It's very common for many business owners to wait until just before the end of the financial year (EOFY) to acquire their new trucks. This is traditionally the time for dealer and manufacturer EOFY sales with great offers of new trucks available across the market. At the same time, business owners usually just start thinking about optimising tax deductions before 30 June. There is usually a mad panic and rush in the final weeks to get everything sorted to optimise the business tax situation.
But this can also coincide with a busy time for your business as you may be engaged in your own spike in business for EOFY. In addition, the economy is now starting to show good signs of recovery post-COVID as the vaccine roll-out gets underway. Another sign that you may be in for busy months ahead. So why wait for the last minute to secure that new truck?
As we roll into the final few months of FY20/21, we’re putting it out there that the tax benefits of truck finance may be realised from the time you settle the purchase/loan contract. There is not always a logical reason to wait until the last hours of the financial year to take action in regard to tax deductions. We’re taking this time to give you a quick update on what tax and other benefits your business may realise with our range of Jade Truck Loans.
Truck Loan Options
Jade Truck Loans provides a complete selection of finance facilities for the purchase of all types of trucks:-
- Rent-to-Buy Truck Loan
- Chattel Mortgage which banks also name as Equipment or Heavy Vehicle Loan
- Truck Leasing which some lenders refer to as Finance Lease
- Commercial Hire Purchase, aka Hire Purchase
The choice of which loan type will deliver the greatest benefit to your business will depend on a number of factors, primarily relating to accounting matters. The major issue is which accounting method your business implements – the cash accounting method or the accruals method of accounting. With cash accounting monies owed and monies received are entered as paid and received into the company accounts. With the accruals method, accounts payable and accounts receivable are entered as the invoices are issued/received, regardless of if they have been paid or not.
Leasing and Rent-to-Own best suits accruals accounting and Chattel Mortgage suits cash accounting. The cash accounting method is the most widely used method for Australian businesses. We recommend a discussion with your accountant in selecting finance products.
Treatment of Tax
How both income tax deductions and GST are treated, varies with the loan type.
- With a Chattel Mortgage truck loan, businesses that are registered for GST can claim the full amount of GST on the truck purchase price on the next BAS return after purchase. So if you purchased a new truck with a Chattel Mortgage in March, you could claim you could claim all the GST applicable in your January-March BAS return, if reporting/paying quarterly. If purchased in April to June, the GST would be claimed on that relevant BAS statement.
- With Leasing and Rent-to-Own loans, GST is applied to the monthly repayments so for those registered for GST, the GST is claimed in the applicable BAS return period.
- With Leasing and Rent-to-Own, the repayments are treated as a business operating expense. As such, they can be a tax deduction. So if you purchase a new truck with this type of finance in March through June, you should be able to deduct each month’s repayment in this financial year’s income tax return. All of course subject to eligibility and individual business set-ups, ATO guidelines and other issues.
Special Budget Measures
IAWO has been THE buzz-term in business finance and asset acquisitions for the past 12 months and benefits of this measure may still be available for your business, in some form. IAWO is a form of accelerated asset depreciation which was introduced in April 2020 to stimulate the economy due to the effects of COVID. It was extended and amended and updated and a temporary full expensing was also introduced in October in the Federal Budget. Temporary full expensing is also a form of accelerated asset depreciation.
Some of the measures are in place for the 20/21 financial year and some through the 21/22 financial year, depending on eligibility of the business and the asset being acquired. In principle, these measures allow the full amount of the asset to be depreciated or ‘written-off’ in the year of purchase. That means, the amount is treated as a tax deduction.
In order to realise the tax benefits of this type of measure, eligible businesses should select Chattel Mortgage finance facility so the truck is entered on their business balance sheet and can be depreciated in their income tax return. Leasing and Rent-to-Own are off-balance sheet funding facilities as the lender retains ownership. So they are not suited to this measure for the borrower.
Pre-Arranging Truck Finance
So there are plenty of reasons to act on your truck purchase rather than wait until closer to EOFY. In addition, you could realise a significant uptick in productivity with your new vehicle. You also don’t have to wait to start talking truck finance. A Jade Truck Loans consultant is ready to discuss structuring an individually tailored loan for you, whenever you’re ready.
Contact Jade Truck Loans on 1300 000 003 to talk all things truck loans.
DISCLAIMER: PLEASE NOTE THAT THIS INFORMATION IS PROVIDED PURELY AS A GENERAL INFORMATIVE ARTICLE AND IS NOT INTENDED AS A SINGLE SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADVICE IN REGARD TO THEIR FINANCIAL SITUATION ARE ADVISED TO REFER TO A FINANCIAL ADVISOR. NO LIABILITY IS ACCEPTED FOR ERRORS OR MISINTERPRETATIONS IN THE DATA, FIGURES, DETAIL AND OTHER INFORMATION AS SOURCED FROM OTHER SOURCES.