Should your business buy, finance or lease its next asset?

That is the question worth answering first.

Before considering tax or finance, ask whether the asset itself makes sense.

What changes after you acquire it? Does it:

• increase capacity?
• replace unreliable equipment?
• reduce labour?
• allow the business to complete work faster?
• open up a new service?
• improve margins?
• support another employee or team?
• simply replace something the business already needs to operate?

There is a big difference between spending $150,000 on equipment that removes a genuine capacity constraint and spending $150,000 because a supplier has offered an attractive finance package.

The funding decision comes after the business case.

Paying cash is the simplest structure.

The business purchases the asset and does not add a new loan or lease repayment.

That can be attractive, particularly where the business has substantial cash available.

But the relevant question is not just: do we have enough money in the bank?

It is: what is left after we spend it?

Imagine a business has $600,000 in cash and wants to purchase a $200,000 piece of equipment.

Technically, it can afford the purchase.

But that does not tell us whether paying cash is sensible.

The business may also need cash for:

• wages
• GST
• income tax
• suppliers
• existing debt
• owner distributions
• another hire
• a property deposit
• seasonal working capital
• slower customer payments

Spending the $200,000 means that cash is no longer available for those things.

There is no new finance repayment competing with future cash flow.

The business also avoids finance costs associated with borrowing or leasing.

Liquidity falls immediately.

That matters because businesses rarely get into cash-flow difficulty because one expense was unaffordable on the day it was paid. Problems tend to occur when several commitments compete for cash at the same time.

That is the distinction worth holding onto through the rest of this decision.

Financing the purchase allows the business to acquire the asset while retaining more of its existing cash.

That can be valuable.

A business might prefer to keep $200,000 available for working capital and accept a regular repayment rather than use the entire amount upfront.

But that creates a different question: can the business comfortably carry the repayment?

The repayment needs to be considered alongside everything already committed.

For example, if the proposed finance creates a $4,000 monthly repayment, that is approximately $48,000 of additional annual cash commitment before considering any other costs associated with the asset.

The business should understand what happens if:

• revenue is lower than expected
• the asset takes longer to generate a return
• margins fall
• another employee is required
• interest costs change
• a major customer pays late

Financing preserves cash today, but future cash flow has another claim against it.

Neither outcome is automatically better.

Leasing can reduce the amount of cash required upfront and spread the cost of using an asset across a period of time.

For some businesses and some assets, that can make commercial sense.

It may also be useful where technology or equipment changes regularly and long-term ownership is less important.

But “lease” can describe different arrangements, and the terms matter.

Before entering into one, understand:

• who owns the asset
• the length of the agreement
• the required payments
• any residual or end-of-term amount
• whether there are early termination costs
• maintenance responsibilities
• whether there is an option to acquire the asset
• what happens at the end of the agreement

A lower upfront payment does not necessarily mean a lower total cost.

The appropriate accounting and tax treatment can also depend on the particular arrangement.

This is where businesses can get caught.

A monthly repayment can look manageable in isolation.

But the better comparison is usually broader. For each option, work through:

• Cash required now — how much leaves the bank at the beginning?
• Monthly or annual commitment — what ongoing payments are created?
• Total cost — what will the business pay across the full term, including financing costs and relevant fees?
• Cash retained — how much liquidity remains available for the rest of the business?
• Ownership — who owns the asset during and after the arrangement?
• Flexibility — what happens if the business no longer needs the asset?

That comparison often makes the decision much clearer.

Want to run the finance numbers? Use our repayment and asset finance tools to model the assumptions yourself. Explore Finance Tools →

Assume a business is considering a piece of equipment costing $180,000.

Immediate cash outflow: $180,000. Ongoing finance repayment: nil.

Cash impact is immediate and significant, but there is no additional finance commitment.

Assume the business contributes $30,000 and finances $150,000.

The initial cash requirement is substantially lower, but the business now has an ongoing repayment and financing cost.

The upfront requirement may be lower again depending on the agreement, but the business needs to assess the total lease payments, end-of-term position and contractual obligations.

There is not enough information in the purchase price alone to decide between the three. We would also want to know:

• how much cash the business currently holds
• its normal monthly cash requirements
• upcoming tax commitments
• existing debt
• how much the asset is expected to contribute
• how quickly that contribution starts
• what else the owners expect to do over the next 12 months

That is why this is a business decision before it is a tax decision.

Tax matters, but it should not drive the purchase.

From 1 July 2026, eligible small businesses with aggregated annual turnover of less than $10 million have permanent access to the $20,000 instant asset write-off. (Australian Taxation Office)

For eligible businesses using the relevant simplified depreciation rules, eligible assets costing less than $20,000 can generally be immediately deducted, with the threshold applying on a per-asset basis.

Assets costing $20,000 or more do not receive that immediate write-off under these rules and may instead enter the small business depreciation pool, subject to eligibility and the applicable rules.

But an immediate tax deduction does not mean the government pays for the asset.

If a business spends $15,000 simply to obtain a deduction, it has still spent $15,000.

The deduction reduces taxable income. It does not turn an unnecessary purchase into a good commercial decision.

The same principle applies to larger assets.

If the asset would not be worth buying without the deduction, the deduction is not the reason to buy it.

Buying an asset and leasing one are not necessarily treated the same way for tax purposes.

Where the business owns a depreciating asset, deductions may arise through the applicable depreciation rules.

For a genuine lease used in producing business income, lease payments may generally be deductible, but the exact treatment depends on the arrangement.

Some arrangements that are described commercially as leases may have different tax or accounting consequences depending on their terms.

There may also be:

• GST considerations
• private-use adjustments
• FBT consequences for vehicles
• interest deductions where finance is used
• balancing adjustments when assets are later sold
• different accounting treatment depending on the arrangement

That is why the contract and the actual use of the asset matter, and why the tax treatment should be confirmed against the specific arrangement.

A $150,000 asset may create considerably more than $150,000 of commitments.

Depending on what it is, there may also be:

• insurance
• registration
• maintenance
• fuel or energy
• storage
• software
• training
• installation
• repairs
• finance fees
• additional staff

If the purchase requires another employee to operate it, that employee can be a larger annual commitment than the finance repayment itself.

Look at the whole decision.

This is where the conversation becomes more interesting.

Suppose new machinery allows a construction business to take on another $1 million of annual work.

The question is not simply whether the machine costs $200,000.

We also need to consider what the additional revenue requires. Perhaps another $1 million of revenue creates:

• $400,000 of gross profit
• another supervisor
• two additional employees
• another vehicle
• higher insurance
• more working capital
• additional administration

The asset may still be an excellent investment.

But its economics cannot be understood by looking at the asset alone. Our business tools let you test what another $1m of revenue actually gives you, and how much pressure the business can absorb.

This is often the part that changes the answer.

A business considering a major asset purchase might also be planning to:

• hire two employees
• buy commercial premises
• make a significant owner distribution
• refinance existing debt
• open another location
• acquire another business

Paying cash for the asset could make perfect sense on its own and become far less attractive once those other decisions are considered.

The reverse can also be true.

A business with strong cash generation and few upcoming commitments may decide that avoiding another finance facility is more important than preserving every dollar of cash.

That context is usually what separates a good purchase from a good purchase funded badly.

The answer is not always “use cash”.

It is not always “finance it and preserve your working capital”.

And it is not always “lease because the repayments are lower”.

It depends on the asset, the agreement and the rest of the business.

At Wakefield Pacific, we can help work through the accounting, tax and business implications of the purchase, model the effect on cash and understand how the commitment fits with everything else the business is planning.

Where finance is required, we can also help get the financial information ready and, where appropriate, introduce you to an appropriately licensed mortgage or finance broker.

The broker is responsible for credit advice, finance options and the application process.

Considering a significant asset purchase? Talk to us before you commit.