By Mackenzie Earl, Accountant
There’s something exciting about buying a new piece of machinery, upgrading your vehicle or investing in technology that’s going to make your business run better.
But before you get too excited and sign on the dotted line, there are a few things I’d encourage you to look at first.
One of the biggest misconceptions we come across is that buying something for the business is automatically a good idea because you’ll get a tax deduction, I wish it were that simple!
A tax deduction can reduce the tax you pay, but you’re still spending the money in the first place. So before making a significant purchase, I’d suggest looking at the bigger picture.
Here are seven questions I think every business owner should ask.
1. Do you actually need it?
This might seem like an obvious place to start, but it’s an important one.
I always recommend thinking about what the purchase is actually going to do for your business rather than starting with the tax benefit.
Will it help you:
- Take on more work?
- Save your team time?
- Reduce your operating costs?
- Replace an old or unreliable asset?
- Improve productivity?
- Generate additional income?
If the answer is yes, there may be a very good business reason to make the purchase.
But if the main reason is simply, “I’ll get a tax deduction,” I’d take another look at the numbers before going ahead.
2. Can your business comfortably afford it?
The price on the invoice isn’t necessarily the full cost of owning something.
Depending on what you’re buying, you might also have finance repayments, insurance, registration, maintenance, repairs, fuel, software, subscriptions or training to consider.
This is where I think cash flow is particularly important.
You might be able to afford the asset based on your annual figures, but that doesn’t necessarily mean the timing of the payments will work comfortably for your business.
Before you buy, look at what the purchase will do to your cash position now and over the coming months.
3. What is the tax treatment?
This is where things can get a little more complicated.
Not every business purchase is treated the same way for tax purposes. Depending on the asset and its cost, you may claim a deduction over time through depreciation or potentially access a specific tax concession.
For eligible small businesses, the $20,000 instant asset write-off is now permanent from 1 July 2026, subject to the relevant eligibility requirements. This allows eligible businesses to immediately deduct the business portion of eligible assets costing less than $20,000, rather than claiming the deduction over a number of years.
But here’s the important part: the tax treatment should be part of the decision, not the reason for the decision. Just because something is deductible doesn’t automatically mean you should buy it.
4. What about GST?
If your business is registered for GST, don’t forget to consider the GST implications of the purchase as well.
Depending on your circumstances and how the asset is used, you may be entitled to claim a GST credit for the business portion of the purchase.
The rules can vary, so make sure you understand how the purchase will be treated and keep the relevant tax invoices and records.
5. Should you pay cash or finance it?
This is one I’m often asked about, and there isn’t a one-size-fits-all answer.
Paying cash means you may avoid finance costs, but it also means taking a chunk of cash out of your business. Financing the purchase can help preserve your cash reserves, but you’ll need to factor in interest and ongoing repayments.
The right option will depend on your business, your cash position, the asset and what else you have planned. Don’t just look at what’s cheapest upfront. Look at what makes the most sense for your business over the longer term.
6. Is now actually the right time?
There’s a common idea that buying an asset before the end of the financial year is automatically a smart tax move, however, it’s not quite that simple.
If your business genuinely needs the asset and buying it now makes commercial sense, there may be a good reason to bring the purchase forward.
But if you’re spending $20,000 purely because you want to reduce your tax bill, remember that a deduction doesn’t make the purchase free.
Remember, you’re still spending the money. The tax benefit is only a portion of the amount you spend, depending on your circumstances.
7. What will the purchase actually do for your business?
This is probably the question I’d spend the most time on, as you need think about what return are you expecting from the purchase?
- If you’re buying machinery, will it allow you to complete more jobs?
- If you’re purchasing a vehicle, will it help you service more customers?
- If you’re investing in technology, will it save your team hours every week or reduce costly errors?
You don’t need to predict exactly what will happen, but having a clear idea of the benefit you expect can make the decision much easier.
Tax planning isn’t about spending money! It can be tempting to think that spending money before the end of the financial year is a good tax strategy.
It isn’t.
Good tax planning is about understanding your options before you make the decision.
Sometimes the right answer will be to buy the asset. Sometimes it will be to wait. Sometimes financing will make more sense than paying cash.
And sometimes, the best decision is not to spend the money at all.
That’s why I always encourage clients to look at the whole picture rather than focusing solely on the tax deduction.
If you’re considering a significant purchase for your business, talk to your accountant before you commit.
At Moore Lewis & Partners, we can help you work through the tax and accounting implications, consider how the purchase fits into your overall financial position and, most importantly, make sure you understand the numbers before making the decision.
This article provides general information only and should not be relied upon as specific taxation or financial advice. Tax outcomes can vary depending on individual circumstances.
