Written byPlant and machinery means the tangible assets a business uses to make, move, process or service things, such as excavators, forklifts and CNC machines.
Also known as: plant and equipment, machinery and equipment, plant
Key points
- Typical examples include excavators, forklifts, generators, CNC machines, tractors, harvesters and mobile cranes: the gear that lets the business work.
- Land, buildings and standard office furniture usually sit outside plant, and trailers can fall either way depending on how they are used.
- Classification drives your depreciation schedule, your GST treatment and which finance structure fits the purchase.
- Most plant is financed with a chattel mortgage, hire purchase, finance lease or operating lease.
- Lenders usually register a security interest on the PPSR and require insurance that names their interest.
How plant and machinery is classified
Classify by primary use, expected useful life and how the item is attached to the premises. Equipment used mainly for transport is usually a motor vehicle, while equipment integral to production is typically plant. Fixtures and fittings that are permanently attached can be classed differently from removable equipment.
Assets that last beyond a year are capitalised, while consumables are expensed. Plant and machinery are often used interchangeably: plant stresses business use, machinery stresses mechanical function. Whatever classification you land on flows through to the depreciation schedule, the GST treatment and the finance structure that suits, so it pays to get it right at the start.
How businesses finance plant and machinery
Under a chattel mortgage the loan is secured by the asset and you own it from settlement, so you claim the depreciation and the lender registers a PPSR interest. Under a hire purchase you hire the asset and take ownership after the final payment, with fixed repayments but often a higher total cost than a straight loan.
With a finance lease the lessor owns the asset and you pay for its economic use, often ending with a residual the lessee is responsible for, usually by offering to buy the asset or selling it. You generally do not claim depreciation and the GST timing differs. An operating lease runs shorter, leaves the residual risk with the lessor and makes upgrades easier. A general equipment loan suits smaller or standard items.
Tax, GST and security
The ATO publishes effective life tables that guide how quickly you claim the decline in value. Diminishing value gives larger deductions early, which helps when an asset loses value quickly; prime cost spreads them evenly. Instant asset write off concessions change from time to time, so check the current ATO position before relying on one, and run both methods past your accountant.
GST timing follows the structure. Buy the asset, whether outright or with a chattel mortgage or hire purchase, and you generally claim the input tax credit in the BAS period of the purchase, subject to business use. Lease payments that are taxable supplies usually attract GST claimable on each payment. Financiers protect their position by registering on the PPSR and requiring insurance that names their interest.
Example
A civil contractor buys a $180,000 excavator on a chattel mortgage. The contractor owns the machine from settlement, claims the GST in the BAS covering the purchase and writes it down over the effective life shown in the ATO tables. The lender registers its interest on the PPSR and asks for insurance naming that interest. Because the excavator will run heavy hours on site, the contractor keeps the service records current, which supports both the resale value and the next finance application.
Not to be confused with
- Fixtures
- fixtures are permanently attached to premises, while plant is generally removable equipment
- Capital expenditure (CapEx)
- capital expenditure is the spend on an asset, while plant and machinery is the asset itself
Frequently asked questions
Is a trailer plant or a vehicle?
It depends on predominant use. A trailer that is integral to production, such as a mobile processing unit, may be plant, while a trailer used mainly for transport is usually a vehicle. Classify on what the item actually does in the business rather than on its label.
Can I claim depreciation if I lease equipment?
If you own the asset, as you do under a chattel mortgage or a hire purchase where ownership transfers, you generally claim the depreciation. Under a finance lease where the lessor keeps legal ownership, the lessor usually claims it and you claim the lease expense instead.
Which depreciation method is better for plant and machinery?
It depends on your cashflow and how the asset is used. Diminishing value front loads the deductions, which suits gear that loses value quickly. Prime cost spreads them evenly and keeps the tax outcome predictable. Run both scenarios with your accountant before you commit.
How do I work out the effective life of plant?
Start with the ATO effective life tables, then weigh your actual usage and operating environment, because a machine running two thousand hours a year wears very differently from one running two hundred. You can nominate a shorter life where the circumstances support it.
Do I need PPSR registration when buying used equipment?
Financiers routinely register their security interest on the Personal Property Securities Register to protect priority, and sellers are commonly advised to register as well. Failing to register affects priority and can leave a party exposed if the other side defaults.
Related terms
Broader term: Asset
Chattel mortgage
A chattel mortgage is a business loan for a vehicle or equipment: you own the asset from settlement and the lender holds a security interest until it is repaid.
Read definitionEquipment finance
Equipment finance is business finance used to buy or lease machinery, vehicles and other equipment, where the equipment itself secures the loan or is owned by the financier.
Read definitionHire purchase
Hire purchase is a finance agreement where a financier buys an asset and hires it to you for fixed instalments, with ownership passing to you at the final payment.
Read definitionFinance lease
A finance lease is a lease where the financier owns the asset and your business pays to use it for most of its life, taking on the risks of ownership.
Read definitionOperating lease
An operating lease is a lease where you pay to use an asset for a set term and hand it back, with the financier keeping ownership and the resale risk.
Read definitionAsset finance
Asset finance is the umbrella term for business finance that pays for vehicles, equipment and other income-producing assets, with the asset itself acting as the security.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.