# How chattel mortgage depreciation works for a work ute

> A practical guide to depreciation, GST and interest deductions when you buy a work ute on a chattel mortgage in NZ — with a worked example and the traps at trade-in time.

Source: https://tradiefinance.co.nz/guides/chattel-mortgage-depreciation-work-ute
Published: 2026-05-14T08:00:00.000Z
Updated: 2026-05-14T08:00:00.000Z
Category: asset-finance
Tags: asset-finance, chattel-mortgage, depreciation, gst, work-vehicle, guide

TL;DR: On a chattel mortgage, your business owns the ute from day one, so you depreciate it against business income and (if GST-registered) claim the GST back on purchase. Depreciation and the loan are separate things — you depreciate the asset's value while you deduct only the interest portion of repayments. Watch for depreciation recovery (taxable) when you sell for more than the written-down value.

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This is the question I get from every tradie who's about to buy a ute through the business: *"So I can write the whole thing off, right?"*

Not quite. Here's how depreciation actually works on a work ute bought under a [chattel mortgage](/glossary/chattel-mortgage) — and why the loan and the depreciation are two completely separate stories.

## First principle: the loan and the depreciation are different things

This trips up almost everyone. There are two parallel things happening:

- **The loan** is how you *funded* the ute. Each repayment is part principal, part interest. Only the **interest portion is a tax deduction**. The principal isn't — it's just you paying back money you borrowed.
- **Depreciation** is the tax system's way of recognising that the *asset itself* loses value over time. You deduct depreciation on the ute's value regardless of how you paid for it.

So you don't "write off the ute" through the loan. You deduct the interest on the loan, *and separately* you depreciate the asset. Keep those two in different mental boxes and the rest follows.

## Why the chattel mortgage structure unlocks this

Under a chattel mortgage, **your business owns the ute from day one** — the lender just registers a [security interest](/glossary/security-interest-ppsr) over it. Because the business owns the asset, the business gets to:

1. Depreciate it against business income from purchase.
2. Deduct the interest portion of the repayments.
3. If GST-registered, claim the [GST back](/glossary/gst-on-asset-finance) on the purchase price up front.

That ownership-from-day-one feature is the whole reason established tradies prefer it over [hire purchase](/glossary/hire-purchase) in their personal name.

## How depreciation is calculated

Inland Revenue sets depreciation rates by asset class and lets you choose a method:

- **Diminishing value (DV):** you depreciate a fixed percentage of the *remaining* (written-down) value each year. Bigger deductions early, tapering off.
- **Straight line (SL):** the same dollar amount each year across the asset's life.

Most tradies use diminishing value for vehicles because the bigger early deductions match how a ute loses value fastest in its first couple of years. The DV rate for a passenger/light commercial vehicle is commonly around **30%**, but you should confirm the current rate and class with your accountant or the IR depreciation rate finder — rates change and depend on the exact asset.

<Callout variant="warn" title="You depreciate the GST-exclusive cost">
If you're GST-registered and you claimed the GST back, you depreciate the **GST-exclusive** price — not the sticker price. Depreciating the full GST-inclusive figure would be double-dipping. If you're *not* GST-registered, the GST is part of your cost and you depreciate the lot.
</Callout>

## A worked example

A plumber buys a **$57,500 GST-inclusive** work ute. GST-registered, limited company, diminishing value at 30%.

**Step 1 — strip out the GST you'll claim back:**

- GST component: $57,500 ÷ 23 × 3 = **$7,500**, claimed back on the next GST return.
- GST-exclusive cost to depreciate: **$50,000**.

**Step 2 — depreciate on diminishing value (30%):**

| Year | Opening value | Depreciation (30%) | Closing (written-down) value |
|---|---|---|---|
| 1 | $50,000 | $15,000 | $35,000 |
| 2 | $35,000 | $10,500 | $24,500 |
| 3 | $24,500 | $7,350 | $17,150 |
| 4 | $17,150 | $5,145 | $12,005 |

(Year-one depreciation is apportioned for the months you actually owned the ute — a mid-year purchase doesn't get a full year's claim.)

**Step 3 — deduct the interest, separately.** Say the loan interest is ~$2,400 in year one. That's deductible on top of the $15,000 depreciation. The **principal** portion of your repayments is *not* deductible.

So in year one, this plumber's deductions from the ute are roughly **$15,000 depreciation + $2,400 interest = $17,400**, plus they've had **$7,500 GST** back in the bank. That's a meaningful difference to taxable profit — and it's why the structure matters more than chasing the last 0.5% off the rate.

## The trap at trade-in: depreciation recovery

Here's the bit nobody warns you about. After four years, the ute's **written-down (tax) value** is $12,005. But popular utes hold value — say you sell or trade it for **$22,000** (GST-exclusive).

You sold it for **$9,995 more than its written-down value**. The tax system claws back the depreciation you "over-claimed": that ~$9,995 of **depreciation recovery is taxable income** in the year you sell. You also generally return GST on the sale price if you're registered.

It's not a penalty — it's the system reconciling. But if you weren't expecting it, a trade-in year can come with a tax bill that feels like it appeared from nowhere. Plan for it.

<Callout variant="tip" title="The order of operations">
1. Decide the structure (chattel mortgage vs hire purchase) with your accountant *before* you buy.
2. Buy the GST-exclusive value into your depreciation schedule.
3. Track the written-down value each year.
4. At trade-in, expect depreciation recovery if the ute sold above its written-down value, and provision for the tax.
</Callout>

## What this means in practice

For an established, GST-registered trade business buying a ute that'll genuinely earn, the chattel mortgage is almost always the right structure: ownership from day one, GST back up front, depreciation and interest deductions along the way. The only real homework is keeping your accountant across the depreciation schedule and the eventual recovery.

If you'd like help running your actual numbers — purchase price, expected resale, whether a [balloon](/glossary/balloon-payment) fits, and how it lines up against an [overdraft](/guides/asset-finance-vs-bank-overdraft) for the cashflow side — talk it through with a real broker first.