The Federal Treasurer, Josh Frydenberg, will bring down the 2021/22 Federal Budget on Tuesday 11 May. The budget is expected to set the Government’s policy and course for the next stage of the pandemic recovery and will be highly anticipated by both individuals and business owners.
The 2020/21 budget was characterized as a highly significant one due to its focus on addressing the economic impact of the pandemic through various stimulus measures. However, the 2021/22 budget holds an even greater significance in many respects. The timing of the 2020/21 budget announcement was delayed from the usual May release to October. This adjustment allowed the Government to gain a more accurate understanding of the required measures to support and invigorate the economy in light of the ongoing effects of the coronavirus pandemic.
Looking back to October 2020, there was a sense of grappling with the situation at hand. Melbourne had just emerged from a demanding 112-day second lockdown, the vaccine was approaching the horizon, and certain regions were displaying positive signs of recovery.
Now, several months on, and the reality has changed with many aspects seemingly a lot less clear-cut than originally thought. Sydney’s northern beaches outbreak caused shockwaves, state borders were opened and closed on rotation and the vaccine rollout has been impacted with several setbacks and recalibrations. While consumer confidence is high, the economy has posted several quarters of GDP growth and unemployment figures have exceed forecasts, there is still a sense of apprehension. Click to read more.
Indeed, the budget serves as a roadmap for recovery, requiring the capacity to swiftly adjust to evolving circumstances. This adaptability is crucial not only for the government but also for businesses. It enables them to remain prepared for unforeseen challenges, poised to seize emerging opportunities, and equipped to revise strategies in response to unexpected hurdles. Flexibility is the key to navigating a dynamic economic landscape and ensuring the best possible outcomes.
Several key sectors are still feeling the serious impacts of international border closures and with the ongoing issues with the vaccine rollout, there is a sense of uncertainty. Sectors such as tourism have been calling for industry-targeted packages of support.
The ongoing discussions regarding potential adjustments to the superannuation rate have generated considerable interest in Parliament, and the outcome will be closely monitored. Any potential rise from the current 9.5% could lead to increased expenses for businesses.
Despite these uncertainties, there are several reasons to be optimistic about the Australian economy in comparison to other nations. While we anticipate the initiatives the Treasurer has in the pipeline for the upcoming year, we want to highlight some of the favorable measures that our customers can still capitalize on from the previous 2020/21 budget.
2020-2021 Measures Still Available
Key initiatives from the Federal Budget 2020/21 are still on the table and could represent significant benefits to your business. Instant Asset Write-off and temporary full expensing are two major initiatives that have been of greatest interest to our Jade Truck Loans customers. The opportunity for eligible businesses to write off the full purchase price of eligible trucks in this financial year rather than depreciate the asset over time under the usual tax rulings. For some businesses, these measures continue through to 30 June 2022.
While IAWO has been covered extensively and exhaustively, one initiative which hasn’t received quite as much coverage is Loss Carry Back. This is more complicated to get your head around but is also relevant to asset acquisitions, such as purchase of a new truck.
By taking advantage of Loss Carry Back, eligible businesses could receive a cash refund on tax paid in earlier years. We’ve covered this in earlier articles but provide a quick recap as the EOFY is approaching and you may want to act now with that truck purchase to realise the benefit in 2020/21.
Absolutely, eligible businesses that have experienced financial losses in specific financial years due to the pandemic-related challenges can now take advantage of a valuable provision. If these businesses have previously recorded profits in certain preceding financial years, they can choose to carry back these losses to claim a cash refund of taxes paid on those earlier profits. This refund is a tangible injection of funds into the business, rather than a theoretical adjustment in future tax returns.
This measure was designed to provide practical support to eligible businesses grappling with the economic repercussions of the pandemic. Now, let's draw a connection between this provision and the purchase of a new truck.
If an eligible business decides to acquire an eligible truck asset using the appropriate finance product, it could also leverage the Instant Asset Write-Off (IAWO) or temporary full expensing scheme. By making use of this tax deduction, the business might report a loss in that particular financial year. This loss can then be offset against profits earned in the relevant preceding years, potentially resulting in a substantial tax refund.
In essence, the combination of these measures can significantly bolster a business's financial position and provide much-needed support during these challenging times.
Realising Loss Carry Back
The key to this scenario is purchasing the truck with the appropriate loan product. A loan product where the asset can be depreciated. We see Truck Chattel Mortgage loan as the most appropriate finance product for this purpose.
With Chattel Mortgage, the full amount of loan repayments is not tax deductible, only the interest portion is. The main tax benefit is realised through the depreciation of the truck as an asset. Another drawcard of this form of finance is that it attracts our lowest interest rate compared with leasing and rent to own. Use our truck loan interest rates to compare across lenders on Chattel Mortgage for the truck you’re interested in purchasing and to rekindle those purchase plans.
This loss carry back is already legislated for this coming financial year but we await what other initiatives may be introduced by the Treasurer on 11 May.
Contact 1300 000 003 to discuss moving forward with your vehicle purchase plans.
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.
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