And suddenly it was August. What? Yes, the last few months really have disappeared or whizzed by in a whirlwind of coronavirus outbreaks, snap lockdowns, extended lockdowns and even a shock 14 day pause on construction in areas of NSW. State by state, Delta has been causing disruption to businesses of all sizes in many industries. What business opportunities and finance are available?
During all this, business owners have needed to prepare for the end of the financial year, some while working from home. While there has been a lot to deal with on a day to day basis, we want to provide this timely reminder to businesses not to forget the tax measures on offer in regard to asset acquisitions.
The enthusiasm and positivity which accompanied the Federal Budget announcement of the extension of the temporary full expensing scheme, aka Instant Asset Write-off may have been dulled by recent other distractions. We encourage business owners and operators to re-address these opportunities so as not to miss out on the benefits to the business available.
Re-address Budget Measures
Rewind to May or even further back to October 2020 and recall the Treasurer Josh Frydenberg announcing the extension and expansion of Instant Asset Write-Off into the format of temporary full expensing. At those times these measures sparked the interest and grabbed the attention of many business owners. But with other matters to deal with, those asset purchases have had to be put off and remain in the pending file. Now could be the time to get moving and make them happen.
Temporary full expensing is available for eligible asset acquisitions by eligible businesses. The type of assets which may be eligible for your business include cars and work vehicles including utes, SUVs, passenger cars, light commercial vans etc; all categories of trucks from light through to heavy duty; marine vessels used in a business; and a vast array of equipment, plant and machinery used across most industries.
The attraction of temporary full expensing is the business being able to depreciate the full purchase price of the asset (hence the full expensing title) in the year the asset was acquired. Depreciation meaning fully deducting the price of the asset as a tax deduction. The usual process, when an accelerated asset acquisition is not available, allows for only a percentage of that asset value or purchase price to be depreciated/deducted each year. Depending on the value or price of the asset, it may take multiple years for a business to realise the complete deductibility.
With such a significant deduction as a vehicle or major item of equipment, the taxable income of a business can be significantly reduced. Meaning – less tax payable. If the deduction results in the business recording a loss for the financial year, then no tax may be payable.
A loss made in the current financial year may make a business eligible for another benefit – Loss Carry Back. Discuss this with your accountant as it involves profits made in earlier financial years.
Review Finance Options
In order to be in a position to reap the benefits of temporary full expensing, the assets need to be acquired using a suitable type of commercial finance. While we offer the full portfolio of commercial finance products – Leasing, Chattel Mortgage, Commercial Hire Purchase and Rent to Own, it is Chattel Mortgage that is considered most suited to businesses looking to claim temporary full expensing.
As we have detailed in a number of articles, temporary full expensing involves depreciation of the asset, whether that be a car, marine vessel, truck or an item equipment. Depreciation applies to assets which are owned by a business by way of being posted to the business balance sheet. It does not mean completely owned, the asset can be under finance.
With Chattel Mortgage the ownership of the asset is accepted immediately by the business borrowing the funds and the asset accepted as security or a guarantee against the funding by the lender. This accounting procedure allows for the asset to be depreciated under temporary full expensing or the schedule in force at the time.
With Leasing and Rent to Own the asset remains under the ownership of the lender until the borrower completes all payments. As such, the borrower is not in a position to depreciate that asset.
Another appealing feature of Chattel Mortgage is the low interest rate that this form of finance attracts. The lowest across the range of asset acquisition commercial finance products. Refer to our Interest Rate Comparison Calculator for the category of assets you are considering to see the varying interest rates we are offering.
Recap on Interest Rates
To close out this reminder article we recap on the current interest rate scenario. The official cash rate remains at the historic low of 0.1% which is flowing through to extremely attractive lending rates on commercial loans. Rates on business finance can vary across different categories of assets being cars, marine, trucks and equipment, and can vary across the lender market.
With our vast accreditations we have the capacity to source widely to ensure our customers are offered the cheapest interest rate deals appropriate to their acquisition and the application.
So time to put the current issues around other things aside momentarily and spend some rethinking time on how your business can realise the benefits of the current tax measures in place. Final word – temporary. The ‘temporary’ in temporary full expensing means that this measure is not in place permanently but only for a set period.
Contact Jade Finance 1300 000 008 to discuss the finance options for your business asset acquisitions.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.