Are Machinery Finance Repayments Tax Deductible?

Key highlights

• Deductibility depends on the finance structure and business use
• Interest and depreciation may be deductible under a chattel mortgage
• Lease and rental payments are often treated differently again
• Private-use portions generally reduce what you can claim
• Your accountant must confirm deductions for your situation

Is machinery finance tax deductible in general?

In broad terms, costs incurred in running your business and earning income can often be deductible, and machinery finance frequently falls into that category when the equipment is used for business. However, what exactly you can claim depends heavily on the finance structure and the extent of business use. It is rarely as simple as the whole repayment being deductible. Some parts of a repayment relate to principal and some to interest, and different products are treated differently by the tax system. So while the general answer is often encouraging, the detail is specific to your arrangement and your business, which is why personal advice from your accountant is essential.

How are chattel mortgage repayments treated?

Under a chattel mortgage, your business generally owns the machine and borrows against it. The repayment is made up of principal and interest, and typically the interest portion may be claimed as a deduction, while the principal itself is not deductible because it is repaying the loan. Separately, because you own the asset, you can usually claim depreciation on the machine, or the instant asset write-off where it applies. So the deductions come from the interest and the depreciation rather than the full repayment. This combination is one reason many businesses favour a chattel mortgage, but the figures must be confirmed by your accountant for your circumstances.

What about lease or rental payments?

Leases and rentals work differently because the financier usually retains ownership of the machine. With these structures, the payments you make are often treated as an operating expense, which can mean the payments themselves are deductible where the equipment is used for business. In exchange, you generally do not claim depreciation, since you do not own the asset. This can simplify the tax picture, with one deductible payment rather than separate interest and depreciation claims. Whether a lease or a chattel mortgage produces a better outcome depends on your tax position, cash flow and plans for the machine, so it is a decision to make with your accountant's input.

How does business versus private use affect the claim?

Deductions generally apply to the business-use portion of an asset. Pure machinery like an excavator or harvester is almost always used entirely for business, so this is rarely an issue. But if a financed asset has any private use, that proportion typically cannot be claimed, and you would apportion the deductible amount accordingly. Keeping clear records of how the equipment is used supports whatever you claim and protects you if questioned. For most commercial machinery this is straightforward, but it is worth being aware of the principle, because assuming one hundred per cent deductibility without considering use is a common error your accountant will help you avoid.

What records should you keep?

Whatever you intend to claim, good records make it defensible and the process smoother. Keep your finance contract, which sets out the structure and the interest, along with repayment schedules and statements showing the split between principal and interest where applicable. Retain the purchase invoice, and any documentation of business use. If the machine is later sold or upgraded, keep those records too, because disposal can affect your tax position. Organised paperwork not only supports your deductions but also helps your accountant give accurate advice and lodge correctly. It is far easier to keep documents as you go than to reconstruct them at tax time under pressure.

How does a broker support the outcome you want?

A broker cannot tell you what is deductible, but they can arrange the finance structure that delivers the tax treatment your accountant recommends. If your accountant favours the interest-and-depreciation approach of a chattel mortgage, Simon can set that up; if a lease suits you better, he can arrange that instead, comparing 80+ lenders to find competitive terms either way. The value is that the finance and the tax strategy are aligned from the outset, rather than you discovering after signing that the structure does not support the deductions you expected. One conversation with your accountant and one with your broker keeps both sides working together.

Before you commit, make sure the finance structure supports the deductions you are after. Simon Kendrick will run a soft credit check that will not mark your file, compare 80+ banks and non-bank lenders on one application, and arrange the structure your accountant recommends, with indicative decisions often within 24 to 48 hours for eligible applicants. This article is general information only, so confirm deductibility with your accountant. Get an obligation-free quote from Overdrive Machinery Finance and set your finance up to work for your business, subject to lender criteria.