When your business needs new equipment, whether it’s computers, vehicles, or specialised machinery, you’re faced with a critical financial decision: should you lease or buy? The right answer isn’t always obvious. Both options come with unique tax treatments, cash flow impacts, and strategic considerations.
In this post, we’ll walk through the pros and cons of leasing versus buying equipment, helping New Zealand business owners make a sound financial choice that supports both their immediate operations and long-term goals.
Understanding the Leasing Option
Leasing equipment means you’re paying to use it over an agreed term, without owning it. This arrangement often appeals to small and medium-sized businesses that need to preserve working capital or avoid the risks of owning rapidly depreciating assets.
One of the key advantages of leasing is the minimal upfront cost. Rather than making a large capital outlay, you spread the cost across regular payments – weekly, monthly, or quarterly – freeing up cash for other areas of the business. This can be especially useful in industries where technology evolves quickly or where equipment requires frequent updates.
From a tax perspective, lease payments are generally treated as operating expenses. This means they are fully deductible in the year they’re incurred, directly reducing your taxable income. Unlike depreciation, which spreads deductions over several years, leasing can deliver more immediate tax benefits.
However, leasing can also be more expensive over time. If you continue renewing the lease or fail to negotiate favourable terms, you may end up paying more than the asset’s purchase price. Additionally, the equipment never becomes your property, so there’s no asset to resell or leverage later.
The Case for Buying
Buying equipment means you take full ownership of the asset from day one, either by paying in full or financing the purchase through a loan. This can be more cost-effective in the long run, particularly if the equipment has a long useful life and won’t become obsolete quickly.
Owning the equipment gives you more control, as there are no usage restrictions, no return obligations, and no ongoing lease payments. Over time, you may also benefit from its resale value or continue using it well beyond its depreciation period.
The tax treatment for purchased assets in New Zealand is different from leasing. When you buy, you cannot deduct the full cost immediately, except for low-value assets under the current de minimis threshold. Instead, you claim depreciation annually based on the IRD’s prescribed rates for that asset category. If the equipment is financed, the interest portion of the loan repayments is also deductible.
Buying may have a heavier upfront cash impact, particularly if you’re paying outright. Even with financing, you’ll need to consider the initial deposit and the effect of loan repayments on your monthly cash flow. However, if you can afford the initial cost, buying often proves cheaper over the life of the asset.
Which Option Is Better for Your Business?
The right choice depends on your business’s financial position, tax planning strategy, and how long you intend to use the equipment.
If your cash flow is tight or you want to stay flexible with technology, leasing provides a low-barrier entry and strong short-term tax advantages. It’s also easier to upgrade, which is ideal for fast-evolving industries.
If you’re looking to invest in long-term assets, have the financial capacity, and value ownership, buying might offer better value and control. Depreciation and interest deductions can still help reduce your tax burden, just over a longer time frame.
Final Thoughts
Both leasing and buying have their place in a smart business strategy. Before committing, consider not just the monthly cost, but the broader implications like tax treatment, maintenance responsibility, asset value, and how each option fits your growth plans.
In some cases, a mixed approach works best: lease equipment that rapidly depreciates or needs frequent upgrading, and buy assets with long-term value. Always consult with your accountant or financial advisor to model the cost scenarios and choose the approach that aligns best with your cash flow and tax goals.
If you’re weighing this decision for your next equipment purchase, feel free to reach out. We can help assess the impact on your financials and guide you toward the most strategic choice.
The content in this blog is intended to provide general insights and should not be regarded as professional advice. Each business situation is unique, and we recommend consulting with a professional for specific guidance. At Black Arrow Business Studio, we specialise in accounting and consulting services designed to support your business’s growth and success. Feel free to contact us for expert advice and customised solutions.
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