloon
- 2 years: Up to 56.25% balloon
- 3 years: Up to 46.88% balloon
- 4 years: Up to 37.5% balloon
- 5 years: Up to 28.13% balloon
Your balloon payment should reflect the expected value of the vehicle at the end of the term. Electric vehicles typically have strong resale values, making balloons an attractive option.
Tax Implications
Understanding the tax treatment of a chattel mortgage helps you maximise your benefits:
GST
If your business is registered for GST, you can claim the GST component (1/11th of the purchase price) on your next Business Activity Statement, even though you're financing the vehicle.
Depreciation
You can depreciate the vehicle using either:
- Prime Cost Method: Depreciate the same amount each year
- Diminishing Value Method: Higher depreciation in early years (typically more beneficial)
Electric vehicles have a useful life of 8 years for tax purposes, though instant asset write-off provisions may apply for eligible businesses.
Interest Deductions
The interest portion of your repayments is tax-deductible as a business expense. Your lender will provide an annual statement showing the interest paid.
Running Costs
If the EV is used for business purposes, you can also claim:
- Electricity/charging costs
- Insurance premiums
- Registration and CTP insurance
- Maintenance and repairs
Example: How Much Can You Save?
Scenario: A GST-registered business purchases a $70,000 Tesla Model 3 with a chattel mortgage.
Immediate GST Refund:
GST component: $70,000 รท 11 = $6,364
This is claimed back on the next BAS.
Annual Depreciation:
Using diminishing value method over 8 years, first year depreciation could be around $17,500 (25% rate).
Interest Deductions:
With a 7% interest rate on $70,000, first year interest might be approximately $4,500, which is fully deductible.
Total First Year Tax Benefits: $6,364 (GST) + $17,500 (depreciation) + $4,500 (interest) = $28,364 in tax deductions/refunds, significantly reducing the effective cost of the vehicle.
Note: This is a simplified example. Actual tax benefits depend on your individual circumstances, business structure, and tax rate. Consult your accountant for specific advice.
Frequently Asked Questions
What is an EV chattel mortgage?
An EV chattel mortgage is a secured business loan where you own the electric vehicle from day one, but the lender holds a mortgage over it until the loan is repaid. This structure allows you to claim GST on the purchase price, depreciation, and interest expenses as business deductions.
Can I claim GST immediately with a chattel mortgage?
Yes, if your business is registered for GST, you can claim the GST component on the full purchase price in your next Business Activity Statement (BAS), even though you're paying for the vehicle over time.
What is a balloon payment on an EV chattel mortgage?
A balloon payment is a larger final payment at the end of the loan term. It reduces your monthly repayments during the loan period. When the balloon is due, you can pay it, refinance it, or sell the vehicle to cover it.
Do I own the EV immediately with a chattel mortgage?
Yes, with a chattel mortgage you own the vehicle from the moment of purchase. The lender simply holds a charge over it as security until the loan is fully repaid. The vehicle appears as an asset on your business balance sheet.
What are the tax benefits of an EV chattel mortgage?
With an EV chattel mortgage, you can claim: GST on the purchase price (if GST registered), depreciation of the vehicle value, interest expenses on the loan, and running costs if the vehicle is used for business purposes. These deductions can significantly reduce the effective cost of the vehicle.