Having a business in the construction industry is an expensive endeavour. Almost every purchase to help your business upgrade or grow is going to be an expensive one. And when it comes to equipment purchases, large investments are required. While buying upfront might seem much more straightforward, many industry players do not have piles of savings to sacrifice on one large purchase.
There are a number of benefits to financing construction equipment over immediate purchase. Improved cash flow management, gaining up-to-date machinery without a hefty price tag, faster returns on investment, and the ability to preserve lines of credit. However, in this guide we will be discussing the huge tax benefits financing construction equipment can provide.
Understanding the tax benefits of business equipment finance helps companies to make more informed decisions about their financing options, and maximise their financial resources.
Instant Asset Write-Off
One of the key tax advantages of financing your construction machinery is the Instant Asset Write-Off scheme. The scheme allows eligible businesses to immediately deduct the cost of purchasing machinery up to a specified limit.
The current regulations in Australia allow businesses with an annual turnover below the limit, to claim an immediate deduction for the business portion of the cost of an asset in the year it was first used/installed ready for use. By claiming the Instant Asset Write-Off on construction machinery financing can significantly reduce a business’ s taxable income and enhance its cash flow.
Depreciation Deductions
Under the Australian Taxation Office (ATO) guidelines, construction equipment will generally be eligible for depreciation deductions. This means, construction businesses can depreciate their financed equipment over its effective life, allowing them to spread the cost over a longer period of time. By depreciating the equipment, businesses are able to reduce their taxable income. This can be done by straight-line or diminishing value methods, with businesses selecting the method that will optimise their deductions.
GST Benefits
Businesses who choose to finance their construction machinery and equipment can also receive Goods and Services Tax benefits. For businesses registered for GST, they can claim input tax credits for the GST paid on the purchase price of the machinery. The benefit of this is that the cost of the equipment can be further reduced and cash flow can be improved.
Tax Benefits of Interest and Fees
When it comes to financing construction machinery and equipment, another benefit is that the interest paid on the loan is generally tax-deductible. This means that businesses can claim their interest expenses as deductions, thus reducing their overall tax liability.
Loan fees like establishment fees and/or ongoing charges may also be deductible.
Closing Thoughts
Construction businesses can unlock a variety of financial benefits by informing themselves of the tax advantages that exist in equipment loans. Through Instant Asset Write-Off, depreciation deductions, GST input tax credits, and Interest deductions - businesses are able to better manage their tax liabilities to improve their financial situation.
Our expert brokers at Jade Equipment Finance recommend consulting with a tax professional to ensure your business is staying compliant with Australian regulations, and to try and optimise the tax strategies you are eligible for.
Experts in Financing Construction Equipment - Jade Equipment Loans offers the cheapest interest rates available on the market.
Limiting your loan options to just one bank or one lender is limiting your business growth and investment opportunities. Jade Equipment Finance breaks those limitations by offering you more lenders, more options and more chances to reduce your financing costs.
As the go-to finance broker when it comes to getting a great deal for the full range of construction machinery and equipment - Jade has a number of loan options for Australian businesses that could work for you.
To talk to one of our experienced brokers, call us on 1300 000 003 or Request a Quick Quote.