Businesses in the agricultural sector may be facing a dilemma with supply issues hampering tractor sales right at what could be last call for record low machinery finance rates. A range of conditions are currently affecting the sector including global events, the effects of flood and huge recent rainfalls in NSW and Queensland and inflationary pressures on prices having the potential to affect demand. Some areas may be thriving while others are struggling.
The finance scenario is currently extremely favourable for investing in new equipment with record low rates, IAWO in place and the tax benefits to be realised by purchasing prior to EOFY. We cover off on the current tractor sales situation and the opportunities available to achieve cheap interest rate tractor finance for those that can source the machinery they require and are ready to buy.
Tractor Sales Situation
The Tractor and Machinery Association of Australia (TMA) recently released the results of tractors for March. The figures reveal another drop in sales, this time a 19% decreased compared with March 2021. The over total sales are place 13% below the year-to-date figures for the same period in 2021.
Despite these drops, the TMA see the figures as strong for the sector due to the supply issues. While many of the supply issues reported across many sectors are being put down to global issues, the TMA said the current tractor supply issues may be being exacerbated by the ports.
The statement says that TMA members had cited issues of overly long quarantine delays stemming from the lack of appropriately trained personal to process the equipment plus the rise in container costs. The container shortage is also seen as an issue.
The TMA also relates of reports which indicate that the backlog in the unloading ships is leading to not as many ships being allocated to Australian deliveries. In the light of these issues, the TMA welcomed the announced that a productivity commission would review the efficiency of maritime logistics systems. The TMA has prepared a submission to the commission but expects any findings and outcomes to be many years before realisation.
In regard to specific tractor sales figures, the under 40hp or 30kw small category registered figures which were down, 18% compared with March 2021. The 40-100hp range also down 6%. The first drop for this category in some time. While the 100-200hp segment was also down, by 21% as was the 200hp large category down 39%. All figures comparing March 2022 with March 2021.
The TMA says that the demand for ag machinery worldwide is strong and as some prices are starting to rise for produce in some sectors, it expects demand to stay high.
Incentives to Buy Now
While supply issues may be seen as hampering the sales of tractors, there are many reasons why buying new machinery at the present could be a very advantageous decisions. For those that can access and acquire the machinery they require the tax incentives and low interest rate scenario combine to create an ideal time to make that investment.
The major tax incentive on offer is the temporary full expensing measure aka Instant Asset Write-off. Put in place initially as a stimulus measure, this tax benefit for eligible businesses acquiring eligible assets was extended to 30 June 2023 in the Federal Budget.
This measure has been extremely well-received across multiple sectors to acquire vehicles as well as a wide range of equipment, plant and machinery. The key is the ability to write-off or depreciate or fully expense the total purchase price in the financial year the machinery was acquired.
This compares extremely favourably to the usual tax ruling where machinery is only depreciated incrementally over a set number of years.
While that is an extremely attractive prospect, the benefits of using this measure can extend further. By claiming the IAWO the business may report a loss for 2021/22 which may allow for the Loss Carry Back measure to be realised. This may result in a cash refund of tax paid in an earlier year.
In order to realise these measures in this financial year by 30 June 2022 buyers will need to act quickly to arrange finance and make the acquisition. The choice of finance product is critical to a business being in a position to realise these benefits.
In order to be depreciated, the machinery must be listed as an asset in the business accounts. Chattel Mortgage is seen as the most appropriate finance product in this case. The ownership of the machinery goes directly to the buyer which enables the machinery to be depreciated by the business.
As an added bonus, the interest rate on Chattel Mortgage is the lowest compared with the other finance products – Lease and Rent to Buy.
The interest rate situation is another key driver for businesses to purchase new machinery such as tractors at this time. The lending market has been in a position to offer record low rates since November 2020 when the RBA dropped the cash rate to 0.1% But the end of record low rates appears to be fast approaching. As soon as June the RBA is expected to raise rates. A decision which will flow through to lending markets.
Acquiring new tractors and machinery while interest rates are at their lowest on record may result in extremely attractive and cost-effective finance with extensive benefits to the operation.
Contact Jade Equipment Finance on 1300 000 003 for cheap interest rate machinery and tractor 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.