The Federal Budget announcements around temporary full expensing and loss carryback have placed the truck and equipment lending spotlight firmly on Chattel Mortgage for trucks also known as Heavy Vehicle or Equipment Loan. This type of truck loan is seen as the most appropriate form of financing new truck purchases for those looking to take advantage of accelerated asset depreciation schemes. But is Chattel Mortgage the most appropriate and beneficial form of truck loan for your individual business?
Procuring a new truck stands as a significant investment choice for the majority of business operators, and the associated truck loan arrangement is equally if not more paramount. The loan arrangement secured profoundly shapes the impact on your cash flow due to monthly repayment commitments and influences the potential tax deductions that can alleviate yearly income tax liabilities. Indeed, the overall structure of the truck loan holds the potential to exert a positive or negative effect on the accomplishment of your business's financial objectives.
Embracing a hasty "I'll follow the crowd" approach isn't advisable when it comes to truck loans. Thorough deliberation is necessary for the entire package. Assessing the appropriateness of a specific loan type for a given business configuration entails a careful review of the attributes and advantages inherent to each product. In this context, engaging in discussions with an accountant or a tax agent is highly recommended.
We cut through the hype to provide an overview of the various types of truck loans available so you can make your own assessment as to what is the best option for your business.
Truck Loan Options
Jade Truck Loans offers the full range of loan options to purchase both new and used vehicles, which include:
- Chattel Mortgage or Heavy Vehicle Loan
- Truck Leasing
- Rent to Own Trucks or Truck Rental
- Commercial Hire Purchase or Hire Purchase
The different loans have some similarities and some differences and each has its own appeal based on individual business objectives.
When sourced through Jade, all truck loans include:
- Our cheap interest rate is fixed over the full loan term. No need to address or adjust should interest rates change over the loan term.
- Fixed loan terms of up to 7 years.
- Fixed repayments to provide certainty in planning cash flow.
- Balloon or residual is optional. This can be utilised strategically to reduce the monthly repayment obligations.
- No deposit finance so the full purchase price can be included in the loan, subject to lender guidelines.
Suitability to Accounting Methods
A key determinant in selecting the loan type will be the method of accounting used by the business to prepare the accounts.
There are two methods used by Australian businesses:
- Cash accounting is widely used by many Australian operators. Chattel Mortgage is seen as best suited to this method.
- Accruals method of accounting. Truck Leasing and Rent to Own are seen as suitable for this method.
If a business intends to alter its accounting method, this adjustment must be made at the conclusion of the financial year and consistently adhered to throughout the subsequent financial year. With the upcoming new financial year on the horizon, if a shift in method is contemplated—potentially transitioning to cash accounting to align with Chattel Mortgage—it would be advisable to engage in a discussion with your accountant at this juncture.
Treatment of GST
GST treatment varies based on different loan types, and this distinction holds particular significance for businesses registered for GST. Notably, GST is never levied on the interest component of a loan.
For Leasing and Rent to Own arrangements, GST is applied to the monthly repayments and can subsequently be reclaimed through the appropriate BAS return.
However, with Chattel Mortgage, the entirety of GST associated with the truck's purchase price can be claimed immediately upon acquisition. This entails claiming the GST amount in the subsequent BAS return. Given that the entire GST component is accounted for at the outset, no GST is imposed on the monthly repayments.
Ownership and Balance Sheet Entry
The ownership structure of the truck throughout the loan duration varies among different loan types. This ownership status subsequently influences whether the truck is incorporated into the business's balance sheet. Irrespective of whether ownership title is held by the lender or the borrower, the borrower gains complete utilization of the truck immediately upon concluding the transaction. Additionally, the borrower assumes responsibility for ongoing expenses such as insurance, registration, servicing, and maintenance.
- With Chattel Mortgage, the borrower takes on immediate ownership and the truck is entered into their company accounts as an asset/liability.
- With Leasing and Rent to Own, the lender retains ownership so the truck is not entered into the borrower’s balance sheet. This can be seen as a way to ‘improve the balance sheet’ of the borrowing business. An aspect that may have benefits to the business. More information on the borrowers balance sheet here.
The ownership issues mentioned above then flow onto determining the tax deductions.
- With Leasing and Rent to Own, as the ownership is held by the lender and the asset held on their books, the asset is not depreciable by the borrower. The repayments are treated as an operating expense and fully tax-deductible.
- With Chattel Mortgage, the repayments are not fully deductible. Only the interest portion of each monthly payment is deductible. The major tax benefit is derived through depreciation of the truck at the end of year accounts/income tax return. The amount of the depreciation is the tax deduction. This is why Chattel Mortgage is most suitable for accelerated asset depreciation schemes. Read more here.
The biggie for most borrowers – interest rates! The rate varies across the different loans. Chattel Mortgage and CHP attract the lowest due to the structure of the loan, followed upwards by Leasing and then Rent to Own. Use our online truck finance interest rates from lenders and banks Australia wide.
While going for the cheapest rate loan type may appear a no-brainer, all the features/benefits should be considered as a total package.
Truck Finance Business Structure
All varieties of business configurations are eligible for all forms of loan types. This encompasses sole traders, ABN holders, Pty Ltd companies, SMEs, partnerships, family-run enterprises, and sizable corporations. The most fitting loan type is contingent upon the distinctive attributes of each individual business.
Moreover, low documentation, no documentation, and bad credit loans are accessible across the spectrum of available loan options.
Every variety of trucks and trailers, whether new or used, is procurable with any chosen loan product. This encompasses an array of configurations, including semis, truck-trailer combinations, heavy-duty and medium-duty vehicles, B-doubles, as well as specialized and customized setups across diverse body types. This spectrum also encompasses trucks powered by diesel, petrol, hydrogen, and electricity.
Securing the Appropriate Truck Loan
To secure the most appropriate loan for your purchase, talk to your accountant and talk to Jade Truck Loans about a quote. You can use our self-serve truck loan repayment calculator and interest rate guide to generate repayments on the different types of loans.
As a lender, our role does not encompass offering guidance to businesses regarding the optimal loan type that aligns with their operations. Instead, the business's accountant is better positioned to comprehend their client's financial goals and subsequently recommend a suitable course of action. Our function revolves around securing the most cost-effective truck loan arrangement according to your selected loan product.
Contact 1300 000 003 for a lending quote.
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.