Temporary full expensing expires on 30 June 2023 and with supply issues prevailing, businesses may be wise to fast-track purchases with Chattel Mortgage finance. Instant Asset Write-off and temporary full expensing, which are essentially the same tax measure, were the ‘talk of the town’ in 2020 and early 2021 but attention seems to have faded more recently. But businesses should be aware that the very generous benefits of temporary full expensing are still available on eligible asset acquisition through to the end of this financial year.
While the deadline is still 9 months away, there are a number of factors to take into account if the intention is to acquire new assets with this initiative. First, we entering what is traditionally a very busy trading period for many industries – Christmas! Attention will be primarily on running the business and making up for lost opportunities due to COVID. Those not run off their feet may be choosing to put their feet up with well-deserved time-off now COVID restrictions around travel have been lifted.
Then there is the major issue of supply chains. The availability of many brands and models of machinery, equipment and motor vehicles has been severely limited for some time. The outlook, as mentioned by FCAI Chief Executive Tony Weber in a recent statement, is for supply constraints in the automotive sector not to stabilise until into 2023. Possibly mid-next year.
Those that think they can wait till say May 2023 to make those last minute EOFY acquisitions may find difficulty in sourcing the assets and face the prospect of missing out on taking advantage of the tax measure. Astute operators will heed these alerts and start thinking asset acquisitions now to capture both the temporary full expensing opportunities and possibly achieve cheaper interest rates before more increases.
To take advantage of temporary full expensing, Chattel Mortgage or Equipment Loan as it is referred to by some lenders, is considered the best-suited form of finance. This is a very versatile and widely used form of finance as it can be utilised by many different types of businesses and suits the acquisition of many different assets. These include business vehicles such passenger cars, utes, cab chassis, all types of trucks and plant, machinery and equipment.
Chattel Mortgage – Equipment Loan
Temporary full expensing and IAWO are accelerated asset depreciation measures which Government introduce to support the economy under certain conditions. The introduction of these measures in April 2020 as part of the pandemic stimulus policies was not the first time they have been available in Australia. But the attention they attracted was probably greater due to the pandemic.
The key to why Chattel Mortgage (Equipment Loan) is best-suited for those wanting to realise the benefits of accelerated asset depreciation is in the reference to ‘depreciation’. These measures allow for assets to be depreciated at a greater rate than under the normal tax schedule for depreciation. But in order for a business to account for the depreciation of assets the business must actually own the assets. That is where the relevance to appropriate finance comes in.
With Chattel Mortgage, the ownership of the vehicles, trucks or equipment transfers on settlement to the business. The lender holds security over the loan through the assets. With ownership, the asset is posted into the business accounts and is depreciated over time in accordance with the tax rulings at that time.
This is different from the second most popular form of business finance – Leasing. With Leasing the lender retains the ownership of the assets. The business does not take ownership and as such does not list the assets in their books for depreciation purposes. Instead, the business pays a monthly lease payment and that is tax deductible.
Once acquired through Chattel Mortgage by assets may then become eligible for temporary full expensing. Businesses can check the criteria for businesses and for assets at the ATO website. The big drawcard for this tax measure lies in ‘accelerated’.
Normal depreciation schedules allow for a set percentage of the asset value or purchase price to be claimed as tax deduction in a financial year. So the asset is incrementally depreciated over many years. With these accelerated asset depreciation measures, the entire total value or purchase price is tax deductible in the one year, the financial year of the acquisition.
Depending on the cost of the asset, that can represent a huge reduction in taxable business income and hence in the tax payable for that year.
Another big drawcard for Chattel Mortgage over Leasing is in the interest rate. Typically this is universally lower for Chattel Mortgage than Leasing. Interest rates do vary with different lenders, for different assets and for different industry sectors as well as for individual businesses.
We assist businesses to achieve the cheapest Chattel Mortgage interest rates and streamline the process to save time and hassle. With time slowly running down to realise the significant benefits of these temporary tax measures, it could be time to speak with us regarding Chattel Mortgage for your asset acquisitions.
To discuss Chattel Mortgage finance contact Business Finance on 1300 000 033
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