Equipment suppliers are screaming “sale!”. Financiers are ready to offer you funding… do you jump in or hold back? mivision spoke to the experts to find out about the pros and cons of investing in equipment at the end of the financial year.
As we race towards 30 June there are a few good reasons to consider investing in new equipment for your practice.
Top of the list are the significant price discounts you can negotiate as suppliers try to reduce their stock ahead of their annual stocktake.
Talk to the suppliers, find out about the technology changes coming through and find out whether now is a good time to buy or whether there’s a new model about to launch
Then there are the tax rebates available. The Australian Taxation Office (ATO) recently increased the small business entity instant asset write off of AU$20,000 (GST exclusive) to $30,000, up to 30 June 2020. This allows small businesses to instantly write-off eligible depreciating assets that cost less than $30,000, that are acquired and first used or installed ready for use before 30 June 2020.1
In the case of investments like this, timing is everything. While the GST paid on the purchase is claimable at the end of the quarter in which the purchase is made, you can’t claim the instant asset write-off until the end of the financial year. So, as Paul McKinley, Managing Director of Optometry Finance Australia explains, “If your business was to buy a $20,000 asset on 29 June 2019, you’ll get the tax deduction for the financial year ended 30 June 2019. However, if your business purchases the asset on 1 July 2019, you will need to wait 12 months to claim that deduction in the financial year ended 30 June 2020.”
Aside from the tax benefits, there are plenty of sound business and clinical reasons to invest in new technology.
Patient care is a given – you need to be using equipment that helps you provide the best clinical outcomes. Staying ahead of your competition is another solid reason for investment – you don’t want to have to refer a patient on to the opposition, simply because you don’t have the essential technology.
The major benefit of investing in equipment should be the clinical and business outcomes – the tax benefit should be considered as a value add
You also have to protect your professional reputation and sources of referral. As Colin Taylor, financial consultant at BOQ Specialist points out, “While patients may not discern the difference between new and old technology, you can be sure it will be recognised by the practitioner referring a patient to you, or the specialist you refer your patient to.”
Before making an investment, Mr Taylor recommends doing a cost/benefit analysis. “We help our medical clients break down the cost of any equipment they are considering purchasing, into a weekly or even daily cost. We also work out how many times you need to use it to breakeven. A lot of practitioners are put off when they see a price tag for say, $100,000, but undertaking a cost/benefit analysis will help them realise the costs can be recouped from billings within a reasonable timeframe,” he said. “Of course the opposite may also be true.”
NEW OR USED?
Whether you buy new or used equipment will come down to your budget and your needs. Either way you’ll need to do your homework, but if you’re choosing the latter option, you may need to dig a little deeper.
As Craig Spiegel from Credabl says, “Like anything, advantages to buying second hand tend to be the lower acquisition cost compared with buying the new equivalent. This can be useful if setting up a practice or for technology you see only having a limited use in your practice.
“The disadvantages however, may be significant. Do the goods come with a warranty, service history, costs to relocate professionally, and reinstall? Are you acquiring already superseded technology?”
As well as purchasing equipment, Mr Spiegel says the end of financial year is also a good time to consider investing in professional development. “Attending courses locally and internationally to further your knowledge isn’t quite investing in technology, but it is investing in your skillset and improving the provision of services to your patients. In some instances, it’s also about learning how to maximise the technology,” he said.
MAKING THE INVESTMENT
When it comes to making the investment, there are a few options to consider: you can make a cash purchase, arrange a chattle mortgage or rent or lease the asset.
Mr McKinley says the advantage of making a cash purchase is you own the equipment outright from day one, so you won’t pay interest on any borrowings.
“The potential disadvantage is you no longer have the cash you’ve outlaid to support any working capital needs of your practice. Further, if you’ve bought something outright, you may feel more inclined to hold that asset longer, by which time it may become technically obsolete or outdated.”
A chattel mortgage is repaid in the same way that you repay your home mortgage – you make a monthly payment for the right to use the asset, and at the end of the loan period you own it outright, unless a residual/ balloon is involved, which can be refinanced for an additional loan term.
“The upside of borrowing for technology is it leaves your working capital in place (liquid funds), but the downside is it will cost you slightly more to own the asset, due to interest and fees over the loan term. However, remember that these interest charges and fees are tax deductible, as they’re incurred in generating assessable income,” says Mr McKinley.
“Another option is to rent or lease the asset(s). The positive associated with this is that, subject to the rental agreement, if the equipment becomes obsolete, you can hand it back and replace it with current technology. The negatives are that renting can be more expensive, however the full rent payment should be tax deductible.”
Mr McKinley strongly advises potential investors in technology to check the finance options with their accountant before arranging purchase.
HURRY… BUT DON’T RUSH
Now is the time to plan your purchases for the end of the financial year. As Mr Spiegel says, “Things are always busier at this time of year. School holidays coincide with the financial year end, which means professionals are often heading overseas. Some companies will be challenged to provide invoices at the last minute. Don’t leave things to the very end!”
That said, don’t jump in without giving your investment full consideration.
“Talk to the suppliers, find out about the technology changes coming through, and find out whether now is a good time to buy or whether there’s a new model about to launch. It may be worth holding on for a bit longer,” said Mr Taylor. Additionally he says, “While there can be perks to buying equipment at the end of the financial year, the major benefit of investing in equipment should be the outcomes for your practice – the tax benefit should be considered as a value add as well.”
Mr McKinley agrees. “Never use ‘it’s a tax deduction’ as your rationale for spending money. For example, if your company tax rate is 27.5%, for every $100 spent, you get a $27.50 tax benefit… but you’re still out of pocket $72.50.
“What’s more important is whether or not that expenditure – whether capital or revenue in nature – will add value to your operation and contribute to your bottom line.”
- www.ato.gov.au/Business/Depreciation-and-capitalexpenses- and-allowances/In-detail/Depreciating-assets/ Simplified-depreciation—rules-and-calculations/?page=4