After several weeks of pre-budget announcements, the actual announcement of the 2020/21 Federal Budget on 6 October may have seemed somewhat of an anti-climax for many keen observers. But in this unprecedented year of never-ending twists and turns, any form of clarification and certainty, especially in terms of the nation's finances and Government policy around our money, is sure to be welcomed.
Anticipated or not, there are several measures in this year’s budget which should be good signs for businesses considering acquiring new vehicles. At Jade Car Loans we’ve flagged several key issues which may have a positive impact on those seeking car finance. For those, not so keen observers and those who would appreciate a little more detail than the media headlines, the spruiking and the criticism, we’ve singled out what we see as the measures that matter most concerning business vehicle purchases and finance.
Overview
On October 6, the Federal Treasurer, Josh Frydenberg brought down the 2020/21 Federal Budget which had been delayed from the usual May timing due to coronavirus. The reading or bringing down of the budget is just the first step in the process. The budget bill must then be passed by both houses of Parliament for the measures to come into effect. The opposition quickly flagged their intention to pass the key measures.
The budget overall is historic due to the extraordinary level of Government spending included to stimulate the economy through the COVID recovery and recession and the turnaround in the approach of the Liberal-National Government from their previous intention of delivering a surplus.
The budget includes significant measures for businesses with a major focus on a business-driven recovery. Key measures include wage subsidies and investment incentives.
Instant Asset Write-Off Expanded
The good news for businesses considering buying new vehicles, or contemplating a car hire purchase, is the extension of the existing Instant Asset Write-Off scheme and a new investment allowance measure. The IAWO was first introduced in March as a short-term stimulus measure to incentivise business investment with a $150,000 limit on the assets to be purchased and limits around the size of businesses eligible. The 30 June deadline was then expanded to 31 December 2020.
In the budget, we have an extension of the time frame, expansion of eligibility of businesses and an increase in the value of allowable assets. There are several varying aspects to investment allowance.
IAWO and Investment Allowance Details
Until the budget bill is passed by Parliament, specific details are not available through the Treasury website, but we will stay across that and bring you updates when available.
What we can provide is an overview of the budget measures:
- Businesses with turnover up to $5b: temporary tax incentive - deduct the full cost of eligible depreciable assets from the date the budget was announced, 6 October 2020 through to 30 June 2020. The asset must be purchased, installed and used by 30 June 2022 and tax benefits realised in the appropriate tax year.
- SMEs - businesses with turnover up to $500m: instantly write-off assets with a value of up to $150,000. The deadline for the IAWO extended to 30 June 2021.
- SMEs - businesses with turnover up to $500m: apply ‘full expensing’ to second-hand assets.
- Businesses with turnover of $50-$500m: claim a full deduction for second-hand assets with a value up to $150,000 under existing IAWO if acquired by 31 December 2020.
Most business vehicles will come in under that $150,000 threshold so these investment allowances may represent a decision-maker for businesses considering upgrading their vehicles shortly.
Luxury Car Tax and Import Duties
No changes were flagged to change the controversial LCT or to reduce import duties for those countries that Australia does not have a free trade agreement with. However, for those considering a business car loan for new business, it's essential to monitor these developments. According to reports, discussions with several countries regarding FTAs are either underway or being considered. If successfully negotiated, this may see a decrease in the price of some vehicles.
Roads, Infrastructure, Manufacturing and Housing Measures
Businesses may be interested in what opportunities the budget presents for their specific industry as the decision to acquire new vehicles may be predicated on growth prospects for your business. Here are a few that may be of interest to your sector:-
- Infrastructure and Roads: Major investments in these areas may represent business apps and the signal for new vehicles for those in construction, civil works, engineering and associated industries.
- Manufacturing: The government’s Modern Manufacturing Strategy is a $2b program to support 6 key priority sectors.
- Housing: Budget announcements around the first home buyers grant scheme are designed to boost construction in the housing sector.
Finance and Investment Allowances
To take advantage of the investment allowances announced, businesses will need to select the appropriate finance product for the purchase of their vehicles, considering factors such as business car loan interest rates. These announcements all relate to accelerated depreciation and instant write-off measures which involve the asset being entered on the business balance sheet.
With Chattel Mortgage, often considered a form of ABN car finance, the car is entered on the borrower’s balance sheet and is then depreciated in line with ATO rulings. With Vehicle Leasing, the car appears on the lender’s balance sheet and as such cannot be depreciated by the borrower.
Business owners are advised to check the specifics of all Budget announcements to ensure relevance to their business and consult with their accountant.
We will stay across the detail and provides updates in our articles library as further information is released.
To take advantage of the investment allowances, contact Jade Car Loans at 1300 000 003 for a quote on business car finance.
DISCLAIMER: THE DETAILS, INFORMATION, DATA AND MATERIAL PRESENTED IN THIS ARTICLE HAS BEEN SOURCED, IN FOOD FAITH, FROM REPUTABLE SOURCES IN THE PUBLIC DOMAIN. INFORMATION IN RESPECT OF GOVERNMENT ANNOUNCEMENTS, POLICIES, PROGRAMS, MANUFACTURER’S GOODS AND SERVICES AND OTHER SUBJECT MATTER IS OFFERED FOR GENERAL INFORMATIVE PURPOSES ONLY AND NOT IN ANY WAY INTENDED AS A SOLE SOURCE FOR THE PURPOSE OF MAKING FINANCIAL DECISIONS. NO LIABILITY IS ACCEPTABLE FOR ANY ERRORS OR MIS-INTERPRETATION OF FACTS AND MATERIAL. IF A PERSON CONSIDERS THEY REQUIRE FINANCIAL ADVICE IN REGARD TO THEIR SPECIFIC AND INDIVIDUAL CIRCUMSTANCES, THEY SHOULD SEEK INDEPENDENT ADVICE FROM A FINANCIAL ADVISOR.
