The surge in demand for online shopping and the necessity for home deliveries due to the pandemic resulted in a dramatic rise in the sales of commercial vans. With demand for delivery services appearing to be ongoing, businesses need to ensure their vehicle is up to the task to realise productivity, efficiency and profitability. Many businesses acquired new vans in 2020 and those vehicles may have worked hard over the past few years. If your van is past its best life, now, with tax time not far away, could be a good time to upgrade. Solid reasons to upgrade vans pre-EOFY with cheap commercial van finance include tax benefits from temporary full expensing and avoiding any further rate hikes.
We set out this reasoning in detail to assist businesses with making their decision around when to upgrade their van, with what finance product and include info on top-selling and award-winning commercial vans to consider.
Interest Rates Driving Purchase Decisions
Interest rates are at the heart of cheap vehicle finance. For quite an extended period, borrowers have enjoyed record low lending rates as the RBA kept the cash rate on hold at a historic low since November 2020. That historic era came to a close with the RBA lifting the cash rate at its May 2022 meeting.
The minutes from that RBA Board meeting reveal that the Board did discuss a larger increase. This and comments from analysts and economists, including from leading banks, are pointing to further increases in the cash rate ahead. An increase could come as early as the RBA’s June meeting or it may be delayed until later in the year.
A key target for the RBA to move on rates is the unemployment rate. The April unemployment rate was announced this week and shows the rate now dropped to 3.9%. The RBA would also be considering inflation as their driver for further rate hikes.
Any rate rises by the RBA flow through the lending sector including motor vehicle finance. Buyers that secure van finance prior to further increases could realise a significant benefit in a cheaper interest rate.
To see how higher interest rates affect van finance repayments, refer to our Business Car Finance Calculator. Vary the interest rate slightly to see how that changes the monthly repayment. A figure which could be a compelling reason to act now on that new van purchase.
Upgrade before EOFY – Tax Benefits
The lead-up to end of financial year, tax time, is always a busy time for business owners. Making those last minute acquisitions and financial moves to be in a position to realise any relevant tax deductions in the current financial year.
In regard to asset acquisitions, such as commercial vans (subject to ATO eligibility criteria) the big attraction in this current FY is temporary full expensing aka Instant Asset Write-off. Under this temporary tax measures, the full purchase price of the eligible assets such as commercial vans, can be written off or deducted from taxable income in the year the van was purchased.
To explain, under normal ATO depreciation rulings, only a percentage of that value would be tax-deductible or depreciated in a given year. IAWO and temporary full expensing can offer significant reductions in taxable income and therefore tax payable for some businesses.
But in order to be in a position to take advantage of IAWO, the commercial van needs to be acquired with the appropriate form of vehicle finance. That is widely considered as Chattel Mortgage Vehicle Finance.
Chattel Mortgage for Commercial Vans
Chattel Mortgage is a very popular business finance product for the purchase of commercial vans as it suits many Australian business operations. It is essentially a secured loan format where the business takes ownership of the van, the van is used as the security for the finance and the business makes fixed monthly finance repayments.
Jade Car Loans secures Chattel Mortgage at a fixed interest rate to ensure the rate and the repayments will remain unchanged over the finance term. This form of finance, including ABN car loan options, also attracts the cheapest interest rate compared with say Vehicle Leasing.
The format of Chattel Mortgage makes this form of finance highly suitable for businesses wanting to utilise temporary full expensing. As the van is entered into the books (balance sheet) of the business, the asset is then subject to depreciation.
Under the IAWO guidelines, that means the full amount of the purchase price can be written off or depreciated in the year the van was purchased. Purchase and have the van in operation by 30 June 2022 and that could mean a significant tax benefit in FY2021/22.
There is only a few weeks to EOFY, but our consultants can act immediately to arrange cheap van finance which is individually structured to deliver a cost-effective outcome for our customers.
Vans to Consider
Which commercial van should you buy? That is a very personal decision but we can reveal the April 2022 van sales results. Sales were down significantly in this category for the month, compared with the same month last year and down on a year to date basis.
On a brands basis, Mercedes-Benz is the top seller, then Renault, Volkswagen, Ford and Fiat. Buyers may like to have a close look at the International Van of the Year for 2022 – the Renault Kangoo.
Whatever is driving you to a new commercial van purchase, ensuring the finance is cost-effective and cheap is sure to be a major contributor to business profitability and productivity.
Contact Jade Car Loans on 1300 000 003 to discuss cost-effective commercial van finance
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.