Quick answer
A tax deduction reduces your taxable income, so it saves tax at your tax rate — not the full price. For a company taxed at the 25% base rate entity rate, a $20,000 write-off saves about $5,000 in tax, leaving $15,000 of real cost. Buying something you don't need just for the deduction leaves you worse off. EOFY buying makes sense when you needed the asset anyway and the timing suits your tax position.
Key points
- A deduction saves tax at your rate, not the purchase price.
- Base rate entity companies pay 25%; a $20,000 write-off saves about $5,000.
- If you wouldn't buy it in October, don't buy it in June for the deduction.
- Genuine needs can be timed to 30 June — that's smart, not wasteful.
Every June the same advice circulates: “Buy something before 30 June — it’s tax deductible!” It’s said as though a deduction makes things free. It doesn’t. A deduction reduces the income you pay tax on. The saving is a fraction of the price, and the rest is money you’ve spent. Here’s the arithmetic that should sit behind every EOFY purchase.
How much tax does a deduction actually save?
The saving equals the deduction multiplied by your tax rate. For a company that is a base rate entity, the ATO lists the company tax rate for 2025–26 as 25%.
| Purchase (under $20,000, excl. GST) | Tax saved at 25% | Real cost after tax |
|---|---|---|
| $5,000 | $1,250 | $3,750 |
| $10,000 | $2,500 | $7,500 |
| $19,000 | $4,750 | $14,250 |
For sole traders and partnerships, the saving depends on the individual’s marginal tax rate, which varies with income. Either way, the pattern holds: you keep a portion, and the rest is spent.
So the question isn’t “is it deductible?” It’s “is it worth the after-tax cost?”
Why do people still buy for the deduction?
A few reasons, all understandable:
- The deduction feels like a discount — it isn’t one.
- Year-end pressure. Everyone else is buying, and suppliers push EOFY deals.
- Threshold anxiety. For years, the instant asset write-off was extended one year at a time, and owners feared losing it. The ATO says the $20,000 threshold is now law and permanent from 1 July 2026, so that fear no longer applies.
- A big tax bill. Seeing the number makes any reduction tempting.
The last one deserves care. If this year’s tax bill is large, bringing a needed purchase forward can be sensible. Buying something unneeded to shrink the bill just converts tax into an asset you didn’t want.
When is an EOFY purchase genuinely smart?
Tick all four:
- You need it. You’d buy it in October if you were deciding then.
- It can be ready by 30 June. First used or installed ready for use, not just ordered — see installed ready for use by 30 June.
- This year’s profit makes the deduction worthwhile. A deduction in a low-profit year saves little; next year may be better — see buy in June or July?.
- Cash flow can take it, from reserves or through finance that leaves working capital intact.
If all four are true, timing the purchase for June is good planning. If the first is false, no amount of tax logic rescues it.
Illustrative example: two approaches to the same June
Illustrative only — invented figures, simplified tax.
Two landscaping companies, both base rate entities, each face a sizeable tax bill for the year.
Company A buys a $16,000 ride-on mower it doesn’t really need (“it’s deductible”). The deduction saves about $4,000 in tax. It has spent $16,000 of cash to save $4,000, and the new mower mostly sits in the shed next to the old one. Net effect: about $12,000 poorer, with less cash for July wages.
Company B has a trailer and hedge trimmer fleet that breaks down weekly in spring. It replaces both ($18,500 and $7,200, excluding GST) in May, has them in use by June, and finances the purchase to keep July cash free. The deductions save about $6,400 in tax this year, and the breakdowns stop — which was the real reason. Net effect: better equipment, fewer lost days, a lower tax bill and cash still in the account.
Same June, same rules. The difference was whether the purchase was needed. If you’re in Company B’s position, check what funding is available so the purchase doesn’t drain your working capital.
What about stock and other EOFY tricks?
Buying extra trading stock before 30 June generally doesn’t cut tax much, because unsold stock is counted as closing stock at year end. We explain this on stock before EOFY.
Other year-end strategies — timing of income and expenses, super contributions, bonuses — depend heavily on your structure and circumstances. That’s a conversation for your accountant, ideally in April or May rather than late June. Our EOFY 2027 countdown shows when each conversation should happen.
How does financing change the picture?
Financing doesn’t change the deduction; the write-off depends on the asset’s cost and when it’s first used or installed ready for use, not how you paid for it. What financing changes is cash flow. Paying $25,000 from the account in June, just before wages, super, the April–June BAS due 28 July and 1 July cost rises, can leave a business stretched. Funding the purchase spreads the cost while the asset earns.
The same rule applies, though: finance is a way to afford something you need, not a reason to buy something you don’t. If you’re unsure, when waiting is smarter is worth a read.
What should I ask before any EOFY purchase?
- Would I buy this if 30 June didn’t exist?
- What will it earn or save me each month?
- Can it be installed ready for use by 30 June?
- Is this year a better year for the deduction than next year?
- How will I pay for it without squeezing wages, super or tax?
- What’s the after-tax cost at my rate?
If the first answer is no, stop there. If the others line up, you have a genuine EOFY purchase — and a good one.
What does the deduction look like over several years?
It’s also worth remembering what the write-off actually does over time. An asset written off in full this year gives you no further depreciation deductions in later years. If it had gone into the small business pool instead, the deductions would have been spread out. The instant write-off brings the deduction forward; it doesn’t create extra deductions.
That’s useful for cash flow in a high-profit year, which is the point of the rule. But it reinforces the main message: the benefit is a timing benefit on something you needed, not free money on something you didn’t.
Is there a better use for the money than a year-end purchase?
Often there is. Before spending in June, compare the after-tax cost of the purchase with what the same cash could do:
| Alternative use | What it achieves |
|---|---|
| A buffer for July wages and super | Removes the need for stress borrowing later |
| Paying down ATO debt | Stops GIC compounding, which is no longer deductible |
| Stock for a known peak | Earns margin within weeks |
| Marketing before your busy season | Drives revenue the business can measure |
If one of those earns more than the equipment would, it’s the better call — deduction or no deduction. Our guide to opportunity cost for small business explains the thinking in more depth.
How do I explain this to a business partner who wants to spend?
Show them the table. Put the purchase price, the tax saved at your rate and the after-tax cost side by side, then ask the October question: would we buy this if 30 June didn’t exist? Framing it as after-tax cost rather than “it’s deductible” usually settles the discussion quickly — in either direction. If the item is genuinely needed, the numbers support buying it; if it isn’t, they make that obvious too.
Needed it anyway? Fund it sensibly
If the equipment passes the “would I buy it in October” test and the timing suits your tax position, the last piece is paying for it without draining working capital. Our enquiry form takes about 60 seconds and doesn’t involve a credit check. We don’t hand your details to a string of lenders — a single specialist reviews it and calls you to go through the numbers. Please be accurate about the item, the cost and your install date, so we can put the right option forward straight away.
Frequently asked questions
Does buying equipment reduce my tax?
It reduces taxable income by the deduction amount, so it reduces tax by that amount multiplied by your tax rate. It doesn't reduce tax dollar for dollar.
Is the instant asset write-off a good reason to buy equipment?
It's a good reason to time a purchase you already need, not a reason to buy something you don't. The ATO's $20,000 threshold is now permanent from 1 July 2026, which removes the pressure to rush.
What if I finance the purchase — do I still get the deduction?
The write-off depends on the asset's cost and when it's first used or installed ready for use, not how you paid. Your accountant will confirm the treatment for your structure.
Should I prepay expenses or buy stock before 30 June to cut tax?
Buying extra trading stock usually doesn't help, because unsold stock is counted at year end. Other year-end strategies depend on your circumstances and should be discussed with your accountant.
When does an EOFY purchase make genuine sense?
When you need the asset anyway, it can be installed ready for use by 30 June, this year's profit makes the deduction worthwhile, and paying for it won't strain cash flow.