Should I buy equipment with cash, a loan or a lease?

The right choice depends on four things: how much cash you can spare, how long you will keep the asset, whether you want to own it, and how the tax and GST work for your business. There is no answer that suits everyone, and taking finance is not automatically better than paying cash, or the other way round.

The five main options

Paying cash

You buy the asset outright and own it from day one. There is no interest and no contract to manage. The trade-off is that the cash is no longer available for stock, wages or a quiet month. Before you pay cash, check what it does to your working capital and your buffer. See what is working capital?

Chattel mortgage

You borrow to buy the asset, and you own it from the start. The lender registers a security interest over it until the loan is repaid. Many chattel mortgages allow a balloon, a lump sum at the end that lowers regular repayments but must be paid, refinanced or covered by selling the asset.

Finance lease

The finance company owns the asset and you pay to use it for the term. There is usually a residual at the end. Depending on the agreement, you can then pay the residual, refinance it or return the asset. Our guide to a chattel mortgage vs a finance lease compares these two in more detail.

Operating lease

You rent the asset for a set period, often shorter than its useful life, and hand it back at the end. The leasing company keeps the ownership and the resale risk. Some operating leases include servicing. business.gov.au notes that under leasing the lessor typically looks after maintaining and repairing equipment, and that leasing makes it easier to upgrade. Check your agreement, because this varies.

Rent-to-own

You rent the asset with the option, or a set path, to own it at the end. It can be quick to arrange and may need little upfront. The total you pay over the term can be much higher than the purchase price, so add up every payment and fee, and check what happens if you stop paying partway through.

Side by side

	Cash	Chattel mortgage	Finance lease	Operating lease	Rent-to-own
Who owns it during the term	You	You	Finance company	Leasing company	Rental company
Upfront cost	Full price	Deposit, if any	Low	Low	Low
End of term	Nothing owed	Balloon, if chosen	Residual	Return it	Option or path to own
Main risk	Less cash on hand	Balloon to fund	Residual to fund	Paying for the full term	High total cost

business.gov.au notes a common catch with leases: you may need to keep paying for the full lease period, even if you no longer need the equipment.

Tax and GST, as the ATO states it

This section summarises what the ATO says. How it applies to you depends on your business, so confirm it with your accountant or registered tax agent.

The instant asset write-off

• The ATO says the $20,000 instant asset write-off is permanent from 1 July 2026, and that the measure is now law.
• It applies to small businesses with aggregated turnover of less than $10 million that use the simplified depreciation rules.
• You may be able to claim an immediate deduction for the business portion of an eligible depreciating asset that costs less than $20,000 and is first used, or installed ready for use, in the income year.
• The $20,000 limit applies to each asset, so you can claim several assets as long as each one costs less than $20,000.
• In most cases both new and second-hand assets are eligible, although some exclusions and limits apply.
• For the 2025–26 income year, the threshold was also $20,000, for assets first used or installed ready for use between 1 July 2025 and 30 June 2026.
• If you use an asset partly for private purposes, you can only claim the business portion, but the ATO says the whole cost must be under the limit.
• If you are registered for GST and can claim a full GST credit on the purchase, you leave the GST out when working out the asset’s cost.
• If you previously chose not to use the simplified depreciation rules, the ATO says you can re-enter them until 30 June 2027 without waiting out the usual five-year lock-out.

Assets costing $20,000 or more

These can’t be written off immediately. The ATO says they can go into the small business pool, where they are depreciated at 15% in the first income year and 30% each income year after that.

Leases and GST

• business.gov.au says you may be able to claim leasing costs as a tax deduction if you use the equipment solely for business, and that if you buy, you may be able to claim the equipment or its depreciation costs.
• The ATO has separate GST rules for leases and for hire purchase. For a lease, you treat each payment as a separate purchase in each tax period and claim GST credits on those payments. For hire purchase, the timing of the GST credit depends on how you account for GST.
• Ask your accountant which rules apply to your agreement, because a chattel mortgage, a hire purchase agreement and a lease are treated differently.

A deduction reduces your taxable income. It is not a refund of the price you paid, so don’t buy an asset only for the deduction.

A checklist for deciding

• Need: Will this asset earn money or save costs? How long will you use it?
• Cash: After paying, would you still have enough working capital and a buffer?
• Ownership: Do you want to own it, keep it for years or modify it? Or do you want to upgrade regularly?
• Obsolescence: Will it be out of date before it wears out? If so, a lease may suit.
• Servicing: Who pays for repairs and maintenance under each option?
• End of term: How will you pay any balloon or residual?
• Total cost: What will you pay in total, including every fee, under each option?
• Exit: What happens if you need to end the agreement early?
• Tax: Is your business eligible for the instant asset write-off? Has your accountant confirmed how each option is treated for tax and GST?
• Timing: Will the asset be first used or installed ready for use in the income year you expect?

Step by step

1. Write down what the asset must do, how long you expect to keep it and what it will cost to run.
2. Get quotes for new and, where suitable, second-hand options.
3. Check your cash flow forecast to see how paying cash would affect your working capital.
4. Ask your accountant or registered tax agent how each option would be treated for income tax and GST, and whether you are eligible for the instant asset write-off.
5. Compare the total cost of each option over the time you expect to keep the asset, including the end-of-term amount.
6. Read the contract for early exit terms, servicing, insurance and end-of-term choices.
7. If you decide to finance, read equipment finance explained and prepare for a finance application. You can compare equipment finance and vehicle and fleet finance.

Important things to know

• Balloons and residuals are real debts. They lower repayments during the term but leave a lump sum at the end.
• Lease payments usually run for the full term. Ending early can be expensive.
• The write-off depends on timing. The ATO links it to when the asset is first used or installed ready for use, not just when you order or pay for it.
• Rules can change. Check the ATO’s instant asset write-off page before you buy, and again before you lodge.
• Tax treatment is personal. This page summarises the ATO’s general rules. Your accountant or registered tax agent can tell you how they apply to your business.