Chattell Mortgage Arrangements put 50 per cent Investment Allowance claims at risk

Farmers and businesses may miss out on the 50 per cent investment allowance deduction for plant and machinery purchased under a chattel mortgage agreement.

Many farms and businesses have ordered new plant and machinery before 31^st December 2009 for delivery before 31^st December 2010 to take advantage of the 50 per cent (or 10 per cent) investment allowance deduction.

Many will enter into chattel mortgage agreements to finance the plant and machinery purchase at the date of delivery.

The type of chattel mortgage agreement may determine whether the 50 per cent (or 10 per cent) tax break is claimable.

If the chattel mortgage agreement is a ?Legal chattel mortgage?, the lender (the finance company) and not the borrower (the farmer) is the legal owner of the plant and machinery.

As such, the plant and machinery investment commitment date is not the order date but instead the date the legal chattel mortgage is entered into.

So, for example, a farmer who ordered a header before 31^st December 2009 and financed it after 31^st December 2009 under a legal chattel mortgage will be denied the 50 per cent investment allowance deduction.

The person (farmer) who ordered the machine is not the person who purchased it (ie. the finance company)

Had the header been delivered and financed before 31^st December 2009, the investment allowance would be claimable.

Also, if the header was delivered and later paid for by the farmer and then refinanced under a legal chattel mortgage, the tax break is claimable. This is because the farmer had title to the machine for a short period of time prior to transferring title to a finance company.

If the chattel mortgage agreement is an Equitable Chattell Mortgage where the borrower (ie. the farmer) is the legal owner, then the investment allowance will be claimable.

The owner of the machine is the person who ordered it.

Those farmers with machinery on order should ensure that the chattel mortgage arrangement they enter into results in them retaining legal title in the machine through having an Equitable Chattell Mortgage and hence meeting the eligibility requirements of the investment allowance rules.

-ENDS-

Media contacts:

Geoff Hall, Director, Agribusiness
E: geoff.hall@rsmi.com.au
T: +61 8 9261 9383

Mahesha De Silva, Marketing Advisor WA/SA
E: mahesha.desilva@rsmi.com.au
T: + 61 8 9261 9124