BUSINESS ADVICE • 23 JULY 2021 • 3 MIN READ

Myth busting: buy or lease business assets

SECTIONS

Myth: There’s less commitment with a lease

Fact: There’s way more commitment with a lease

Myth: It’s better for tax purposes to have a lease

Fact: You can claim depreciation on assets for tax purposes

Myth: It’s cheaper to lease

Fact: It’s usually more expensive

Myth: But if it breaks down, it’s not my problem

Fact: It all depends on whether you have that in your lease agreement

Myth: Owning an asset is the best option

Fact: If you have the cash, it may well be

So how do you decide?

Quite a few misconceptions float around the question of whether to lease or buy an asset for your business. Myths arise from what we want to do, as opposed to what’s best for our business – shiny new ute, anyone? – or from what works best for the salesperson you’re talking to. This blog only looks at operating leases, that is, leases where you pay a set amount each month but you don’t end up owning the asset.

The mythology is also helped by the fact there is no hard or fast answer – sorry about that.

Myth: There’s less commitment with a lease

You don’t have to find that large chunk of cash so it feels like your commitment is not as high when all you have to do is ‘sign here’.

Fact: There’s way more commitment with a lease

Once you’ve signed that lease agreement, you really have no (easy) out for the term of the agreement. Breaking the lease early usually results in a lump sum payment to get out of it.

If you’ve bought an asset, all you have to do is sell it again.

Myth: It’s better for tax purposes to have a lease

Because it’s fully deductible every month, right? This is what every salesperson will tell you. And it’s completely true.

Fact: You can claim depreciation on assets for tax purposes

After you take depreciation (and the instant asset write off) into consideration, it often works out pretty much the same.

There is rarely a significant tax difference between buying and leasing. However, there will be a timing difference in the claiming of the deductions.

Myth: It’s cheaper to lease

It feels cheaper because you don’t have to pay now or even provide a deposit.

Fact: It’s usually more expensive

When paying off an asset, you’re paying interest and principal and at the end of it, you own the asset.

With leasing, you pay for the convenience.

Myth: But if it breaks down, it’s not my problem

Maybe, maybe not, check the lease.

Fact: It all depends on whether you have that in your lease agreement

You get charged more to have that kind of cover,

If it’s a new asset and/or under warranty, would you need that added protection?

Myth: Owning an asset is the best option

Buying an asset outright is the best option – no finance, no strings attached?

Fact: If you have the cash, it may well be

However, do you always want to wait for cash surpluses before expanding your business?

Sometimes there is a business case for leasing now to generate more revenue.

So how do you decide?

How much extra revenue will the asset generate? Or how much will it save on costs? For example, buying yourself a shiny new ute may well make economic sense if your old one is costing you a lot on maintenance.
Whatever the asset is, do your homework. Compare all options from a second hand asset to a range of new options. What’s the cost? Is the seller offering any great deals on loans?
Check out a range of options from the seller to your bank to find the cheapest interest rates you can find.
Consider also how much commitment you want to this asset. If you need to get rid of it before the term is up, then buying is definitely a good option.

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