If you have been looking to upgrade or buy new trucks for your fleet, you will probably consider some type of business finance.
It’s likely your truck is around 14 years old – according to the Truck Industry Council submission to Treasury 2019/20, the average age of a truck is 14.8 years old.
Though direct truck buying incentives such as alternative fuel and power subsidies are being argued for in the political realm, there are ways to get the most from your truck finance by opting for a chattel mortgage.
What is a chattel mortgage?
According to the Australian Trucking Association, 93% of trucking businesses have a turnover of less than $2 million per year. Many cannot buy equipment and trucks outright and must opt for financing.
A chattel mortgage is a business-oriented loan that has many tax benefits and funding options to help your business make the most of its truck investment.
The biggest benefit is the flexibility it offers. A chattel mortgage can be structured to have a loan term ranging from as little as 12 months up to seven years. This effects repayment amounts, and the interest paid over the course of the loan.
The next big advantage is the ability to finance more than the value of the truck. You may have heard of 100% finance or no money down finance; chattel mortgages can actually allow you to borrow more money to pay off other on-road costs such as scheduled servicing, ticketing, registration, insurance, and other fees over time. This gives your business better management of cash flow instead of paying for many on-road costs up-front and potentially dipping into operating capital.
A chattel mortgage can also incorporate a balloon payment into the loan. A balloon payment is a portion of the value (known as residual value) of the truck kept for payment at the end of the loan. This balloon can range anywhere between 20% to 50% of the value. This reduces regular repayments over the loan term. However, your business will have to pay for the residual at the end of the loan in one form or another.
Tax advantages
Chattel mortgages are the most tax efficient type of loan to buy a truck. According to Savvy Managing Director Bill Tsouvalas. “Saving on tax is paramount in business and a chattel mortgage helps businesses that rely on trucks to do just that. You can claim back the GST paid on the purchase price, the interest paid, and claim the depreciation. You may be able to claim the fuel input tax credit as well.”
Chattel mortgages are classed as asset purchases and your business may be able to claim the instant asset write-off offered by the Federal Government. “The write-off threshold is at $150,000 but it will expire at the end of this year – so if you’re in the market to buy, buy now. Interest rates are as low as they’ll go so don’t hesitate.”
This article brought to you by Savvy Finance.