Farm Machinery Finance in 2025: Which Structure Saves You the Most Tax?

This article is general information only and does not constitute financial, tax or legal advice. Individual circumstances vary please consult your accountant or financial adviser before making any finance decisions.

If you're a farmer or rural business owner in regional NSW, you already know that the right piece of machinery can transform your operation. What you might not know is that how you finance that machinery can make just as big a difference to your bottom line as the price you pay for it.

The structure of your equipment finance affects your tax position, your cash flow, your balance sheet and your flexibility — and yet most farmers simply accept whatever their bank offers without realising there are better options available.

This guide breaks down the four main farm machinery finance structures, explains who each one suits, and shows you how to make a decision that's right for your specific operation.

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Why the Finance Structure Matters More Than You Think

When most people think about financing equipment, they focus on two things: the interest rate and the repayment amount. Both matter — but they're not the whole picture.

The structure of your finance determines:

• When and how you can claim tax deductions — including whether you can claim the full GST upfront
• Whether the asset appears on your balance sheet — which can affect future borrowing capacity
• What happens at the end of the term — do you own the asset outright, or do you have a residual to pay?
• How flexible you are to upgrade equipment — important in an industry where technology moves fast

Getting this wrong doesn't just cost you money at tax time. It can affect your ability to borrow in the future, leave you locked into equipment you've outgrown, or create unexpected liabilities at the end of your finance term.

The Four Main Farm Machinery Finance Structures

1. Chattel Mortgage

A chattel mortgage is the most common equipment finance structure for farming businesses — and for good reason. Under a chattel mortgage, the lender advances funds to purchase the equipment and takes a "mortgage" (security interest) over the asset. You own the equipment from day one, and once the loan is repaid, the mortgage is discharged.

The tax advantages can be significant. If your farming business is registered for GST, you may be able to claim the full GST on the purchase price upfront in your next BAS — rather than spreading it over the life of the loan. You may also be able to claim depreciation on the asset each year, and the interest component of your repayments may be tax deductible depending on your circumstances. Speak to your accountant to confirm what applies to your specific situation, including eligibility for the ATO's instant asset write-off provisions.

Best suited to: Farmers and agribusiness operators registered for GST who want to own their equipment, potentially maximise upfront tax deductions and have a straightforward lending structure.

2. Finance Lease

Under a finance lease, the lender technically owns the equipment throughout the lease term, and you make regular lease payments to use it. At the end of the term, you typically have the option to purchase the asset for a residual amount, extend the lease, or return the equipment.

Lease payments are generally tax deductible as a business expense, though the treatment will depend on your business structure and tax position — your accountant can advise what applies to you. Note that recent accounting standard changes (AASB 16) have brought most leases back onto the balance sheet for larger businesses.

Best suited to: Farming businesses that regularly upgrade equipment and want to avoid being stuck with an asset at the end of its useful life, or where the lease payment deduction may be more advantageous than depreciation and interest.

3. Hire Purchase

A hire purchase sits somewhere between a chattel mortgage and a finance lease. The lender purchases the equipment on your behalf, and you "hire" it through regular repayments. Ownership transfers to you automatically once all repayments — including any final balloon — are made.

From a tax perspective, hire purchase is treated similarly to a chattel mortgage for most farming businesses, though the GST treatment differs — rather than claiming all GST upfront, it is spread across repayments. As always, speak to your accountant to confirm the tax implications for your specific structure.

Best suited to: Businesses that want the certainty of eventual ownership but prefer the structure of regular hire payments. Less common than chattel mortgage for farming operations but can suit certain business structures.

4. Operating Lease

An operating lease is the most straightforward structure — you pay to use the equipment for a set period, and at the end of the term, you hand it back. There's no option to purchase, no residual, and no ownership at any point. The full lease payment is typically deductible as a business operating expense, and the asset stays entirely off your balance sheet.

The trade-off is that over the long term, an operating lease can be more expensive than ownership. For a tractor expected to work for 20 years, it rarely makes sense — but for equipment with a short useful life or rapid technological change, it can be the right call. Your accountant can help you weigh the options based on your current tax position.

Best suited to: Equipment that depreciates quickly or becomes obsolete fast. Less commonly used for core farm machinery on the Coffs Coast.

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What Most Farmers Get Wrong

The single most common mistake we see is farmers choosing a finance structure based solely on the repayment amount — without considering the tax and cash flow implications.

A finance lease might have a lower monthly repayment than a chattel mortgage, but if the chattel mortgage structure allows you to claim a GST refund and utilise available tax write-off provisions, it could put more money back in your pocket over the life of the asset. The right answer depends entirely on your individual circumstances.

The second most common mistake is not involving an accountant in the decision. Your finance structure and your tax position are deeply connected — and what works well for one farming business may not suit another, depending on your income profile, business structure and current-year tax position.

At North Coast Lending, we always recommend a conversation with your accountant before finalising a structure. Our job is to make sure you understand your options and connect you with the right lender — your accountant's job is to make sure the structure is optimal for your tax position.

Working With a Broker vs Going Directly to a Lender

When you approach your bank directly for equipment finance, you're seeing one set of products, one set of criteria and one set of rates. The bank's job is to sell you their product — not to find you the best one.

North Coast Lending has access to a panel of specialist equipment finance lenders — including those with specific expertise in agricultural assets. Different lenders assess different asset types differently; a lender with deep experience in agricultural equipment will often offer better terms on a harvester than a mainstream bank that treats it like any other commercial asset.

For straightforward applications from established farming businesses with a strong credit history, approvals can often be available within 24 to 48 hours, subject to application complexity and lender assessment timelines.

Getting Started: What to Bring to Your First Conversation

• What you're buying — make, model, age and purchase price of the equipment
• Your business structure — sole trader, partnership, company or trust
• Your GST registration status
• Recent financial statements or tax returns — typically the last two years
• Your preferred repayment term — most farm equipment finance runs from 2 to 7 years

You don't need to have everything perfectly prepared before you pick up the phone. Part of what North Coast Lending does is help you work through what's needed.

Talk to North Coast Lending About Farm Machinery Finance

North Coast Lending is based in Coffs Harbour and services farming and agribusiness clients across the NSW North Coast — including the Coffs Hinterland, Nambucca Valley, Bellingen, Dorrigo, Woolgoolga and surrounding regions. With a combined team experience of over 130 years in finance, and specialist brokers in both equipment finance and agribusiness lending, we're well placed to help you find the right structure for your next machinery purchase.

Call us today or visit northcoastlending.com.au to get started.

This article is general information only and does not constitute financial, tax or legal advice. Please consult your accountant or financial adviser to confirm what applies to your individual circumstances. North Coast Lending | Coffs Harbour, NSW.