Chapter IV
GST & tax basics for machinery buyers
Tax treatment can change the real cost of a machine. This chapter points out the questions to ask, not the answers to give.
GST on a machine
Machinery purchases generally include GST in the price. If your business is registered for GST and buys the machine for use in the business, it may be able to claim a GST credit, subject to the ATO's rules and having a valid tax invoice. Whether and when you claim can depend on whether you account for GST on a cash or non-cash basis, and on how the purchase is financed. A private sale from someone who is not registered for GST generally does not include GST, so there may be nothing to claim.
Depreciation and write-offs
A machine is a depreciating asset, and the tax system lets businesses deduct a share of its cost over its effective life. There have also been temporary and ongoing small business schemes that let eligible businesses deduct the cost sooner. Thresholds and eligibility change from year to year, so check the current position on ato.gov.au and do not rely on anything older than the current financial year.
How the finance structure fits in
Different finance products can be treated differently for tax. In general terms:
| Product | Who generally owns the machine? | Question for your accountant |
|---|---|---|
| Chattel mortgage | The buyer, from the start, with the lender holding security | How are depreciation, interest and GST handled? |
| Hire purchase | The financier until the final payment | When can deductions and credits be claimed? |
| Finance lease | The financier throughout | How are lease payments treated? |
| Operating lease | The financier; the business uses the machine | Is the arrangement treated as rent? |
Selling or trading in later
When you sell a machine you have claimed depreciation on, there can be a tax result on the sale, and GST may apply if you are registered. Keep your records of purchase price, depreciation claimed and sale price, and talk to your accountant before the sale rather than after.
Records worth keeping
- The tax invoice and finance contract.
- Serial number, date first used in the business and the business-use proportion.
- Service and repair records, which help at resale as well.
Where to read more
The ATO publishes guidance for small business and primary producers, and business.gov.au collects general support information. For borrowing, see MoneySmart.
Common questions
Can I claim GST back on a machine?
A GST-registered business buying for business use may be able to claim a GST credit, subject to ATO rules and a valid tax invoice. Check your own position with an accountant.
Is there an instant write-off?
Small business depreciation concessions have existed in various forms, but thresholds and eligibility change. Check the ATO website for the current rules.
Does the finance product change the tax outcome?
It can. Ownership and treatment differ between products such as chattel mortgages, hire purchase and leases, so confirm with a tax professional.
Next in the guide: Selling the machine you are replacing
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