As we usher in the new year, it's pertinent to offer a timely reminder to operators who are contemplating the prospect of acquiring new trucks, regarding the current landscape of truck finance. The recent years have been marked by remarkable uncertainty, with economic dynamics undergoing a seemingly perpetual state of flux. These are the very conditions that might have prompted numerous operators to postpone their plans for new truck acquisitions and enhancements, awaiting a more stabilized economic environment in the aftermath of the COVID-19 pandemic.
While the global economy continues to experience too high inflation levels, some of the supply chain issues which have disrupted many industries appear to be easing. Business prospects may be looking better and the timing could now be spot on for that new truck purchase.
We provide an overview of the tax benefits available with truck finance on new vehicles along with a general outlook for interest rates for those considering new acquisitions, especially for Truck Finance for New Business, in the coming months.
Truck Finance Tax Benefits
The tax deductible elements of truck finance form the format and structure of each loan type and are subject to the tax laws. Variations can be enacted in the tax laws through temporary measures as was done in the pandemic stimulus package.
There are four asset acquisition finance products available to finance truck acquisitions:-
- Chattel Mortgage For Truck & Trailer Loan
- Rent to Buy
- Commercial Hire Purchase
- Truck Lease Financing
While there are a number of differences in loan types, the key points to discuss here are in relation to the tax deductions. All these four commercial loans do have tax deductible elements but they differ. The commonality lies in that the interest component of the finance repayments is tax deductible for all loan types.
Leasing and Rent to Buy are both considered off-balance sheet forms of finance and the monthly lease/rental payments treated as business expenses. As such, these repayments are tax deductible. So over a year of loan repayments, the business should be able to claim 12 monthly finance payments as tax deductions, including the interest portion.
Chattel Mortgage differs from Leasing and Rent to Buy in that the truck is listed on the business balance sheet. As an asset, the truck is then subject to depreciation. Asset depreciation schedules are set by the ATO. The amount that the asset is depreciated each year is tax deductible. The monthly finance payments are not tax deductible, except for the interest portion.
However, the tax benefits for 2022/23 in regard to asset depreciation are different from this usual scenario due to the availability of temporary full expensing. Temporary full expensing is what is known as an accelerated asset depreciation measure.
This measure was introduced in April 2020 as part of the government’s stimulus measures and was known as Instant Asset Write-Off. Through a number of amendments and extensions, the measure became more commonly known as temporary full expensing.
So what does all this mean for new truck purchases?
- The business and the truck being purchased must be the eligibility criteria.
- Full expensing refers to the full amount of the purchase price of the truck being fully tax deductible in the year of the acquisition. Rather than depreciated or expended in small incremental amounts over a number of years of tax returns.
- But to be eligible, the truck (asset) must be ‘owned’ by the business, as in listed in the business’ accounting books. This means the appropriate form of finance which is Chattel Mortgage.
- So purchasing a new vehicle with Chattel Mortgage Truck Finance, the business can write-off that full purchase price this financial year.
- With this significant tax deduction, the business can reduce the amount of tax owed in the financial year. This will be seen as a major benefit to many operators who may have been struggling with rising costs, fuel prices and labour shortages in recent times.
But the major reminder here is in regard to the timing. This measure has been available for some time and the offer is coming to an end on 30 June 2023. After that date, the normal depreciation treatment for Chattel Mortgage finance will be reinstated.
The Federal Budget is due to be brought down in May, the usual timing, but it would be unrealistic to imagine that temporary full expensing would be extended, given the different conditions facing the Australian economy compared with 2020 and 2021.
Interest Rates Outlook
The new year kicks off with interest rates in general on the rise. The RBA has lifted the official cash rate every month since May 2022 and has signalled – be prepared for more increases. The December increase continued a run of 0.25% increases. But of note was the discussions by the RBA Board around the possibility of a 0.5% hike or even leaving rates unchanged.
Governor Lowe has said that no option has been ruled out. But the December Rate Decision statement did conclude with the usual remark about an expectation for more rate rises to be required. The next RBA Board meeting will be held on the first Tuesday in February 2023.
As with all lending markets, truck finance lenders potentially react to RBA decisions but still make their own individual decisions. Operators seeking assistance with sourcing the cheaper truck interest rate finance can utilise our services with access to non-bank lenders that specialise in this sector.
Contact Jade Truck Loans on 1300 000 003 to take advantages of current tax benefits with Chattel Mortgage Truck Finance at cheaper interest rates.
DISCLAIMER: THIS INFORMATION IS ISSUED PURELY FOR THE PURPOSE OF GENERAL INFORMATION PROVISION. IT IS NOT TO BE TAKEN AS THE ONLY SOURCE OF INFORMATION FOR BASING FINANCIAL DECISION-MAKING. THOSE REQUIRING FINANCIAL GUIDANCE AND ADVICE SHOULD CONSULT WITH THEIR FINANCIAL CONSULTANT OR ADVISOR. NO LIABILITY IS ACCEPTED FOR ANY MISREPRESENTATION OF POLICIES, DATA OR ERRORS IN THIS CONTENT.