Every growing business hits the same question with vehicles, machinery, fit-outs and IT: buy it outright, or lease it. There is no single right answer. The better choice depends on your cash position, how fast the asset dates, and how the numbers land after tax. The decision is worth getting right, because it repeats every few years and the costs compound.
The core trade-off
Buying and leasing sit at opposite ends of the same line.
| Buying | Leasing | |
|---|---|---|
| Upfront cash | High (or a loan deposit) | Low, spread over the term |
| Ownership at the end | Yours, an asset on the books | Nothing, unless a buyout applies |
| Tax treatment | Depreciation plus interest | Lease payments, generally deductible |
| Cash flow | Heavier now, lighter later | Even and predictable |
| Obsolescence risk | Yours to carry | Often the financier’s |
Buying builds equity and usually costs less over the full life of the asset. Leasing keeps cash in the business and hands the obsolescence risk to someone else. Which matters more depends on the asset and the year your business is having.
When buying tends to win
Buying suits assets that hold value and earn their keep for a long time.
- Long-life, stable assets. Machinery, tools and commercial vehicles that stay useful for years are cheaper to own than to rent repeatedly.
- You have the cash, or affordable finance. If paying cash does not starve the business of working capital, ownership avoids a financier’s margin. A chattel mortgage lets you finance the purchase while still being treated as the owner for tax.
- Predictable use. If you know you will use the asset heavily for its whole life, there is little value in the flexibility a lease buys.
On the tax side, owning an asset generally lets you claim depreciation over its effective life, and claim the GST credit up front where you are registered. Interest on money borrowed to buy it is deductible. Depending on the year and your turnover, an instant write-off may let you deduct the full cost sooner, so the current threshold is worth checking with your accountant before you commit, because it changes.
When leasing tends to win
Leasing suits assets that date quickly or that you would rather not tie capital into.
- Fast-moving technology. Computers, phones and specialised equipment lose value and usefulness quickly. Leasing lets you hand back yesterday’s model and upgrade without a resale headache.
- Cash flow is tight or better used elsewhere. A lease keeps capital free for stock, wages or growth. For a business that can earn more on its cash than the lease costs, that is a rational trade.
- Short or uncertain need. If you may not need the asset in three years, renting the use rather than owning the thing avoids being stuck with it.
With an operating lease, the payments are generally deductible as you incur them, which gives smooth, predictable deductions rather than a depreciation schedule. The structure matters, though. A finance lease, hire purchase and chattel mortgage are each treated differently for tax and on your balance sheet, and the label on the contract does not always match the substance.
The part that is easy to miss
Three things trip businesses up on this decision.
Cash flow is not the same as cost. Leasing almost always costs more over the full life of the asset, because a financier builds in a margin. It buys flexibility and protects your cash, which can be worth the premium, but it is a premium. Comparing only the monthly payment to the purchase price hides that.
The tax deduction is not free money. Whether you buy or lease, you are deducting a real cost against income. A deduction reduces tax, it does not pay for the asset. Choosing the option with the bigger early deduction can still be the wrong call if it strains cash flow or leaves you owning nothing.
Obsolescence is a genuine risk, and it runs both ways. Own a fast-dating asset and you carry the resale loss. Lease a long-life asset you use hard and you pay rent forever on something you could have owned. Match the financing to how quickly the asset actually ages.
How to decide
Run the comparison over the asset’s full life, not the first year. Put the total cost of owning, including finance, running costs and expected resale value, next to the total cost of leasing over the same period. Then weigh the cash-flow difference and the obsolescence risk against that gap. For a larger purchase, the right structure, chattel mortgage, lease or outright, can change the after-tax cost meaningfully, and it interacts with your wider business tax position.
This is general information rather than advice for your business, and the best structure depends on your turnover, your cash position and the asset itself. AGS handles both sides of the decision in one place: the accounting team runs the buy-versus-lease numbers and the tax treatment, and our mortgage broking team arranges the asset finance itself, from chattel mortgages and equipment leases to hire purchase, so the funding and the tax line up. If you have a purchase coming up, start with a free initial discussion.