As we near the final financial quarter for 2022, savvy business owners and operators will have one eye on 30 June and be making plans to ensure their business is well-placed to take full advantage of allowable tax deductions. When it comes to tax measures, in many instances, leaving your run too late can mean having to wait until the following financial year to realise the benefit. Temporary full expensing has been extremely popular with many business owners. But for those requiring low docs equipment finance they may be wondering what their options are in this regard.
It is possible for businesses requiring low docs equipment finance to be in a position to utilise temporary full expensing when acquiring eligible assets for their business. We assist business operator seeking this option by providing pathways to achieve both cheap interest rate low docs equipment finance which is compatible with the guidelines and criteria of temporary full expensing.
Here’s a simple-to-follow coverage of both concepts to clarify the situation.
Temporary Full Expensing: Defined
Temporary full expensing is what is known as an accelerated asset depreciation measure or tax ruling. It is introduced from time to time by the Federal Government and is overseen by the ATO. Under normal tax rulings, a percentage of the value of assets are depreciated or written-off on tax each year over the life/value of the assets. The percentage is determined by the ATO. The depreciation represents the tax deduction on the purchase of the asset. The depreciation amount is realised in the annual accounts/tax return.
With temporary full expensing: temporary refers to the measure being in place for a limited time period; full expensing means the full amount of the asset acquisition can be expensed or depreciated in the year of purchase.
This measure was introduced as part of the economic stimulus package to tackle the economic effects of the pandemic. It is currently available to eligible businesses for eligible asset acquisitions through to June 2023. Check the ATO rulings for eligibility of assets and business.
Low Docs Finance Explained
Low Docs Finance refers to applications for business finance where the applicant does not possess all the financial records and documents which are normally required for such an application. Businesses that are new or newly-started can find themselves in this situation. Often it means a finance application being rejected by some lenders.
Specialist lenders such as Jade Equipment Finance have access to lenders that do offer low docs equipment finance.
The eligibility criteria include having a current ABN, ID and at some financial records, even basic accounts prepared by the business owner. Being registered for BAS is not a criteria but can be viewed favourably by lenders. The greater the quantity and the quality of documentation supporting the application, very often the more favourable the outcome.
In some instances the financials of the business owners will also be taken into consideration as part of the application assessment process.
Finance Products for Low Docs Loans-TFE
When one of our lenders approves a business application for low docs finance, the business has the choice of which particular finance product they wish to utilise.
The choice of low docs loans for equipment includes:-
- Chattel Mortgage
- Lease
- Commercial Hire Purchase
- Rent-to-Own
But not all these finance products are suitable for temporary full expensing (TFE). TFE involves depreciating the equipment to realise a tax deduction. In order for equipment to be depreciated by a business the equipment must be entered into the balance sheet of the business.
With Lease and Rent-to-Own that is not the case. With these types of finance, the ownership of the equipment is retained by the lender. The borrower has full use of and is responsible for all expenses related to operating the equipment but does not have ownership on paper. Therefore, the equipment cannot be depreciated.
The set-up is different with Chattel Mortgage which is seen as most suitable for using with TFE. With this finance product, the ownership of the equipment is immediately transferred to the borrower and as such entered into their balance sheet and depreciated in line with ATO rulings.
So once a business is approved for low docs finance, subject to lender approval, they can acquire the equipment required with Chattel Mortgage Equipment Finance and then utilise temporary full expensing to realise the major tax benefit.
Securing Low Docs Chattel Mortgage Equipment Finance
As noted earlier, not all banks and lenders offer low docs loans. Jade Equipment Finance does. We provide extensive and invaluable assistance and expertise to businesses with these requirements. Our consultants arrange and negotiate the entire finance deal.
Cheap interest rates can be achieved for low docs applicants and those interested can use our equipment calculator to work up rough repayment estimates to assist in their purchase plans. So as Q4 approaches and interest rates are very attractive, now could be the ideal time to act on those equipment purchase plans to ensure your business realises the optimum benefit from the acquisition.
Speak with a Jade Equipment Finance consultant on 1300 000 003 to discuss low docs equipment finance options.
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.
