The tortoise OR the hare

Had an interesting conversation with a client last week regarding how to purchase a van for transporting equipment for the business. They wanted to wait until there was enough cash in the bank to buy the van outright. I said that was definitely one option if they wanted to crawl like a tortoise. Nothing wrong with the tortoise. We all know who wins... On the other hand though, why crawl when you can run like the hare! How? DEBT!

Used in the the right way, debt in this example would get the van 12 months quicker. A few things to watch out for if you want to beat the tortoise;

1. Don't borrow more than what the business can support in the current business environment

2. If using the cash basis for GST purposes, use a chattel mortgage or finance loan to fund the acquisition. This means you can claim the GST as soon as the motor vehicle papers are signed.

Some people use a hire purchase which means under the GST cash basis, they can only claim 1/11 of the monthly hire payment. This is because the hire purchase payment is seen as a HIRE payment and not a LOAN repayment.

If the business is using the non-cash basis for GST, then either way, you can claim the GST once the papers are signed. But be sure debtors are in check as the business is paying the government GST on sales that cash has not been received for.

With this in mind, the hare always wins!