After providing a general overview of the Federal Budget just days after it was brought down on 6 October, we are continuing our analysis of key issues relevant to truck loans. Providing explainers and clarifications to assist our customers understand the benefits and opportunities presented by the investment allowance measures.
One particular term you might stumble upon is ‘temporary full expensing’. Though not a common phrase in daily banter, understanding its nuances is crucial for business owners. While many rely on accountants for such details, gaining personal insights can only empower you further.
To aid your comprehension of full expensing, and how it varies from asset write-off, we’ve pulled together some concise information.
If you've been abreast of recent developments, you're probably aware of the Instant Asset Write-Off (IAWO), introduced as a pandemic relief measure. Put simply, eligible businesses could invest in new trucks and claim a tax deduction up to $150,000 per vehicle within the same tax year, considering certain criteria.
In the absence of IAWO, businesses would only be able to depreciate a percentage of the truck's value over several years. However, full expensing is akin to an ‘accelerated depreciation’. Eligible enterprises can deduct the complete expense of qualifying assets, like truck purchase costs, in the year of acquisition instead of spreading it over years.
Remember, the term ‘temporary’ indicates a time-bound benefit. And we use ‘eligible’ to remind that there are specific criteria for availing these measures.
IAWO had already been extended to 31 December 2020 and the Federal Budget extended that deadline and included additional ‘extras’. The Budget also included ‘full expensing’.
To provide a differentiation between the two measures within the budget context, we sought an official interpretation from the ATO website. Unable to source Fact Sheets at this time, we sourced a simple explanation in the ATO’s Community Forum.
In response to a similar query, the ATO noted:-
- The aggregate turnover of a business determines access to different budget measures.
- Businesses with turnover below $500m can access IAWO
- Businesses with turnover up to $5b can utilise full expensing
- While the maximum threshold for assets claimed under IAWO is $150,000, the full expensing measure does not have a maximum threshold.
So full expensing allows access to essentially an accelerated depreciation measure to larger companies and for acquiring higher priced trucks, equipment and other assets.
If the truck you’re buying is under $150,000 and your turnover under $500m then you should be eligible for IAWO.
If turnover is $500m-$5b, then the temporary full expensing is applicable for all new assets.
Most of the measures introduced in the Budget have deadlines. So if you are keen to take advantage of the benefits to your business, you need to take note of the timing. Timing is relevant to when the truck is purchased and when the measure finishes.
For temporary full expensing, the truck needs to be purchased and operational in a business after when the measure was introduced, that is when the Treasure made the announcement on 6 October 2020 at 7.30pm and 30 June 2022.
IAWO did have an extended deadline to 31 December 2020. The Budget pushed that out further to 30 June 2021.
New and used assets are treated differently under IAWO and temporary full expensing.
While awaiting detailed ATO Fact Sheets, the information published refers to ‘new’ assets in regard to temporary full expensing.
Business with below $50m turnover appear eligible to claim second-hand assets.
Second hand assets costing below $150,000 and acquired prior to 31 December 2020 and operational by 30 June 2021 appear to be eligible.
Appropriate Finance Products
While there are a number of details for you to consider in regard to your truck purchase under these investment allowances, a critical issue is selected the appropriate finance product for your truck loan.
As we have covered in several articles, in order to depreciate an asset, that asset needs to be on the balance sheet. Rent to Own truck finance and Truck Leasing are off balance sheet finance facilities. Truck Chattel Mortgage is best suited for your truck loan if you intend to take advantage of temporary full expensing or IAWO. However, leasing and rent to own do offer their own tax deductible elements so deciding which product will best benefit your business should involve a discussion with your accountant.
Jade Truck Loans offers the full range of commercial truck finance products and we can source you a loan quote for your choice of product. Our cheap truck loan interest rates apply to all our commercial finance products.
To discuss a truck loan to realise the benefits presented in the Federal Budget, contact Jade Truck Loans on 1300 000 003
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