EOFY alert! Financial year-end is fast approaching

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Small business owners wanting to buy a vehicle, asset or important piece of equipment and immediately write off the cost have just over a month to act this financial year.

There’s nothing like an impending deadline to get you moving.

And with June 30 now just over a month away (didn’t that sneak up on us!), time is running out for your business to take advantage of the federal government’s temporary full expensing scheme this financial year.

What is temporary full expensing?

Temporary full expensing is basically an expanded version of the popular instant asset write-off scheme.

It allows businesses that are keen to invest in their future to immediately write off the full value of any eligible depreciable asset purchased, at any cost.

This helps with your cash flow as it allows you to reinvest funds back into your business sooner.

Trucks, coffee machines, excavators, and vehicles are just some examples of assets eligible under the scheme.⁣⁣

There is just one small catch though …

The asset must be installed and ready to use by June 30 in order to be eligible for this financial year.

But rest assured that even if you do order the asset, and then miss the June 30 deadline because it doesn’t arrive in time, you can still write it off next financial year because the scheme is set to run until 30 June 2023.

Asset eligibility

To be eligible for temporary full expensing, the depreciating asset you purchase for your business must be:

– new or second-hand (if it’s a second-hand asset, your aggregated turnover must be below $50 million);

– first held by you at or after 7.30pm AEDT on 6 October 2020;

– first used, or installed ready for use, by you for a taxable purpose (such as a business purpose) by 30 June 2023; and

– used principally in Australia.

Obtaining finance that’s right for your business

Being able to immediately write off assets is one thing, but if you don’t have access to the right kind of finance to purchase them now, the scheme won’t be much use to you this financial year.

So if you’d like help obtaining finance to make the most of temporary full expensing ahead of the impending EOFY deadline, get in touch with us today.

We can help you with financing options that are well suited to your business’s needs now, and into the future.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Ready for lift-off: how to prepare a buffer for more rate rises

Rate rises are a bit like taking off in a plane. Sure, it’s a bit nervy, but so long as you’ve run through your pre-flight check, have a well-serviced aircraft, built-in some contingencies (a buffer!), and have a handy co-pilot (us!), you should reach your destination no worries.

As you’re likely aware, earlier this month the Reserve Bank of Australia (RBA) increased the official cash rate by 25 basis points to 0.35% due to high inflation concerns.

While it was the first cash rate hike since November 2010, RBA Governor Philip Lowe was quick to give mortgage holders a heads-up that there would be more hikes to come.

“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead,” Governor Lowe said.

So when can we expect more rate increases?

Well, the Commonwealth Bank is predicting that the RBA will increase the cash rate to 1.35% by the end of the year.

That could mean four more 25 basis points increases, with hikes in June, July, August and November 2022.

Fortunately, according to results from a recent Money Matchmaker survey, eight in 10 borrowers have built up a savings buffer and nearly two-thirds are ready to meet a 0.5% rate rise or more.

This echoes research from the Australian Prudential Regulation Authority (APRA), which shows the average balance sitting in mortgage offset accounts is now nearly $100,000 – up almost $20,000 since the pandemic kicked off in March 2020.

How your handy co-pilot can help you set up a buffer account

As we’ve seen from this month’s RBA cash rate rise, the banks are quick to pass on rate hikes when it comes to mortgages, but not so quick when it comes to savings accounts.

Therefore one way you can prepare for this upcoming period is to consider adding an offset account to your home loan.

In a nutshell, an offset account is a regular transaction account that is linked to your home loan.

The advantage is that you only pay interest on the difference between the money in the account and your mortgage.

Some banks allow you to have 10 offset accounts attached to your mortgage, too, with cards linked to them that you can use for everyday spending.

This means that if your lender is quicker to pass on rate rises on your home loan than they are your savings account, your money will be working harder for you in the offset account than a savings account.

And, by building up extra funds in your offset account, you will also have peace of mind knowing that you have a buffer – in the right place and ready to go – for more interest rate rises down the track.

So if you’d like to talk to us about your options to prepare for any upcoming rate rises – be that refinancing, fixing your rate, or adding an offset account – get in touch with us today.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

RBA increases cash rate to 0.35% amid high inflation concerns

The Reserve Bank of Australia (RBA) has increased the official cash rate by 25 basis points to 0.35% amid high inflation concerns and has signalled more cash rate increases will likely follow.

This is the first RBA cash rate hike since November 2010, and the first time the cash rate has moved since it was cut to a record-low 0.10% in November 2020.

The increase comes a week after Australian Bureau of Statistics (ABS) data showed the cost of living had jumped 5.1% over the past year – the highest annual increase in more than 20 years.

RBA Governor Philip Lowe said the board judged that it was the right time to begin withdrawing some of the “extraordinary monetary support” put in place to help the Australian economy during the pandemic.

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” said Governor Lowe.

Governor Lowe added that the board was committed to doing what was necessary to ensure that inflation in Australia remained in check.

“This will require a further lift in interest rates over the period ahead. The board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases,” he said.

If cost of living is up, why would the RBA increase rates right now?

High inflation is bad because it means the real value of your money has dropped and you can buy less goods and services than you could previously.

High inflation also has a habit of getting out of control, because one of the drivers of inflation is people expecting inflation.

Economists would argue that raising interest rates now is a hit we have to take to ensure we don’t end up with runaway inflation (short term pain trumps long term disaster).

Higher interest rates cool inflation in a number of ways, but one of the main ways they can actually save you money right now is via the exchange rate.

If the RBA didn’t raise rates, investors would likely decide they could get better returns elsewhere around the globe, thereby lowering demand for our currency.

And if Australia’s exchange rate falls, the cost of imported goods, including the oil you fuel your car with, could go up even higher.

What does this mean for your mortgage repayments?

Well, unless you’re on a fixed-rate mortgage, it’s extremely likely the banks will follow the RBA’s lead and increase the interest rate on your home loan very soon.

How much your repayments will go up each month will depend on a number of factors, including how your particular bank responds to the cash rate increase and the size of your mortgage.

If you’re worried about what interest rate rises might mean for your monthly budget, feel free to get in touch with us today to explore some options, which could include refinancing or locking in a fixed rate ahead of any other future RBA cash rate hikes that the RBA has signalled.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

SMEs invest in machinery, IT and energy-efficient assets for growth

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Australian small businesses are investing in their recovery through a surge in machinery purchases, IT and office technologies, and sustainable business assets, according to Commonwealth Bank (CBA) data.

The CBA research shows small business financing for equipment and machinery is up 17% so far this financial year compared to last year.

The research also shows 67% of businesses have budgeted for new equipment in the next 12 months, with 55% of those businesses specifically planning to invest in IT and office technology.

“As organisations welcome employees back into offices, they are investing in new technology to attract and retain staff, and many are demanding sustainable business investments,” explains Grant Cairns, CBA’s Executive General Manager for Business Lending.

Businesses going green

Across the small business sector, the biggest investment boosts have been in electric cars (156%), trailers (312%), and forklifts (395%).

According to CBA’s data, an increasing number of small businesses are taking advantage of discounts on financing for energy-efficient vehicles, equipment and projects.

“We’ve seen an uptake in hybrid and electric vehicles, as well as investments across other assets including IT equipment,” he adds.

“More small businesses are also seeing the benefits – including the financial benefit – of replacing old equipment with energy-efficient alternatives.”

What else is stimulating the growth?

Mr Cairns says the growing rate of investment is underpinned by a range of government incentives.

That includes attractive interest rates for the SME Recovery Loan Scheme; the extension of the federal government’s temporary full expensing scheme (aka instant asset write off) to mid-2023, and tax incentives announced in the federal budget that encourage small businesses to invest in technology and training.

Those tax incentives allow small businesses to receive a $120 tax deduction for every $100 they spend on training staff or investing in technology, up to a maximum of $100,000 a year.

“Government incentives have played a significant role in lifting business investment over the past few years,” says Mr Cairns.

“Since July last year, we’ve seen continued growth in asset finance in the small business sector, with the instant asset write-off scheme providing a good reason for customers to upgrade equipment and technology.”

Get in touch now ahead of the new financial year

To make the most of the government incentives outlined above, it’s important to get the ball rolling now.

For example, the government-backed SME Recovery Loan Scheme is only available until 30 June this year.

And to make the most of temporary full expensing (aka the instant asset write-off) this financial year, the asset you purchase must be installed or ready for use by 30 June.

So if you’d like to explore your finance options for purchasing an asset for your business, as well as any government schemes or energy-efficiency discounts your business might be eligible for, get in touch today.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Brace yourselves: a May rate hike might be coming next week

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The chances of the Reserve Bank of Australia (RBA) lifting the official cash rate on Tuesday just increased dramatically after figures showed the cost of living jumped 5.1% over the past year – the highest annual increase in more than 20 years.

Economists around the country say the unexpectedly high jump in inflation means a May rate hike is now on the cards when the RBA board meets on Tuesday.

“Expect the RBA to start hiking next week. First hike should be +0.4%,” said AMP chief economist Dr Shane Oliver.

ANZ Bank meanwhile immediately called for the Reserve Bank to raise the cash rate to 0.25%.

“A cash rate target of 0.1% is inappropriate against this backdrop,” said ANZ head of Australian economics David Plank.

So what’s going on?

Cost of living – aka the Consumer Price Index (CPI) – rose 2.1% in the March 2022 quarter and 5.1% annually, according to Australian Bureau of Statistics (ABS) data released on Wednesday.

According to the AFR, market economists were tipping headline inflation to jump to 4.6% year-on-year, so this has smashed those expectations.

ABS Head of Prices Statistics Michelle Marquardt said a combination of soaring petrol prices, strong demand for home building, and the rise in tertiary education costs were the primary factors driving up inflation.

It’s also worth noting that the RBA’s preferred measure of inflation – underlying inflation – which strips out the most extreme price moves, came in at 3.7%.

That’s now well above the 2-3% target range the RBA has previously stated was a key measure for triggering a cash rate hike.

If cost of living is up, why would the RBA increase rates next month?

High inflation is bad because it means the real value of your money has dropped and you can buy less goods and services than you could previously.

High inflation also has a habit of getting out of control, because one of the drivers of inflation is people expecting inflation.

Economists would argue that raising interest rates now is a hit we have to take to ensure we don’t end up with runaway inflation (short term pain trumps long term disaster).

Higher interest rates cool inflation in a number of ways, but one of the main ways they can actually save you money right now is via the exchange rate.

If the RBA doesn’t raise rates, investors will likely decide they can get better returns elsewhere around the globe, thereby lowering demand for our currency.

And if Australia’s exchange rate falls, the cost of imported goods, including the oil you fuel your car with, would go up even higher.

So it’s a tough pill to swallow for mortgage holders, but inflation can get out of hand if left unchecked. Prime examples include high inflation in Australia in the 1980s, and more recently Zimbabwe.

What does this mean for your mortgage repayments?

Well, if the RBA increases the official cash rate on Tuesday, as many economists are now predicting, unless you’re on a fixed rate mortgage, it’s likely the banks will follow suit and increase the interest rate on your home loan.

How much your repayments will go up each month will depend on a number of factors, including if the RBA increases the cash rate to 0.25% or 0.5%, how your bank responds, and the size of your mortgage.

If you’re worried about what interest rate rises might mean for your monthly budget, feel free to get in touch with us today to explore some options, which could include refinancing or locking in a fixed rate ahead of any other future RBA cash rate hikes.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.