Tax incentives as part of the Australian Government’s economic stimulus for businesses purchasing assets are significant and are unlikely to be repeated. Eligible businesses can instantly write off the cost of each eligible asset purchased up to the $150,000 threshold prior to 30 June 2020. Also available are accelerated depreciation deductions for eligible assets acquired over $150,000.
Many businesses have taken advantage of deferring payments as part of COVID-19 support offered by their financiers. In some instances deferrals were automatically applied and businesses had to opt out. As a cautionary measure many took the opportunity to build cash reserves despite anticipating they could continue to meet all their regular finance commitments. Businesses now seeking finance for new asset purchases are readily declined on the basis of their other payment deferrals.
Instant Asset Write Off Solution – Key Features
- Available for New and Second-hand Assets
- Finance 100% of the Asset purchase cost including Government & other associated costs
- Retain the benefit of any applicable GST refund/credit on Assets purchased
- Spread repayments up to 5 years with final balloon option
This is an opportunity too good to be missed.
According to Frank Vetere, Director of LMP Accountants in Melbourne said, “I have had a number of clients ask about the instant asset write off and most clients are thinking it’s great time to upgrade their cars as they believe they would get the write off in full; however If you purchase a car for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year. You cannot claim the excess cost of the car under any other depreciation rules”
Frequently Asked Questions – FAQ
Q: Can I finance an asset more than 5 years old?
A: The Instant Asset Write Off can be used for both new and second-hand assets. Some Banks will provide funding for assets more than 5 years old subject to valuation and ownership verification. This will depend on the asset as well as bank’s policy and assessment.
Q: Can I finance multiple Asset purchases?
A: Yes the Instant Asset Write Off for eligible businesses is available for each eligible asset that costs less than the $150,000 threshold. Banks will consider finance for multiple asset purchases provided you satisfy all other criteria.
Q: What upfront costs and Government charges will banks charge for finance?
A: Government and other associated costs and charges required to install or make the asset ready for use will be funded by the banks in line with their policy guidelines. These include GST, Dealer Deliver, Stamp Duty, Registration, Insurance and any other options, improvements or accessories either factory or dealer fitted.
Q: Do I have to repay my GST credit?
A: Banks will provide sufficient finance to cover any GST included in the asset purchase. On your next BAS you may be able to claim the GST and retain the benefit of any offset or credit. The GST component is included as part of the ongoing finance package repaid over the term up of the loan. We recommend that our clients speak to their accountant before entering in tot a contract.
Q: How long does this offer last?
A: The higher $150,000 threshold for the Instant Asset Write Off is only available until 30 June 2020 so you need to be quick. To be eligible assets must be used or ready to use prior to 30 June 2020. We recommend that our clients speak to their accountant before entering in tot a contract.
Q: Will banks guarantee ATO eligibility of my business and assets being purchased?
A: The ATO rules and associated legislation are complicated and change regularly. Banks does not know all the circumstances unique to every business or clients. You should seek independent expert advice from your Accountant who can confirm the eligibility of your business and the assets you acquire for the Instant Asset Write Off or Accelerated Rate of Depreciation. Banks provides no guarantees that you meet the ATO eligibility criteria.
Q: Are there any break charges to pay out early within the loan term?
A: Majority of the banks charges a fee to payout a fixed contract early. Normally you will be required to pay the balance of finance charges that would have been otherwise payable if you had retained the facility for the full term. We recommend that you discuss the requirements
Example of instant Asset Write off
Alex owns and operates a medical practice. His company has been operating without any impact of COVID-19. He is looking to purchase a new car worth $70,000 before Government and other associated charges. The Dealer will deliver the car for Alex ready to use prior to Tuesday the 30th of June 2020.
After speaking with his Accountant, Alex has confirmed his business is eligible for an Instant Asset Write Off on the car purchase because:
- Annual turnover for the business is less than $500 million;
- Cost of the car is below the $150,000 threshold (previously $30,000).
- The car is ready to use prior to the 30th of June 2020;
- Sufficient profit has been made to take advantage of the instant asset write off and reduce the income tax payable for the 2020 financial year.
Rather than take cash out of the business, Alex has decided to finance the car purchase. Banks generally will finance 100% of the purchase value and associated costs reducing the requirement for an upfront cash contribution. He intends to spread repayments over five years with a final balloon to lower the regular ongoing repayments and minimise the impact to his ongoing cashflow. Alex can also retain the benefit of any GST refund or credit when he lodges his Business Activity Statement for the June quarter.
The benefit of the Instant Asset write off will offset the associated finance costs in the first year. Alex’s business is registered for GST and the company tax rate of 27.5% applies.
Recognising that COVID-19 has yielded an unprecedented business environment, we believe that businesses must start looking forward.
Frank sees the current period as the perfect opportunity for businesses to maximise financing opportunities in the framework of their long-term strategic plans, especially given the low interest rates.
Jason Manolakakis is the principal of Align Financial Planning has over 20 years of experience with assisting clients says “The impact of COVID-19 and the governments stimulus responses have created a dynamic and changing environment where there are so many moving parts. Any time you take additional borrowings, it is paramount that you understand the risks and have a safety net to protect your business as well as personal circumstances. We highly recommend our clients to review their position at any life event that includes increasing their borrowings”
For more information, visit ato.gov.au/instantassetwriteoff.
Finance Circle Group recommends that customer seek advice from their accountants and Financial Adviser and ensure that their cash flow will be able to afford further loan payments in all circumstances.
If you have any questions or concerns please feel free in getting touch with us – NO OBLIGATION and we will help where we can.
Nirosh Weerasinghe 0401 976 188
Chamila Suraweera 0402 927 220
Shane Cross 0421 427 272
Financial Planning Support
Jason Manolakakis B.Bus(Acc.), Dip. F.P.
Align Financial Planning Pty. Ltd. ABN 456 097 60705
Authorised Representative of MFG Advice AFSL 499010
Mobile: – 0403 145 139