When your business needs vehicles, machinery or equipment, it is important to determine both what you need and how to pay for it.
Why get new business vehicles, machinery or equipment?
There are plenty of potential benefits of getting new, additional or replacement vehicles, machinery or equipment for your business. For example:
- a new premises fit-out or makeover.
- replacing outdated machinery or equipment to boost productivity and remain competitive.
- tax benefits. These benefits vary depending on whether you lease, take out a loan or buy your business assets outright.
There is also a huge range of business assets you can get to suit the specific needs of your industry. For example:
- heavy vehicles like trucks for enhanced transport and distribution capabilities.
- earthmoving equipment for the construction industry.
Take out a loan, lease or buy outright?
Depending on the type of business vehicle, machinery or equipment that you want to buy, you generally have three main finance options.
- taking out a loan or hire purchase agreement (where you borrow to buy the asset and pay it off via regular repayments over the loan or hire purchase term). This means that you will not have to come up with significant funds upfront to buy the asset.
- leasing (where you rent the asset for a specific period, rather than buying it).
- paying the entire purchase price upfront with your existing business funds. The main drawback of doing this is that it may significantly affect your working capital.
Each of these options has different tax implications.
The tax benefits of equipment loans
Equipment loans and hire purchase agreements can allow you to claim tax deductions for:
- the purchase price of the asset if it is under $20,000 and your business qualifies for the instant asset write-off scheme.
- any ongoing operating expenses of using your asset (for example, repairs and maintenance).
- your loan or hire purchase agreement interest.
- depreciation over the estimated useful life of your asset if it costs more than $20,000 or your business is not eligible for the instant asset write off scheme. Different types of assets have different lifespans for depreciation purposes.
The tax benefits of leasing
If you lease your business equipment, you can claim tax deductions for:
- your lease payments.
- any other ongoing operating expenses of the asset.
However, since you are renting rather than buying it, there is no purchase cost to potentially claim under the instant asset write-off scheme either. You also cannot claim depreciation on leased business equipment for the same reason.
The tax benefits of buying upfront
If you buy equipment outright with your own business funds upfront, you can claim tax deductions for:
- the purchase price of the asset if it is under $20,000 and your business qualifies for the instant asset write-off scheme.
- depreciation over the estimated useful life of your asset if it is worth over $20,000 or your business is not eligible for the instant asset write-off.
- any other ongoing operating expenses of the asset.
You will not have any loan interest to claim as a tax deduction if you pay for your business equipment upfront with your own funds.
How we can help
Our tax professionals at Wilson Pateras can help our clients identify the tax benefits you may receive from this purchase, as well as advising whether you can take advantage of the instant asset write off scheme. In addition, our lending team can help you identify which type of loan is most suited to purchase a vehicle or equipment based on your business circumstances. Contact us on 03 8419 9800 to find out more.
This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information. Liability limited by a scheme approved under Professional Standards Legislation.
