It was top of mind for business owners from the early start of the pandemic. But with drawn-out and repeated lockdowns, striving for economic recovery, dealing with labour issues, a Federal Elections, soaring inflation and global supply chain disruption it may have faded into the background. What are we referring to? Temporary full expensing or IAWO, Instant Asset Write-off and how Chattel Mortgage Equipment Finance best suits those intending to use this tax measure.
When initially announced as part of the Government’s stimulus measures early in the pandemic and after it was expanded from IAWO to temporary full expensing to include more assets and more businesses this measure was very popular. Many operators jumped on the chance to upgrade equipment, machinery and plant and receive the very attractive tax measures.
Equipment manufacturers, dealers and lenders, including ourselves, were constantly promoting IAWO to remind and incentivise buyers. But that hype appears to have died down somewhat but the measure is still available. But, it has an expiry date of 30 June 2023. That may seem a long way away to have to start thinking ‘last minute’. But when you consider what the next few months may bring with increased business activity, summer holiday and travel plans and further interest rate hikes, NOW make be the right time to act.
An added complication in acquiring new equipment in many markets over the past few years has been the disruptions to supply. In many areas this is continuing. So buyers that leave that new equipment acquisition for temporary full expensing purposes till the last minute may face supply issues and miss out.
The other factor in regard to cost and what we consider a major motivator is of course interest rates. While we will always focus on achieving cheaper interest rates, the RBA has increased the cash rate for the past five months and Governor Lowe pretty much confirmed in a recent committee hearing that a rise in October is certain.
So with all those compelling reasons, we provide this timely reminder to business owners to start thinking of the benefits of temporary full expensing which can be realised with Chattel Mortgage equipment finance.
Accelerated Asset Depreciation Tax Initiatives: Revisited
Let’s quickly and briefly revisit IAWO and temporary full expensing. These were introduced as part of the overall package of business stimulus measures by the Federal Government and then Treasurer Josh Frydenberg to tackle what was anticipated with the COVID-19 pandemic. The initial announcement in April 2020 was as IAWO and due to the lockdown and other timing concerns, it was extended, expanded and amended and became known as temporary full expensing by November 2020.
As a tax measure, this is regulated and managed through the tax system and the ATO. The attractive tax benefit is in allowing not just a small percentage per year of a new asset purchase to be tax deductible, but the entire total value/purchase price in the one year. In the year the eligible equipment is acquired, the full purchase price becomes a tax deduction in that financial year.
Comparing the smaller deduction allowable under normal depreciation schedules with deducting the full amount of the price of new equipment or machinery you are considering, and the full extent of the benefit may become clearer.
As a further benefit, if deducting this amount puts the business in a loss position for that year, they may be able to take advantage of a Loss Carry Back tax offset. There are conditions around what years are eligible etc but the bottom line may mean an actual refund on tax previously paid plus less or no tax payable in this current financial year.
Check the criteria for eligibility for both machinery and equipment and business at the ATO website.
Chattel Mortgage Relevance
As temporary full expensing relates to depreciation of assets, Chattel Mortgage Equipment Finance is considered the most suitable form of finance for this purpose. With this form of finance the equipment ownership is transferred to the name of the business on settlement. The equipment is posted as an asset/liability to the balance sheet and as such depreciated in accordance with the ATO schedule.
With Equipment Leasing, ownership remains with the lender as the business makes lease payments which are tax deductible.
Chattel Mortgage may not suit all businesses. The features of different finance products relate to accounting aspects such as the method of accounting implemented by the business; strategy around the balance sheet; and other business objectives. As an initial step, business owners are urged to have a discussion with the business’ accountant or financial advisor around selection of finance products.
To be eligible to utilise the benefits of temporary full expensing, the eligible machinery and equipment must be operational in the business by the deadline date of 30 June 2023. Taking into consideration sourcing machinery, the acquisition process, possible delivery delays, installation and commissioning timeframes for some plant, that date may actually be closer than you realise.
Jade Equipment Finance can assist with the Chattel Mortgage Equipment Finance either on a pre-approved or post-purchase basis.
To get moving with asset acquisitions to meet the temporary full expensing deadline contact Jade Equipment Finance on 1300 000 003 regarding 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.