Catchy headline but no, it's not a teaser it can be a reality. There is a current tax measure in place which enables eligible businesses to receive a gain as in a cash refund by making a loss on their balance sheet through the purchase of eligible motor vehicles. Not a trick or a gimmick, this is legitimate and has been covered by the ATO. We're talking about Loss Carry Back.
Through 2020 the Federal Government introduced a raft of stimulus measures for businesses and added to these when bringing down the Budget in October 2020. Several of these measures, and the ones of key interest to us as motor vehicle lenders, were the accelerated asset depreciation measures. Of even more interest is how these measures can result in a cash refund to a business. Click for more information.
Accelerated Asset Depreciation Measures
Instant Asset Write-Off was a major drawcard and one that has been heavily highlighted over the past 12 months by banks, lenders including Jade Car Loans and most motor vehicle dealers specialising in business vehicles. Most business owners will have their head around this concept by now but we recap for those that haven’t.
Eligible businesses can write-off/depreciate the full purchase of eligible assets, including motor vehicles, in the year or acquisition rather than depreciating the asset incrementally in line with ATO rulings over several years. Thus providing the business with a significant tax deductible expense. All subject to ATO criteria in regard to eligible businesses and eligible assets.
In the October Budget, a similar concept, temporary full expensing, was introduced. This also allows for the full value/purchase price of eligible assets to be depreciated in the year of purchase. The eligible asset/vehicle would need to be purchased with an appropriate finance product, which we see as Chattel Mortgage.
So we have that stage but taking the accounting process a few more steps and this purchase of a new motor vehicle with the appropriate finance facility can result in a cash refund to the business.
Loss Carry Back
Loss Carry Back for a limited time period, was also introduced in the Budget and is currently available for eligible businesses. Under standard tax rulings, when a business posts a loss in a financial year, that loss would be carried forward to the next financial year and accounted for against any profits made in future years. Loss carryback is the reverse process. A loss posted in a financial year can be claimed against profit posted in the previous year(s).
The measure was introduced by the Federal Government as a stimulus measure and to acknowledge that many businesses that had posted profits in earlier years would inevitably post losses due to the economic impacts of COVID-19.
In the current loss carryback regime covers businesses with a turnover of less than $5 billion. Losses refer to financial years 2019/20, 2020/21 and 2021/22. These losses can be claimed against profits posted and tax liabilities paid in 2018/19, 2019/20 and 2020/21. More information on loss carryback tax offset.
This relates to the tax liability which has already been paid in the years the profit was posted. If implemented, loss carryback may result in the business receiving a cash refund of the relevant amount of tax paid against the previous year(s). Any refund is limited to the monies already paid. But a cash refund is a cash refund and a welcome injection of funds at most times for most businesses.
Back to the new vehicle purchase. The scenario, which has been detailed in notes by the ATO, is that if an asset purchase is depreciated and that causes the business to post a loss, that loss could be carried back to profits in previous years and generate a cash refund of the tax liability paid. All subject to criteria.
Clearly, the accounting side of the scenario would be handled by your accountant when your income tax and annual accounts are prepared. But many businesses don’t refer to their accountants for advice as to whether or not they should purchase new vehicles using options like the best low doc car loans. They make those decisions themselves and the accountant handles the balance sheet and accounting processes.
So unless your accountant has made you aware of this potential benefit for your business, it will be up to the business owner to make the relevant purchase decisions.
Suitable Finance
As we noted above, in order to depreciate the vehicle, it must be purchased with a suitable finance facility being Chattel Mortgage. Sometimes referred to as Motor Vehicle Loan. This is a highly versatile form of finance and Jade Car Loans consultants can source and secure extremely flexible Chattel Mortgage deals with negotiated terms and our trademark cheap business car finance rates.
If a motor vehicle purchase could benefit your business by way of the loss carryback accounting regime, contact us to discuss a Chattel Mortgage deal that will work with your business goals.
Contact 1300 000 003 to discuss motor lending requirements
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.
