To finance...or not to finance?
That is the question!
As the end of financial year approaches, many businesses will purchase new IT equipment to replace aging technology, and look to improve their tax position.
Purchasing equipment can be a good option for established businesses, where the equipment has a long, usable life. However, when a business has limited capital available, rental can be the better option, particularly for IT equipment that has a 3 to 5 year life span.
Advantages of IT equipment rental
- The primary advantage of rental, over outright purchase of business equipment, is that rental allows you to acquire assets with minimal initial expenditure. Rentals to not require a down payment, and you can obtain the goods without significantly affecting your cash flow.
- Your rental payments can be deducted as business expenses on your tax return, reducing the net cost of your rental.
- Rental also allows a business to better manage the problem of IT equipment becoming obsolete.
For example: You purchase 10 new computers on a 3-year rental agreement.At the end of the 3 years, you have the choice of getting new equipment and starting a new rental agreement, sending the old equipment back to the finance company as they own the goods.
- As a general rule, if the equipment you need is likely to be outdated within 4 years, you may be better off financing it.
When is it better to buy?
- If you plan to obtain goods that will be used for more than 4 years and it holds its value well, you may want to consider purchasing. Small business can take advantage of the simplified depreciation rules that lets you write-off any assets purchased under $20,000 each. This rule only applies to business with an annual turnover of less that $10 million.
Your accountant will be able to advise whether buying or renting is best for the needs of your business. If you would like to make an appointment to discuss the options further, please contact MLogic and we will be happy to discuss that alternatives available to you.