A significant tax benefit via temporary full expensing is available in this current financial year to eligible businesses in regard to the acquisition of new eligible assets which can include motor vehicles. In order to realise the tax benefits of temporary full expensing on new car purchases eligible businesses need to utilise the appropriate form of motor vehicle finance. Chattel Mortgage for Motor Vehicles is considered most suited for this purpose.
Many businesses may be more aware of this tax measure as an Instant Asset Write-Off. Temporary full expensing is an accelerated asset depreciation measure and is essentially the same concept as Instant Asset Write-off (IAWO). IAWO is probably more widely known and has been widely used by businesses acquiring new assets over the past 2 years.
Both temporary full expensing and IAWO allow for the total purchase price of the assets being acquired to be written-off in the year of acquisition. These are temporary tax measures which are introduced by Government under ATO rulings to achieve a range of objectives.
The current purpose of introducing accelerated asset depreciation measures is to stimulate the economy through business investment as part of the COVID-19 stimulus package. While the economy is bouncing back well from the effects of the pandemic, temporary full expensing is still in place until 30 June 2023.
Current Rulings
Instant Asset Write-off was introduced in April 2020 and expanded later in 2020 and known as temporary full expensing. The criteria for eligibility was slightly amended at that time. In order for a business to utilise this tax measure, both the business and the asset being acquired must meet the criteria.
The criteria and eligibility for temporary full expensing is detailed on the ATO website. The information includes details for small businesses that use the simplified depreciation rules.
New motor vehicles can meet the criteria if purchased within the timeframe.
Can include businesses that require Low Docs and No Docs Vehicle Finance
As per the 2022/23 Federal Budget announcement, temporary full expensing is available through to end EOFY 2023.
Temporary Full Expensing: Specifics
Under the usual depreciation tax rulings, assets are depreciated or written-off as a set percentage of the value or cost per year over a number of years as per the ATO schedule. Temporary full expensing allows for the full 100% of the value to be written off or depreciated in the year that the asset, the motor vehicle is purchased.
The tax benefit is realised when the annual business accounts and the business tax return for the relevant financial year are prepared and submitted. The key benefit to business of this measure: is depreciation = deduction from taxable income = less tax payable. With less tax payable, business reduce their tax obligation and outgoings, ease cash flow and in principle have more funds to invest in their business.
Finance Suited to Temporary Full Expensing
For businesses considering claiming temporary full expensing for the purchase of new motor vehicles, the appropriate form of motor vehicle financing, such as new business car financing, needs to be selected. The finance product needs to allow for the asset (motor vehicle) to be depreciated such as with Chattel Mortgage.
To be a depreciable asset, the motor vehicle needs to be posted to the business books/balance sheet which means ownership by the business. This is the case with Chattel Car Mortgage where ownership of the vehicle is transferred to the business buyer on settlement of the finance and sale. The motor vehicle is used by the lender as security against the loan.
The difference can be seen when comparing Chattel Mortgage with Vehicle Leasing. With Leasing the ownership of the vehicle is retained by the lender. As the ownership is not in the name of the business, the vehicle would not be a depreciable asset. However, with Vehicle Leasing the monthly lease payments are treated as operating expenditure and tax deductible.
Business owners are strongly encouraged to discuss choice of finance product with their accountant.
Chattel Mortgage Vehicle Finance
Chattel Mortgage is a widely-used form of business vehicle finance and suits many businesses. It also attracts the lowest business car loan interest rates across the selection of business finance options. It is well-suited to new vehicles as the vehicle is accepted as security against the finance.
Jade Car Loans secures Chattel Mortgage at a fixed interest rate which is an assurance that the repayments and the rate will not alter as the RBA moves on the cash rate and lending rates in general change.
A balloon is an option and can be used effectively to structure the finance to achieve a monthly finance repayment that works with the business cash flow.
To be in a position to realise the attractive tax benefit of new vehicle purchases in this financial year, the vehicle will need to be purchased by 30 June 2022. Our consultants are available to secure quick quotes and fast approvals to assist buyers meet deadlines while still securing cheaper motor vehicle finance.
Contact Jade Car Loans on 1300 000 003 for Chattel Mortgage motor vehicle finance this financial year
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.
