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Tax Topics: Optimising Business Vehicle Finance

End of financial year and tax time can present business owners with plenty of questions, considerations and opportunities. Time to reflect, refresh and reset. What could we be doing better in many areas of the operation? Are we optimising and maximising allowable tax deductions? Are we taking full advantage of the government measures and programs being offered?

This could be good time to look ahead and start planning what you can do to improve the bottom line in this financial period. From Jade Car Loans perspective, in relation to your business vehicle finance.

Added into the mix for 2020 has been the impacts of the COVID-19 pandemic. The uncertainty has caused many businesses to delay major purchases. The announcement by the Prime Minister Scott Morrison and Treasurer Josh Frydenberg on the extension of the JobKeeper program through to March 2021 has given many businesses the opportunity to put more plans into action.

If your plans involve purchasing new business vehicles then the choice of finance type should be carefully considered in relation to tax benefits. We’ve covered these details in our web pages for each finance type and provide a brief recap to put your car finance top of mind.

Get the Right Advice

When it comes to your business vehicle finance you need to know who to refer to for advice on the different aspects of the deal. There is a distinct difference between the roles of your accountant or financial advisor and your Car Loans broker.

The role of your Jade consultant is to source you the best car finance deal from our large number of banks and lenders, negotiate the interest rates and terms based on your brief to us. When it comes to deciding on the finance product you want for that car purchase, we always advise you refer to your accountant.

Why? Because it is your accountant’s role to know the specific structure of your business, the accounting method used in preparing your accounts and your financial objectives.

These are the deciding factors when it comes to deciding which finance product best suits your business. Deciding which finance facility will deliver the optimum tax benefits to your business.

Business Vehicle Finance Types

Jade Car Loans offers the full range of commercial finance products including the most popularly used types:-

Which is best suited to your business depends on a number of factors including your treatment of tax including GST and deductions.

Tax Elements

Here’s a brief overview of the varying tax implications of business vehicle finance.

GST Treatment

  • GST is not charged on the interest component of the loan under any of the finance types.
  • With Chattel Mortgage and CHP, the business can claim the full amount of GST on the purchase price of the vehicle on the next BAS return after purchase. That’s on the purchase price, not the full loan amount as GST does not apply to interest.
  • With Leasing, GST is applied to and claimed on each monthly repayment but only on the principal repayment not on the interest portion.
  • When finalising the finance contract your lender, broker or accountant can provide you with the details as to what GST amounts to claim at what times.

Tax Deductibility

  • With Chattel Mortgage and CHP, only the interest component of the monthly repayment is tax deductible, not the complete repayment amount.
  • With Leasing, the monthly payments are considered an operating expense and are tax deductible.
  • Residual is also tax deductible for Leasing but the balloon is not tax deductible for Chattel Mortgage and CHP.

Structuring Your Finance to Optimise Benefits

The structure of the finance may also have an impact on the benefit to your business. That is, varying the balloon/residual to increase/decrease the monthly payments or opting for a longer or shorter loan term to vary the monthly outgoings. Both these strategies may offer your business a benefit at EOFY tax time.

These details may be worth considering and discussing with your accountant before advising your Jade consultant which finance facility to arrange for your vehicle purchase.

Other Offers and Benefits: IAWO, BBI, Vic Payroll tax

In response to the effects of COVID-19 on business, both the federal government and state governments have implementing short-term measures which may benefit your business when financing business vehicles.

  • Instant Asset Write-Off and Back Business Investment measures both include business vehicles for eligible businesses.
  • Several state governments have waived and/or deferred payroll tax for a time and the Victorian Treasurer announced a further deferral in mid-July in response to the COVID outbreak in that state.

Refinancing Options

In addition to providing finance for newly purchased vehicles, Jade Car Loans also provides refinancing facilities. If your business structure or objectives have changed since you took out your car finance or you are seeking to refinance the balloon/residual, please discuss your requirements with your Jade Car Loans consultant.

We stay across developments and announcements across many areas of the financial sector and will be regularly posting articles and news for your interest and information.

To discuss cost-effective business vehicle finance, speak with a Jade Car Loans consultant 1300 000 003

DISCLAIMER: THE INFORMATION PROVIDED IS FOR GENERAL CONSIDERATION. ANY REFERENCE TO OFFICIAL GOVERNMENT POLICIES HAS BEEN SOURCED FROM AUSTRALIAN GOVERNMENT AND STATE GOVERNMENT SOURCES. INFORMATION ON INDIVIDUAL VEHICLE SPECS IS SOURCED FROM THE MANUFACTURER WEBSITE. NO LIABILITY IS ACCEPTED FOR ANY ERRORS IN PRESENTATION OR INTERPRETATION OF THE FACTS AS PROVIDED BY THESE SOURCES. WE ADVISE ALL INDIVIDUALS AND BUSINESSES TO REFER TO THEIR ACCOUNTANT OR FINANCIAL ADVISOR FOR PROFESSIONAL ADVICE SPECIFIC TO THEIR INDIVIDUAL CIRCUMSTANCES.

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