With emerging from pandemic restrictions, dealing with ongoing supply chain issues and labour shortages, devastating flood events, surging prices and a change of Government in Canberra for starters, 2022 has already been quite a significant year. For those that have been dealing with other matters and still are yet to upgrade their plant, machinery and equipment – its crunch time. Time to securing equipment finance to make the purchases and realise the relevant tax benefits on offer in this financial year.
While there is only a short window of opportunity to source finance and the required equipment to have it operating by 30 June, there is urgency but not the need to panic. Jade Equipment Finance can arrange fast equipment finance with quick appros and settlement while still securing better interest rates.
The choice of equipment finance product is critical to the tax benefits to be realised on new machinery purchases in a financial year and prior to 30 June deadline. Securing those all-important tax deductions in this financial year may deliver significant benefits with potential even for a cash refund from the ATO.
The last few weeks leading up to June 30 is traditionally an extra busy period for many businesses. Not only in setting up your own EOFY promos and special offers to attract customers, but at the same time sourcing deals to purchase the gear to set your operation up for the financial year ahead.
An additional incentive for operators to purchase new equipment this financial year comes in the form of quite lucrative tax measures which are in place for 2021/22 and the prospect of higher lending rates if the purchase is delayed for another few months. The RBA is set to meet on 5 July and the outcome could be yet another significant hike in the cash rate with more to come.
A major consideration in sourcing equipment finance at this time will be ensuring the cheapest loan is achieved to support the business through what is shaping up as up to 7% inflation by December and the resultant rises in prices of supplies, energy and operating expenses. Affordable equipment finance repayments will be essential for businesses to achieve productivity and profitability in the times ahead.
Tax Benefits of Equipment Finance
Tax deductions can be realised through most forms of business finance including equipment finance. But the specifics of what is permitted, when the deduction can be claimed and in what form will depend on a number of factors. These include the structure of the business entity, the current rulings by the ATO at a particular time and the type of equipment finance product.
For 2021/22 financial year, ATO measures include IAWO and temporary full expensing as major drawcards for businesses to invest in new equipment. Businesses and the equipment need to meet the criteria for these measures and the appropriate finance product used.
Operators need to address the critical decision of choice of finance product so as to maximise the tax deduction benefits while optimising improved productivity and increased profitability. A decision which we highly recommend be made in conjunction with the accountant for the business as many of the aspects of loan types relate to accounting matters.
Equipment finance products include:
- Chattel Mortgage for Equipment, Plant and Machinery
- Equipment Leasing
- Rent to Own for Equipment
- Commercial Hire Purchase for Equipment
All our finance products are suited to a wide range of plant, equipment and machinery across many industry sectors. This can include everything from heavy machinery and construction equipment through to agricultural and horticultural machinery, to engineering and manufacturing plants, to delicate medical equipment and the IT and other equipment required by many businesses.
The key factors that determine which finance product a business should opt for are primarily:- the method of accounting used by the operation; the strategy for the balance sheet in respect of liabilities and assets; and overall objectives to be achieved over the coming financial period.
The major tax measures currently on offer, temporary full expensing and IAWO, allow significant deductions in the financial year that the equipment is acquired. The full equipment purchase price can be deducted in the one year rather than incrementally be depreciated over many years.
This can be a major boost to a business by reducing the tax payable for the year. It may also be used in conjunction with Loss Carry Back. This measure allows for losses to be carried back rather than forward and claimed against profits and tax paid in key earlier years. For some businesses, this can result in a cash refund from the ATO.
While meeting the eligibility criteria for temporary full expensing is the first consideration, choice of finance product is also relevant. The equipment needs to be a depreciable asset. That means posted on the balance sheet and that comes back to the finance choice.
Chattel Mortgage aka Equipment Loan is seen as best-suited. It also offers the lowest rate of interest compared with Leasing and Rent to Buy. Another very important consideration in this current climate of rate hikes.
But Jade Equipment Finance arranges all our equipment finance at a fixed interest rate so the rate and the repayments are protected against rises in interest rates over the finance term.
Where Chattel Mortgage doesn’t work with the objectives of an entity, both Rent to Buy and Leasing offer tax deductibility of the monthly finance payments.
The important issue at the moment is to act quickly to meet 30 June deadlines and to beat any July rate rises by the RBA. Our team is ready to arrange finance quickly while ensuring better interest rates to support your business.
Contact Jade Equipment Finance on 1300 000 003 for fast equipment finance quotes, approvals and settlement.
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.