Overview: what you can usually claim
In Australia, the tax benefits on medical equipment finance depend on the finance structure, your GST registration and how the asset is used in your healthcare business. At a glance:
- GST credits: If you’re registered for GST and the equipment is used to make taxable or GST-free supplies, you can generally claim input tax credits on the GST you pay on the purchase or on lease charges. Most medical services are GST‑free yet still allow input tax credits when you are registered. See ATO guidance linked below.
- Ownership structures (chattel mortgage or hire purchase): You typically deduct depreciation on the asset and interest on the loan separately. GST on the purchase is usually claimed upfront in your BAS.
- Leases: You generally deduct the full lease rentals as operating expenses. GST is claimed progressively on each rental. You usually don’t claim depreciation because you don’t own the asset during the term.
- Immediate deductions: Temporary full expensing ended 30 June 2023. A small-business instant asset write‑off has been announced for certain periods — check current ATO thresholds and dates before you claim.
- Apportionment: Reduce deductions and GST credits for private use or any use in making input‑taxed supplies (for example, financial supplies). Keep evidence to support your percentages.
How the main finance structures are taxed
1) Chattel mortgage (equipment loan)
- GST: Generally claim the full GST on the purchase price upfront in your BAS if registered and the asset is used to make taxable or GST‑free supplies. No GST on loan repayments or the final balloon (principal).
- Income tax: Claim depreciation on the cost base (ex‑GST if you claimed the GST credit) over the asset’s effective life, plus a separate deduction for interest.
- Cash flow: Option to include a balloon to reduce monthly repayments; no separate GST on that balloon at the end.
2) Hire purchase (commercial hire purchase)
- GST: Since 1 July 2012, you generally claim the full GST on the asset cost upfront (credit charges are input taxed). No additional GST on a final balloon.
- Income tax: Similar to a chattel mortgage — depreciation plus interest deduction.
3) Finance lease
- GST: GST is included in each lease rental; you generally claim credits progressively on each payment to the extent of business use in making taxable or GST‑free supplies.
- Income tax: You typically deduct the full rental when incurred (no separate interest deduction; no depreciation during the lease).
- Residual: Lenders set a residual that broadly aligns with ATO residual value guidelines used in industry practice. If you buy the asset at the end, the residual payment includes GST (which may be claimable subject to business use).
4) Operating lease (rental)
- Usually off‑balance‑sheet rental of the asset with maintenance options; you deduct rentals, claim GST credits on rentals, and simply return the asset or renew/upgrade at term end (no residual purchase unless agreed).
GST and healthcare specifics
- GST-free services: Most medical services are GST‑free. If you’re registered for GST and the equipment is used to make taxable or GST‑free supplies, you can generally claim input tax credits on related acquisitions. ATO guidance confirms this.
- Apportionment for mixed use:
- Private use: Reduce GST credits and deductions for any private/non‑business use (for example, if equipment is partly used for training or research not related to your business income).
- Input‑taxed supplies: If you also make input‑taxed supplies (for example, some financial supplies), apportion GST credits and relevant deductions to exclude that use.
- Mixed GST classifications: If the equipment supports both taxable/GST‑free and input‑taxed activities, use a reasonable basis to apportion (income, time, floor space or usage logs as appropriate).
- Used/second‑hand equipment: Input tax credits can still be available if the supplier charged GST and you meet the usual rules. If purchased from a non‑registered seller with no GST, there’s no GST credit to claim.
- Balloon vs residual GST: As noted, no extra GST on a chattel mortgage or hire purchase balloon; GST applies to a lease residual if you purchase the asset at end.
Instant asset write-off and depreciation rules
- Temporary full expensing (TFE): Ended on 30 June 2023. Assets installed ready for use by then may have been eligible. Check ATO for specifics.
- Instant asset write‑off (IAWO): The Government announced a $20,000 threshold for small businesses (aggregated turnover < $10m) for assets first used between 1 July 2023 and 30 June 2025 (legislation and ATO guidance apply; thresholds can change). If eligible and under the threshold, you may immediately deduct the business‑use portion of the cost (ex‑GST if you claimed credits).
- Otherwise, depreciate: If you’re not eligible for IAWO (or the cost exceeds the threshold), claim depreciation over the effective life per ATO guidance, and claim interest (for ownership structures) or lease rentals (for leases) as relevant.
- Small business pools: If using simplified depreciation, you may pool assets; follow current ATO pooling rules and thresholds.
Always confirm the latest ATO thresholds and dates before you claim — measures can be extended, amended or replaced.
Worked example: chattel mortgage vs finance lease
This simplified illustration shows the different timing and type of claims. It is not tax advice — use your actual interest rate, effective life and eligibility.
Scenario
- Asset: Ultrasound machine priced at $110,000 ex GST ($121,000 inc GST)
- Business: GST-registered medical practice using the asset entirely for taxable or GST‑free supplies
- Term: 5 years
- Interest rate (loan) / implicit rate (lease): 7% p.a. (assumed)
- Residual/Balloon: 20% of ex‑GST price at end of term ($22,000) for both structures
- Assume not eligible for IAWO; depreciation over effective life per ATO (illustrative only)
A) Chattel mortgage
- GST at start: Claim $11,000 input tax credit in the first BAS.
- Tax deductions each year:
- Depreciation: On $110,000 (ex‑GST). If the effective life is 8 years (illustrative), prime cost at 12.5% ≈ $13,750 in year 1. Use your ATO‑determined effective life and chosen method.
- Interest: Deduct interest charged in each year. Approximate year‑1 interest ≈ $7,700 (declining thereafter as principal reduces; actual amortisation will vary).
- Balloon at end: Pay $22,000 principal. No additional GST on the balloon. Asset continues to be depreciated until fully written down.
B) Finance lease
- GST on rentals: Each lease payment includes GST; you claim input tax credits progressively on each rental to the extent of eligible use.
- Tax deductions: You typically deduct the full lease rentals paid each year (no separate interest deduction; no depreciation during the lease).
- Residual at end: If you buy the asset for $22,000 + GST ($2,200), the residual is a taxable supply by the lessor. You may be able to claim the $2,200 GST credit (subject to eligible use).
Comparing after‑tax cash flow
- Chattel mortgage: Larger GST credit upfront ($11,000) and ongoing depreciation + interest deductions.
- Finance lease: Rental deductions may be higher in early years; GST credits occur over time with each rental; if you purchase at end, you’ll pay and (potentially) claim GST on the residual.
Approval and documentation
Lenders and your accountant will want clear records to support finance approval and your tax position. Helpful items include:
- Supplier quote or tax invoice showing price and GST clearly
- Intended use notes (confirm the asset supports taxable or GST‑free supplies)
- Your GST registration status and ABN
- Preferred structure (loan, hire purchase, lease) and any balloon/residual
- Cash‑flow forecasts or budgets for larger purchases
- If mixed use: your apportionment basis and evidence (usage logs, schedules)
Get help with medical equipment finance tax benefits
Have questions about GST credits, depreciation, instant asset write‑off, or which structure suits your healthcare business? Send an enquiry — we’ll map your options and flag the trade‑offs.
Frequently asked questions
Can I claim GST credits if most of my services are GST-free?
Yes. If you are registered for GST and the equipment is used to make taxable or GST‑free supplies, you can generally claim input tax credits on related acquisitions. This includes many medical practices where clinical services are GST‑free. You must apportion if there is any private use or use in making input‑taxed supplies. See ATO guidance on claiming and apportioning GST credits.
How do deductions differ between a chattel mortgage (or hire purchase) and a finance lease?
With ownership structures (chattel mortgage or hire purchase), you generally claim depreciation on the asset and a separate interest deduction. With a finance lease, you generally deduct the full lease rentals as operating expenses; you normally don’t claim separate interest or depreciation during the lease.
Is GST payable on a balloon or residual at the end?
Chattel mortgage or hire purchase: GST is typically claimed upfront on the purchase price; later repayments, including any balloon, are principal and don’t attract additional GST.
Finance lease: Each rental includes GST; if you purchase the asset at the end, the residual includes GST (claimable to the extent of eligible use).
What about instant asset write-off and temporary full expensing?
Temporary full expensing ended on 30 June 2023. The Government announced an instant asset write‑off threshold of $20,000 for small businesses (aggregated turnover < $10m) for assets first used between 1 July 2023 and 30 June 2025, subject to legislation and ATO guidance. Check the latest ATO updates before you claim.
How do I apportion for private or mixed supplies?
Reduce GST credits and income‑tax deductions to reflect any private use. If you also make input‑taxed supplies (such as financial supplies), apportion to exclude that use. Keep a reasonable and well‑documented basis (for example, usage logs or revenue shares).
Do lenders follow ATO residual value guidelines for leases?
Yes, lenders typically set lease residuals that broadly align with ATO residual value guidance used in industry practice. This helps ensure the lease is treated as a lease for tax purposes. If the residual is too low, the arrangement risks being recharacterised.
Can used medical equipment be financed and still qualify for tax benefits?
Often yes. Tax treatment depends on the finance structure and whether GST was charged by the supplier. Depreciation applies to second‑hand assets under the usual rules; confirm any specific effective life and eligibility with your accountant.
Authoritative ATO guidance and references
- GST credits when acquisitions relate to taxable or GST‑free supplies and apportionment for mixed use: ATO – Claiming and apportioning GST credits https://www.ato.gov.au/business/gst-in-your-business/claiming-gst-credits/apportioning-gst-credits
- GST treatment of leases, hire purchase and instalment sales (including residual payments): ATO – Leases, hire purchase and instalment sales https://www.ato.gov.au/business-and-organisations/gst-in-your-business/assets,-equipment-and-other-items/leases-hire-purchase-and-instalment-sales
- Instant asset write‑off for small business: ATO – Instant asset write‑off https://www.ato.gov.au/business-income-and-deductions/small-business-entity-concessions/instant-asset-write-off
- Temporary full expensing (ended 30 June 2023): ATO – Temporary full expensing https://www.ato.gov.au/business-income-and-deductions/depreciating-assets/temporary-full-expensing
- Depreciating assets and effective life: ATO – Guide to depreciating assets https://www.ato.gov.au/business-income-and-deductions/depreciating-assets and Effective life determinations https://www.ato.gov.au/business-income-and-deductions/depreciating-assets/effective-life-of-depreciating-assets
- Industry‑used lease residual value guidance: ATO Legal Database – IT 28 (historical guidance commonly referenced by lenders) https://www.ato.gov.au/law/view/document?DocID=ITR/IT28/NAT/ATO/00001
Final takeaway
For medical equipment finance in Australia, the right structure can improve after‑tax outcomes: ownership (loan or hire purchase) favours upfront GST credits and depreciation + interest, while leases favour rental deductions over time and GST on each rental. Always check current ATO thresholds for instant asset write‑off and apply proper apportionment for private use or input‑taxed activities.
Get a side‑by‑side tax comparison for your purchase
Author: Asset Finance Help Editorial Team. Tax content reviewed by an Australian registered tax agent prior to publication.