Just when you thought you were across accounting measures and tax deduction benefits with truck loans, another concept enters the conversation for you to get your head and finance figures around. While Instant Asset Write-off has become somewhat of a well-known if not a well-worn term regarding truck purchases and finance over the past 15 months, temporary full expensing (TFE) has emerged as the new player in the same game.
As masters in the finance game, our team is total across TFE and we’ve broken it down to the basics so you’ll know if your business is eligible, if your credit profile suits, if the truck you’re buying is eligible and how you can access the suitable cheap truck loans Australia wide to realise the tax deduction benefits on offer.
How to Benefit from Temporary Full Expensing
Temporary full expensing was introduced in the October Federal Budget announced which was actually the 20/21 budget announcement, delayed due to COVID-19 implications from the usual May timing. The measures introduced in addition to the swathe of stimulus packages have been understandably confusing for many business operators but the benefits could well be worth taking the time to study the detail.
Temporary full expensing is an accelerated asset depreciation measure. The word ‘temporary’ simply means it is only applicable for a certain timeframe. In the current scenario, in October 2020 it was announced to cover purchases up to the end of June 2022. The 21/22 Budget announcement has extended that to 30 June 2022. Eligible assets must be purchased and operational in the eligible business by that date to be eligible for the tax benefit.
For more information on 2021/2022 Federal Budget click here.
The benefit is that under normal tax rulings, an asset purchased with appropriate finance is depreciated at a set rate as determined by the ATO. So only a small portion of the truck purchase price can be deducted as an expense each year over many years.
With an accelerated asset depreciation measure like TFE, that process is – yes, accelerated. Not just a small percentage but the entire purchase price is claimed as a tax deduction in the same year the asset/truck was purchased. Businesses receive a much larger tax deduction in that year, which reduces taxable income and how much business income tax is payable.
By reducing the business tax obligations, funds are freed up to spend on other areas of the business.
There are specific details of eligibility and other accounting factors to consider and business owners are advised to check the information at https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Temporary-full-expensing/ and of course consult with their accountant or tax agent to ensure all the boxes are ticked.
TFE v IAWO
If that all sounds familiar, you’re right. The definition of TFE is essentially the same as IAWO. The difference in the current rulings is regarding what businesses and what assets are eligible. IAWO was limited to businesses with a relatively small turnover and for new assets only. TFE expands business eligibility and includes new and used assets for some businesses.
Who is eligible?
Businesses with an aggregated turnover below $5 billion per year are eligible. That includes just about all but the very largest Australian corporations. The type of business structure does not appear to impact eligibility for the measure. Sole traders, pty ltd businesses, SMEs, partnerships, family enterprises and others may be eligible under the ATO rulings.
There are some modifications applicable to small businesses that use simplified depreciation rules. The details can be reviewed on the ATO website at the above link.
What trucks are eligible?
With IAWO the price of eligible assets was limited to $150,000 and new assets. But under TFE the eligibility has been increased to an unlimited value. That would include all types of trucks such as semis, prime movers, truck trailer combos, refrigerated, crane trucks, B-doubles, tray trucks, tow trucks, general delivery trucks and across all engine capacities.
- All new trucks are eligible for businesses with a turnover of less than $5 billion.
- For businesses with less than $50 million turnovers, both new and second-hand assets are eligible.
- Timeframe for purchase is from 6 October 2020 at 7.30 pm AEDT through 30 June 2023 (once the Budget Bill is brought into law after passing both Houses of Federal Parliament. Currently, the ATO information shows the 2022 expiry date as officially, budget announcements don’t become rulings until passed into law).
- For businesses with over $50 million turnovers, second-hand assets are not permitted.
- The measure is not limited to just one asset so eligible businesses could purchase and claim multiple eligible vehicles.
What truck loan types can be used?
The key to claiming the tax deductions of temporary full expensing is financing your truck with the appropriate loan type. That means a loan where the asset being purchased can be depreciated. Chattel Mortgage is considered the most appropriate commercial truck loan type for this purpose.
Rather than the repayments being tax-deductible, with Chattel Mortgage the main tax deduction is realised through depreciation when the income tax return/annual business accounts are prepared.
Bad Credit, Low Docs and No Doc Truck Chattel Mortgage
The category of loan application should not by definition exclude a business from claiming TFE. No doc truck loans, low doc and bad credit loan applicants that accept a Truck Chattel Mortgage offer should be able to claim the relevant tax deductions.
Due to our accreditations with non-bank lenders, Jade Truck Loans has a proven track record in sourcing cost-effective low doc and no doc loans at cheap interest rates and workable solutions for bad credit truck loans.
Important Note: Selling Trucks after Claiming TFE
An important note in the ATO information is regarding the sale of assets that TFE has been claimed against. If an asset ceases to be used or held by a business in the same income year as the claim is made, what they refer to as a balancing adjustment event would apply.
How to Apply For Truck Finance
For a quote or to apply for a truck loan that allows you to benefit from temporary full expensing, just contact us and one of our consultants will handle the entire process for you.
Contact us on 1300 000 003 to discuss the full range of lending options.
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.