For business owners that have been putting off machinery acquisitions while waiting to see how the economy, inflation, business conditions may pan out, the time for waiting might be over. Over if you are keen to realise tax benefits on acquisitions with equipment finance in this financial year. Tax deductions reduce the taxable income which means less tax payable in that financial year. A reduction which could be extremely welcome by many operators after a number of challenging years.
While consumer demand has been strong over the past year, pushing inflation to a 30 year record, that demand may not be resulting in increased profitability for business in all sectors. Inflation and supply chain issues have been driving up the costs of materials and supplies, adding to operating costs for business. Costs which are not always possible to pass onto customers which may be resulting in cash flow pressures. So less tax payable down the track could be extremely important.
Now could be the ideal time to stop the wait-and-see and start acting to ensure that new machinery is acquired and operating in the business prior to 30 June 2023. It’s definitely the ideal time if you have been intending to take advantage of the tax benefits of temporary full expensing but are yet to do anything about it. This tax measure, first introduced as a stimulus measure, will not be available after the end of June this year.
In order for businesses to be eligible for the tax benefits available with temporary full expensing, the equipment must be operating in the business prior to 30 June. This timeframe may impact purchase decisions if there is a lengthy wait time for delivery. Important to keep in mind!
Tax deductions which can be realised with equipment finance vary with the different loan types including Leasing, Rent to Buy and Chattel Mortgage. While we advise customers to speak with their accountant or financial adviser regarding the most suitable loan type to suit their business, it can be helpful to understand the differences.
Another reason to proceed with acquisitions with equipment finance now, is interest rates. Despite inflation falling as reported in the latest figures by the ABS the Reserve Bank Board is still expected to continue with further rate rises. This could mean rate increases in March, April and May. Securing finance at current rates could also represent a significant savings.
We provide an overview of the tax benefits, what items are and are not deductible and how GST is treated with the most popular forms of equipment finance to assist operators with their acquisition and equipment finance planning.
Chattel Mortgage Tax Deductions
- GST on the purchase can be claimed in full on the corresponding BAS return.
- The interest payable on the monthly finance repayments is tax deductible.
- The remainder of the monthly repayments and the balloon are not tax deductible.
- With Chattel Mortgage ownership of the equipment is transferred to the business and entered on the business balance sheet.
- The equipment is depreciated in line with the ATO scheduling at the time.
- The depreciation amount is the tax deduction.
- With temporary full expensing, the full purchase price can be deducted in the year of purchase.
- Under normal depreciation schedules the asset is depreciated in increments over a number of years.
Equipment Leasing Tax Deductions
- Leasing is an off-balance sheet finance product. That is, the ownership of the equipment is retained by the lender until all payments including the residual are finalised. As such, this form of finance is not suited to temporary full expensing.
- GST is charged on the monthly lease payments and claimed on BAS.
- The monthly lease payments, including the interest component, are tax deductible as a business expense.
- Any residual is treated as per ATO regulations.
Rent to Buy Equipment Finance Tax Deductions
- Rent to Buy is also an off-balance sheet finance product. As such, this form of finance is not suited to temporary full expensing.
- GST is charged on the monthly rental payments and claimed on BAS.
- The monthly rental payments, including the interest component, are tax deductible as a business expense.
Low Doc No Doc Equipment Finance Deductions
Businesses approved for Low Doc and No Doc finance select which is the most appropriate loan type for their operation. All the same tax deductions would apply for the relevant finance product for Low Doc and No Doc loans as for fully documented applicants.
The same would apply for operators approved for Bad Credit Equipment Finance.
Meeting EOFY Deadlines
We can assist operators to meet the 30 June deadline with fast approvals on equipment finance. With further rate rises tipped, further benefits through lower interest rates may be realised by securing finance and the required equipment ASAP.
Contact Jade Equipment Finance on 1300 000 003 for all types of equipment finance.
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.