How the instant asset write-off applies to vehicles

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Got your eye on a shiny new vehicle for your business thanks to the $150,000 instant asset write-off? We’ve got the answers to the FAQs many business owners are asking ahead of the looming EOFY deadline.

Need a new van for that delivery service your business has started? Or perhaps your trusty old ute is now more ‘old’ than ‘trusty’.

To help businesses with cash flow amidst the coronavirus pandemic, the federal government has increased the instant asset write-off threshold from $30,000 to a whopping $150,000 until June 30.

Under the scheme, you can immediately write off the cost of assets – such as new and second-hand vehicles – allowing you to claim the deduction in one hit, rather than over the lifetime of the assets.

But (and there’s always a but!), there are several important exclusions and limits when it comes to vehicles under the scheme, which the ATO has recently clarified. Here’s a summary of their new guidance.

Does the instant asset write-off apply equally to all vehicles?

Unfortunately not. Vehicles with a total cost of less than $150,000 are eligible.

However, if you purchase a car – one that’s designed to carry a load less than one tonne and fewer than nine passengers – then you can only claim a limit of $57,581 (unless it’s been fitted out for use by people with disability).

That said, the threshold applies on a per asset basis, so eligible businesses can immediately write off multiple assets (see case studies below).

What about bigger vehicles?

Good news!

The $150,000 threshold applies to heavy-duty vehicles such as trucks, tractors, machinery and one-tonne utes.

But remember: the total cost of the vehicle must be less than $150,000 (including all relevant taxes) in order to be eligible.

Can you claim the full cost of the car if you use it for both business and private use?

No.

If you use a car for both business and private use, you can only claim the business portion.

The deduction is also limited to the business portion of the car limit.

For example, if you use your car for 75% business use, the total you can claim is 75% of $57,581.

What happens if you’ve ordered and paid for your car by EOFY, but not received it?

Bad news, sorry.

You must have first used your car, or have it delivered and ready for use, between 12 March 2020 and 30 June 2020.

You cannot claim the instant asset write-off for this period if you have not received your vehicle by 30 June 2020.

Different eligibility criteria and thresholds apply to assets first used, or installed ready for use, prior to 12 March 2020.

Still scratching your head? The below ATO examples* below should help clarify further (*names have been tweaked for fun).

Example one: Darryl and Debbie buy a luxury car

Darryl and Debbie run Downit Wines, a small winery and vineyard business on Tassie’s beautiful east coast.

On 27 March 2020, their business purchases an $80,000 luxury car that’s designed to carry passengers to and from the Hobart and Launceston airports.

Now, because it’s a car, the maximum amount they can write off is the car limit of $57,581, not $80,000.

But pump those brakes for a second.

It turns out they’ll only use the car for work purposes 60% of the time (and 40% personal), so they’ll only be able to claim $34,549 (60% of $57,581).

The business can’t claim the excess cost of the car under any other depreciation rules.

Example two: Darryl and Debbie buy a ute

It’s not all sommeliers and sipping at Downit Wines.

Darryl and Debbie also need some horsepower to supplement the hard yakka they do around the vineyard, so they bought a ute for $65,000 on 27 April 2020.

Now, the ute isn’t designed to carry passengers, has been set up with all the tools in the tray, and has more than a one-tonne load capacity, so the car cost limit of $57,581 doesn’t apply.

This means the business can claim a full deduction of $65,000 as an instant asset write-off (assuming the ute is 100% for work purposes).

Is your business eligible?

The expanded instant asset write-off scheme can now be accessed by businesses with an annual turnover of up to $500 million (up from the previous $50 million cut-off).

But remember: the vehicle must be used or ready for use by June 30, which is less than a month away.

So if you’d like help obtaining finance to purchase the vehicle before the EOFY deadline then get in touch with us today – we’re ready to put the pedal to the metal for your business.

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.

First home loan deposit scheme reaches capacity (for now)

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The 10,000 guarantees available via the new First Home Loan Deposit Scheme have been filled or reserved, but for those who missed out there’s a second chance coming soon in July.

There have been 5,500 guarantees issued under the federal government scheme, while another 4500 borrowers have guarantees reserved in the coming months.

The scheme, which was launched on January 1, can allow first home buyers with only a 5% deposit to be eligible to purchase a property without paying for lenders mortgage insurance (LMI).

This guarantee gives first home buyers a leg up into the property market, as it can save you as much as $10,000 in LMI insurance.

Get ready for round 2!

Now, even though the scheme kicked off at the beginning of this calendar year, the next phase is set to begin when the new financial year ticks over on July 1.

And you’ll want to be organised when July rolls around.

Let us explain why.

The 10,000 spots in the scheme are broken up into two lots of 5,000 – one half for two major lenders (CBA and NAB), and one half for 25 non-major lenders.

If you’re interested in applying through one of the two major lenders, it’s important to note that they go pretty quick.

In fact, 3000 of these 5000 spots were reserved in the first 10 days of the scheme being launched back in January.

With that in mind, if you’re interested in applying for the scheme through a major lender you’ll want to get in touch with us now so we can start getting organised.

Are you eligible?

In order to be eligible, first home buyers can’t have earned more than $125,000 in the previous financial year, or $200,000 for couples (and both buyers need to be first home buyers).

There are also property price caps for different cities and regions across the country, which you can find out more about here.

Also, even though you may have a 5% deposit saved for a house, you still need to obtain finance approval from a participating lender.

And that’s where we can help.

We’re more than happy to run through the scheme in more detail and, if you’re eligible, help you apply for finance with one of the scheme’s participating lenders before places fill up again.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute 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.

Goodbye stamp duty?

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The dreaded and controversial stamp duty tax could soon be a thing of the past, with calls for it to be abolished gaining momentum.

The Property Council of Australia is the latest body to add their voice to the chorus this month after both the NSW and Victorian state governments ramped up calls for stamp duty reform.

Axing the controversial tax is a key measure being proposed in the Property Council’s Seven Point Plan for Economic Recovery, released this week, to help kickstart economic recovery across the nation.

“Stamp duty is a terrible tax,” the Property Council’s chief executive Ken Morrison recently explained to the AFR, “every economic analysis puts it at the top of their list of worst taxes. For every $1 raised it does about 80c of harm.”

What is stamp duty and how much does it cost?

Stamp duty is a government tax on certain transactions, including when you buy a motor vehicle, an insurance policy, or for the purposes of this article: a piece of real estate.

In a nutshell, state treasurers and many economists want reform in this space because stamp duty is volatile – it rises during property booms and shrinks during downturns.

Now, how much it costs will depend on where you live, and the value of the property you’re buying.

Most states have stamp duty exemptions or concessions in place for first home buyers, but that doesn’t help out those looking to expand their property portfolio.

The tax also acts as a barrier to older Australians who want to downsize and unlock their wealth.

So how much does stamp duty usually cost? Well, as luck would have it, Domain just released a summary of the stamp duty costs for median-priced homes in each capital city:

Sydney: $49,586 (house) or $28,942 (unit)
Melbourne: $50,171 (house) or $28,328 (unit)
Hobart: $18,847 (house) or $15,351 (unit)
Adelaide: $23,663 (house) or $12,522 (unit)
Perth: $19,063 (house) or $10,679 (unit)
Canberra: $23,914 (house) or $9396 (unit)
Brisbane: $12,165 (house) or $4342 (unit)
Darwin: $4,868 (house) or $0 (unit)

Those figures are for non-first-home buyers who are purchasing established properties.

So what would replace stamp duty?

The NSW government is considering a broad-based property tax (aka land tax).

Victorian Treasurer Tim Pallas meanwhile, says a review of the state’s revenue base after the COVID-19 pandemic is needed, but he’s not sure that switching from stamp duty to land tax is the way to go.

“It’s a bit like a Mills & Boon novel: it might be satisfying and uplifting to read, but getting to that point without causing major trauma to the community is a very serious consideration,” he said.

Another option being floated by the Property Council is to replace stamp duty revenue by broadening the GST base.

What to do in the meantime?

As mentioned earlier in the article, most states and territories already have certain exemptions and concessions that apply when it comes to stamp duty, particularly for first home buyers.

Generally, it depends on the price of the property you have purchased, or if it was off-the-plan, as to whether you’ll be eligible.

And obviously, the less stamp duty you pay, the more of your hard-earned-money you can put towards your home loan deposit.

So if you’d like a hand figuring it all out please get in touch – we’re happy to help you crunch the numbers.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute 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.

Relief for SMEs: tardy paying companies given final notice

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Promising news for SMEs this week: supply chain financing provider Greensill has given late-paying companies formal notice that it will ditch them if they continue to extend their payment terms beyond 30 days.

This is good news for SMEs because cash flow problems – which are often caused by, or exacerbated by, late payments – are one of the biggest reasons for small businesses failing.

So what exactly has happened?

Well, back in February, supply chain financing (SCF) provider Greensill informed all Australian clients that they must not push out payment terms to SME suppliers beyond 30 days.

The multi-billion-dollar company, founded by Bundaberg-born, London-based financier Lex Greensill, says virtually all of its clients in Australia have complied (keyword: “virtually”, but more on that soon).

“Greensill has allowed a period for the remaining clients to complete their internal reviews stemming from our request,” a Greensill statement says.

“We have given formal notice to those clients that their SCF facilities will be discontinued unless they ensure that they do not use our SCF facilities to push out payment terms to SME suppliers beyond 30 days.”

So, who’s still holding out?

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has the answer on that one.

She says it’s clear Greensill’s statement is in relation to its dealings with contractor UGL, owned by construction firm CIMIC – Australia’s biggest construction company.

“UGL has reportedly extended its payment terms to its small business suppliers to 65 days from the end of [the] month the invoice is lodged, offering supply chain finance to those that want to be paid earlier and are willing to take a discount on the invoiced amount,” Ms Carnell explains.

“This is an example of clear misuse of supply chain finance as outlined in our recently released Supply Chain Financing Review. Practices such as this are harmful to small businesses, especially in the current challenging environment.”

The promising news is that according to the AFR, CIMIC has now put its controversial SCF scheme “under review”.

So what exactly is supply chain financing?

SCF, also known as supplier finance or reverse factoring, can free up cash flow for both the SME business that sends the invoice to be paid, and the company that owes the money.

It does this by the SCF provider acting as a facilitator between the two.

Here’s a quick example: let’s say Big Business Inc (buyer) orders some machine parts from Little Joe Traders (supplier).

Little Joe then sends the invoice to Big Business Inc, which approves the invoice and confirms that it will pay the SCF provider for the invoice at the invoice’s maturity.

Little Joe then has two options: 1) Patiently wait for the invoice’s payment terms to be met and paid in full; or 2) Get paid earlier by the SCF provider, but at a discounted rate.

Often Little Joe’s decision will depend on his cash flow requirements at the time.

So what’s the problem?

Normally nothing. When done right “it’s an excellent concept for both buyer and seller”, says Clive Isenberg, chief executive of Octet, which specialises in supply chain financing for smaller companies.

But the risk, as Mr Isenberg points out, is that if your business is supplying the big end of town, you can become overly reliant on them and have to play by their rules.

“You are being constantly pressurised to follow the way they’re going. You’ve got to agree to their payment terms,” he told the AFR.

Need a cash flow solution for your business?

As you’re well aware, business cash flow solutions aren’t exclusively for the big end of town.

There are plenty of products that cater to SMEs’ many different needs.

So if you’d like to explore some of the options available to your business, then please get in touch – we’re happy to run you through them.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute 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.

Cash rate to remain at record-low level until 2023: experts

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Here’s a bit of welcome news for mortgage holders: Australia’s record-low cash rate is likely to remain in place until 2023, according to leading economic and property experts.

In March, the Reserve Bank of Australia (RBA) called an emergency meeting, cutting the cash rate for a second time that month and taking it to a record-low of 0.25%.

It capped off an action-packed 12 months, with a total of five rate cuts since May 2019.

But for avid followers of the RBA’s cash rate, “the next few years are likely to be pretty boring”, says AMP Capital chief economist Shane Oliver.

The outlook

CoreLogic, the nation’s largest provider of property information and analytics, predicts the cash rate will stay at 0.25% until 2023.

“The RBA has previously been clear that the cash rate won’t move higher until inflation is well within the 2-3% target range and labour market indicators are trending towards full employment, implying an unemployment rate around the 4.5% mark,” says CoreLogic.

However, the RBA has recently indicated unemployment is likely to peak around 10% in June and inflation could turn negative over the coming months.

“Arguably, it’s safe to assume neither of these indicators [inflation or unemployment] will be in a position to trigger an increase in the cash rate target for at least the next couple of years,” CoreLogic adds.

Westpac Chief Economist Bill Evans agrees with that timeframe, as does AMP’s Mr Oliver.

“We expect that the overnight cash rate is unlikely to be lifted before December 2023,” says Mr Evans.

What does this mean for your home loan?

Put simply: the current cash rate means extremely low mortgage rates, and tough competition amongst lenders.

“Average variable mortgage rates for owner-occupiers are below 3% while investor variable mortgage rates are in the low 3% range,” CoreLogic says.

“Fixed-term mortgage rates are even lower. Such a low cost of debt is a key factor that should help to support housing demand as the economy emerges from the COVID-19 hibernation.”

So what’s your next step?

Well, with all the above in mind, now’s a great time to consider your refinancing options.

And CoreLogic says it’s already seeing more and more homeowners do just that.

“We continue to see refinancing … at elevated levels relative to the same time last year as mortgagors seek out the most competitive interest rates available,” it says.

So, if you too would like to explore your refinancing options, then please get in touch – we’re ready to jump into action and make it happen for you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute 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.