Highs and lows are an accepted part of life in the agricultural sector. Resilient operators flow with the punches, pushing through low rainfall drought seasons, appreciating the cycles of high produce prices, while always preparing in readiness for what nature and the market may throw at them. In the current COVID environment which is crippling many businesses in both urban and regional areas, the ag sector appears to have reason for positive vibes.
The Tractor and Machinery Association of Australia (TMA) has reported that July sales figures in tractors continue the positive growth of the 2021 calendar year so far. The TMA put much of the increase in sales down to the Government tax measure, temporary full expensing, and good rainfall in many regions. But as key equipment lenders, we also add in the current low interest rate environment as a contributing factor to continued high machinery sales across the industry.
While tractor sales continue to be high, Jade Equipment Finance tractor loan interest rates on equipment finance remain low.
Solid Sales across All States
The TMA reports that all states have recorded increases compared with July 2020. While figures are early in the current NSW lockdown, that state had a 28% increase, closely followed by South Australia at 25%, Tasmania 19%, Victoria 11%, Queensland 16%, Western Australia 8% and the Northern Territory recording an 11% increase in sales for the month.
The TMA also notes that higher horsepower category, the larger machines, have been extremely popular as operators can write off the full purchase price in the financial year of purchase under the temporary full expensing measures.
While sales have been positive, global supply chain issues especially in regard to the shortage of computer microprocessor chips, is highly likely to impact supply at some point for some manufacturers. It is already hitting the motor vehicle and other manufacturing sectors overseas hard, with Toyota one of the biggest manufacturers to announce a 40% reduction in production due to the issue. Tyre supply is also impacting the supply of wheeled goods in many sectors.
Tax Incentives Driving Sales
For those still contemplating whether or not to invest in new machinery at this point in time, we present the case for moving now to secure current stock and capitalise on the highly attractive tax measures and interest rates.
Temporary full expensing, an expanded and extended version of Instant Asset Write-off, is no doubt driving investment in plant, machinery and equipment across many industries. That was the purpose of the Federal Government introducing the measure in April 2020 and extending it in the Federal Budgets in October 2020 and again in May 2021.
For those not across the detail, these are accelerated asset depreciation measures which enable eligible businesses to claim the full value of eligible asset acquisitions as tax deduction in the same year as purchased. To be eligible an asset must be depreciable.
Under normal tax rulings, businesses can claim a percentage of the value of assets each financial year as a tax deduction. Depending on the price/value of the equipment, it can take many years to realise the full tax deduction on a piece of machinery.
Under temporary full expensing, the full amount can be expensed or written off in the year the asset was acquired. A major boost to taxable income and hence tax payable. This measure is available for eligible businesses through to June 2022. That’s this financial year so the time to make that purchase is moving along. To check the eligibility of your business and your proposed tractor purchase for this measures, refer to the ATO or speak with your accountant.
In order to be a depreciable asset, the tractor needs to be acquired using a finance facility which allows for the equipment to be depreciated. That facility is widely recognised as being Chattel Mortgage. Also referred to as Equipment Loan by some of our lenders, this is a highly versatile form of finance.
The format and structure is relatively straightforward in that the equipment is used as the security against the loan, the borrower takes immediate ownership of the asset and repays the loan in equal monthly repayments over the fixed loan term. A balloon is optional and can be used effectively and strategically to achieve the desired repayment level. Use our tractor equipment loan calculator to easily see how a variation in the balloon amount impacts the repayment.
While being able to write off the value of the tractor in this financial year is a big incentive to purchase, the bottom line still has to add up. The cost of the finance still has to be affordable. That means the cheapest interest rate Chattel Mortgage deal needs to be achieved.
While the official cash rate has been held at historic lows for some time, equipment lenders such as ourselves have been able to sharpen our pencil even further in delivering cheaper interest rate loans. And these rates and cheap loans are available across the full range of tractor categories. With our tractor loans, the interest rate doesn’t go up with the horsepower or the price of the tractor.
Our same cheap interest rate deals are available across all brands and all sizes of tractors and other agricultural machinery.
Alternatives to Chattel Mortgage
While it is widely agreed that temporary full expensing is driving sales in both the tractor and other equipment markets, not all businesses are suited to Chattel Mortgage as a form of finance. There are those that do not choose to have the full value of a new tractor on their balance sheet as a depreciable asset.
While not suited to accelerated asset depreciation measures, we offer tax-effective alternatives to Chattel Mortgage. Our Tractor Leasing and Tractor Rent-to-Own finance deals are priced at low interest rates and include tax deductible elements. With these off balance sheet types of finance, the monthly repayments are considered a tax deduction.
So there are options for all operators to acquire new tractors and take advantage of the low interest rate scenario.
Contact Jade Equipment Finance on 1300 000 003 to discuss a cheap interest rate tractor loan.
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.