So, everyone has told you that it makes sense to buy a car because it can be written off against tax. Many have told me they want to upgrade their fit outs or buy more equipment knowing that the taxman will allow you to write this off.

This has got many businesspeople in business very excited. Its not often the taxman gives businesses a big handout so when he does, they don’t want to miss out.

There are one or two things you need to think about.

Many think that you get 100% back. Not so. If you are 45% taxpayer and you buy medical equipment for $100,000, the taxman gives back 45% or $45,000. The remainder ($55,000) comes out of your pocket.

If you operate via a company, it not so generous. He gives back 27.5% ($27,500) and you still fork out $77,500.

For cars, the news is worse. This is because they are capped at about $56,000 so you pay more out of your pocket.

But if you get a tax deduction and you need the equipment or asset then you should.

The chances are you don’t have the cash so what are the alternatives?

Finance Lease

Let’s get one thing out there. Under a finance lease you do not own the asset so you cannot claim the cost of purchase. That means no significant tax deduction in the year you sign the finance lease.

But you get the latest equipment and vehicles with no capital outlay because the lender owns the asset and you lease it back from them at a fixed monthly payment.

Once the lease is up, you can choose to pay a ‘residual payment’ and buy the asset or finance the residual and continue leasing.

There are a few good things about finance leases:

• Most finance leases you can claim as a tax deduction, but this is something you will have to check with your accountant.
• You should be able to claim a GST credit included in each lease payment.

There are slight variations to finance leases know as operating leases. Operating leases do not have any residual value at the end but instead you hand the asset back to the lender.

Hire purchase

With a Hire Purchase Agreement, the lender purchases the asset then hires it to your business for a specific period. When the final payment is paid, your business immediately owns the asset.

Some good things about a Hire Purchase:

• You can write off the purchase as depreciation and claim the interest on any lease repayments.
• You own it at the end of the hire period.

Chattel Mortgage

A financier secures the loan using the “chattel”. This is a fancy word which basically means the asset or the vehicle or equipment you purchase.

You take ownership (ie it’s yours) of the asset, and the mortgage (or loan) is registered with ASIC. Once the loan is paid off, the mortgage is removed, and the vehicle or equipment becomes yours without any loans attached to it.

Some good things about a Chattel Mortgage:

• If you’re registered for GST you should be able to claim the GST in the equipment’s price.
• You should be able to claim depreciation and the interest charges on your chattel mortgage as a tax deduction