With the end of the financial year fast approaching, television advertising is relentlessly advising small and medium-sized business owners and managers to purchase new IT equipment for tax-deduction purposes. However, single-mindedly fixating on the tax benefits of buying new IT gear can miss the point of the purchase.

Bernadette Gore, director at Care Accounting in Sydney, says there’s no sense in spending money if you don’t need the equipment in the first place.

“You really need to ask yourself if you will need the new gear, or if you’re just being distracted by the potential for a tax saving,” she says. “That said, if you need an equipment upgrade, there are real benefits in terms of a boost to cash flow following tax time.”

Where should you splash the cash?

IT expenditure generally falls into two broad categories: hardware, such as laptops, tablets, mobile phones and desktop machines, and the software needed to run the hardware (and the business) effectively. A piece of hardware without associated software is just a box sitting with nothing to do.

It’s worth bearing in mind that the really good tax incentives for a major purchase – where a small or medium-sized business could write off the entire purchase price of an expensive IT upgrade in one go – ended in December 2013. Now a business looking for an immediate write-off is restricted to purchases of $1000 or less.

If you’re looking to claim the full tax write-off for products under $1000, the rise of the app economy and software as a service (SaaS) – including software such as accounting package Xero and Microsoft’s subscription-based Office 365 – will help, as subscription software and apps are generally cheaper than associated hardware.

Moving to a SaaS model, or subscription software, also shifts the type of purchase you’re undertaking from a capital expense to an operational expense. Operational expense is generally fully deductible in the year it’s used. As an added benefit, subscription software vendors generally maintain and improve the software on an ongoing basis, so upgrades are free for the life of the subscription.

“Software definitely has an attractive write-off. You can also pool IT purchases, and anything over $1000 pooled gets a 15 per cent write-off in the first year, and then a 30 per cent write-off in subsequent years.”

Look before you leap

While it’s definitely nice to have something new and shiny – and any tax offset that goes with it – you really need to think about whether the IT equipment will improve your business’s efficiency and bottom line.

If a new PC or laptop is likely to sit waiting for six months while you decide whether to increase your workforce, you should probably hold off until then. Instead, use your cash to buy something likely to provide a stronger return. You should also consider whether you actually have the cash to spare – use long-term funds, not working capital, to avoid a cash crunch in a few months’ time.

“Your expenditure should be an asset to your business, the tax benefit should not be an overriding consideration.”

With tax-time sales, and retailers and software vendors looking for a boost, it’s possible to get a bargain or wrangle a really good deal. Add in the write-off and it sounds a win-win purchase.

“But when it comes down to it, do you need the technology? If you’re sure you do, make sure have a good talk to your accountant before you start spending.”