The approaching date of June 30th, which is just a little over a month away, carries significant weight for businesses aiming to optimize their tax position before the conclusion of the tax year. This juncture also presents an excellent opportunity to position the business for heightened productivity in the upcoming financial year by acquiring new vehicles. In the current fiscal year of 2022, noteworthy tax advantages can be harnessed through temporary full expensing and Instant Asset Write-Off (IAWO) for new truck purchases facilitated by the appropriate truck finance.
To capitalize on the accelerated asset depreciation granted by temporary full expensing or IAWO, it's imperative that the assets, which in this context refer to the vehicles, are actively incorporated into the business operations before the 30th of June. Our team is equipped to expedite the truck finance process, empowering you to promptly proceed with the acquisition.
An additional catalyst for swift action arises from the RBA's clear indication of impending interest rate hikes. Delays in purchases might not only postpone the realization of tax benefits within this fiscal year but also expose businesses to the prospect of higher interest rates, potentially affecting cash flow and overall profitability. The convergence of these factors underscores the urgency to act promptly and decisively in order to reap the full spectrum of benefits available.
Key EOFY Considerations
Acquiring assets prior to the close of the financial year, particularly before June 30th, is a tactical move aimed at maximizing tax deductions within the current fiscal timeframe. This strategy is designed to lower the recorded taxable business income, thereby resulting in a reduction of the overall tax burden. It’s worth emphasizing that the scope of tax deductions and advantages hinges on the range of loan choices available for truck finance. Seizing this moment enables businesses to bolster their financial position while concurrently mitigating tax responsibilities.
The benefits which may be realised through investing in new assets this financial year are increased with temporary full expensing and IAWO. To be in a position to utilise these measures, the appropriate loan type needs to be selected. That is considered to be Chattel Mortgage For Truck Loans which is referred to as Truck Loan, Heavy Vehicle Loan or Equipment Loan by some lenders.
Tax deductions are also available with Truck Lease Finance and Rent-to-Own Truck financing. The selection of which truck loan is best suited to a particular business will depend on a number of factors including the accounting method, financial objectives and the way the balance sheet is approached.
Truck Loan Tax Deductions
GST is a tax but is treated differently with different loan types. GST is not applied to the interest portion of the loan. Interest payable on all loans is considered tax deductible.
- When acquiring a new truck with Chattel Mortgage the GST payable on the purchase can be claimed in full when submitting the next BAS return. This may represent a significant reduction in tax payable for that BAS period and as such provide a much-appreciated cash flow boost.
- With Truck Lease and Rent to Buy, the GST on the new purchase is treated differently. GST is applied to the individual monthly repayments (not on interest) and is claimable on corresponding BAS statements.
The tax deductibility of truck loan repayments varies.
With Leasing and Rent to Own, the repayments are treated as business expenses and fully deductible. So over a 12 month financial year, the business would realise a tax benefit equivalent to 12 monthly repayments or the number of repayments made in that financial year.
With Chattel Mortgage the repayments are not a tax deduction, except for the interest segment of the repayments. Businesses that opt for Chattel Mortgage may realise a tax benefit through the depreciation of the vehicle over time and in line with ATO rulings.
Temporary Full Expensing
In the fiscal year 2022 (FY22), businesses eligible for the accelerated asset depreciation measures, also known as Instant Asset Write-Off (IAWO) or temporary full expensing, can capitalize on considerable benefits for eligible depreciable asset acquisitions. As a depreciation regulation, this measure is applicable to acquisitions facilitated through Chattel Mortgage finance.
In contrast to the conventional practice of deducting a fixed percentage of the vehicle purchase cost annually as a tax deduction, this ruling enables the complete purchase price to be depreciated and claimed as a taxable expense. This translates into a substantial deduction from taxable income, leading to a reduction in tax obligations. These measures, introduced as a pandemic stimulus initiative in April 2020, have garnered immense popularity and have been retained in the Federal Budget, extending their availability through the fiscal year 2022/23.
Loss Carry Back
In addition to the aforementioned tax measures applicable in the current financial year, there's another significant initiative known as Loss Carry Back, which holds a connection to truck acquisitions. Simplified for clarity, businesses that have recorded profits and paid taxes in previous key years but faced losses in recent years, including the ongoing 2021/22, now have the opportunity to apply these losses retroactively against earlier profits, contrary to the conventional practice of carrying losses forward.
For businesses meeting these criteria, a possible tax refund could be realized by applying the losses against previous years' profits. By procuring a truck via Chattel Mortgage and implementing Instant Asset Write-Off (IAWO), a business may potentially display a loss in this financial year, making them eligible for Loss Carry Back and any resultant tax refunds. This integration of tax measures underscores the financial benefits of strategic truck acquisitions, aligning with specific financial goals.
From our position, there is time to apply and secure truck finance to make purchases before 30 June. We can provide pre-approved finance and fast loan approvals to ensure the finance side does not delay the purchase process.
Contact Jade Truck Loans on 1300 000 003 to secure pre-EOFY finance for new trucks.
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.