Your guide to farm machinery and equipment finance

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(SPONSORED) Agribusiness expert and Savvy CEO Bill Tsouvalas explains the options available to finance that new tractor or harvester

Your guide to farm machinery and equipment finance
Plenty of options available for funding your next tractor or harvester purchase. Image courtesy Alamy

 

We’ve all had to face the loan manager once or twice on the farm, whether it was starting out or upgrading a tractor or a harvester.

However, conventional wisdom says that we always need to take out a loan – makes more sense than paying out of pocket.

Even so, there are many more options out there besides just getting a loan and paying it off.

Since operating machinery is the most expensive aspect of farming and agribusiness, it’s a good idea to know what kind of tax breaks you can look forward to as well as what kind of finance will maximise your investment.

Loan Options - Chattel Mortgage and Hire Purchase 

The two main types of secured finance for farm machinery and equipment is a chattel mortgage or hire purchase.

Chattel mortgages and hire purchases give business the option to finance more than 100 per cent of the value of their machinery to cover insurance, training and other establishment costs such as installation. They are also usually more competitive than unsecured loans of similar type.

Chattel mortgages and hire purchases are the same – you pay off a loan until the balance is zero over a set period, except where the machinery ends up on your books.

In a chattel mortgage, you take ownership of the machinery instantly and it’s registered as an asset. In a hire purchase, you are ‘hiring’ the equipment from your bank or lender and each repayment is classified as an operating expense. It’s worth talking to your accountant to see which is best for you.

Finding a Good Broker

Going through all the different types of equipment finance can be confusing, especially when you’re trying to run a busy farm. Getting a broker to sort it all out can help save you time and money.

Agribusiness expert and Savvy CEO Bill Tsouvalas explains: "A broker who knows the ups and downs of farming and agribusiness can help tailor a package that maximises your tax deductions, allows for seasonal repayments and competitive rates. They can take care of everything from start to finish, which makes more sense than downing tools for a day or two and figuring it out on your own."

Is Leasing an Option?

Since much of our work is seasonal, leasing may be a good option for expanding operations during big harvests.

If you are afraid that your equipment is going to be sitting around not making any contribution to the bottom line in the off-season, a lease may be preferable. There are two main types of leases – finance leases and operating leases.

Finance leases give you the option to purchase your equipment at the end of a term by paying off the residual value on the equipment.

An operating lease allows you to extend the term, trade in your equipment for an upgrade or return the equipment if it’s no longer of use.

This is helpful if you only need equipment for a short term or require the latest equipment as innovations come through.

Saving on Tax

With any type of business product you are eligible for tax deductions.

You can claim the GST paid on the purchase, depreciation up to the depreciation limit (if you own the asset), interest paid, and if you have a hire purchase or lease, claim payments as an operating expense.

Until December 31, 2020, you can also instantly write off $150,000 in business purchases. These write-off amounts may be subject to Gross Vehicle Mass limits – read more here.

This article is brought to you by Savvy Finance.

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