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 a number of key issues which may have a positive impact on those seeking car finance. For those not so keen observers and those that 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 in regard to business vehicle purchases and finance.
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 bring down of the budget is just the first step in the process. The budget bill must then be passed by both houses of Parliament in order 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 the major focus on a business-driven recovery. Key measures include wage subsides and investment incentives.
Instant Asset Write-Off Expanded
The good news for businesses considering buying new vehicles 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 increase in the value of allowable assets. There are a number of varying aspects to investment allowance.
IAWO and Investment Allowance Details
Until the budget bill is actually 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 full cost of eligible depreciable assets from the date the budget was announced, 6 October 2020 through to 30 June 2020. Asset must be purchased, installed and used by 30 June 2022 and tax benefit realised in appropriate tax year.
- SMEs – businesses with turnover up to $500m: instantly write-off assets with value of up to $150,000. 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 $50-$500m: claim full deduction for second-hand assets with 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 in the near future.
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. According to reports, discussions with several countries in regard to 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 which may represent business opps 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
In order to take advantage of the investment allowances announced, businesses will need to select the appropriate finance product for the purchase of their vehicles. 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 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 specifics of all Budget announcements to ensure relevancy to your 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 1300 000 003 for quote on business car finance.
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