Quickly following the announcement of the Federal Budget by Treasurer Josh Frydenberg on 6 October 2020 we published articles outlining the basic inclusions and key initiatives from a general reporting perspective. With the major centrepiece legislation passing both houses of parliament by 9 October, we can now drill down into some of the details. Specifically in our sphere of interest, we’re focussing on personal car loans and business vehicle finance.
Personal Car Loans: Budget Impacts
The centrepiece of the Federal Budget for most taxpayers was without doubt the tax cuts. While they were already legislated, they were not meant to come into effect for another 2 years, in 2022. To boost the economy by putting more income into the hands of consumers, Stage 2 of the overall tax plan was brought forward to 1 July 2020.
On many occasions in the past, the Government of the day has had to do a lot of negotiating with the cross benchers and making changes to legislation to get bills, including the annual budget, passed. But the 2020/21 Budget was fast-tracked and was passed by both houses by 9 October. Effectively making the tax cuts law.
As of around 13 October, the Australian Taxation Office (ATO) had prepared the new tax schedules. From that point, it was up to your employer when they had their systems and upgrades in place to start issuing wages at the new tax rates.
While those eligible, including some who might be looking into “no doc car loans“, are keen to start receiving the extra dollars in each pay packet, any delay won’t affect the overall outcome. The period from 1 July up to the receipt of the tax cuts will be reconciled in each person’s individual income tax return after 30 June 2021.
With the low and middle income offset continuing this tax year, eligible taxpayers can expect a tax return for the 2020/21 year.
Impact on Personal Car Loans
When applying for a personal car loan, your application is assessed on your after-tax or net income and expenses. The tax cuts will increase the net income of eligible taxpayers. Having a higher net income may enhance your car loan application.
We cover the different scenarios at different stages of car loan applications for the impacts:-
- Existing car loan holders: An increase in your net income due to the tax cuts will not impact those who currently have car loans. However, both secured car loans and unsecured personal loans allow for additional payments. By making additional payments you pay off the loan earlier. Be mindful that break fees apply for early payment on some loans.
- In the process of applying for a car loan with the application already submitted: if your application was submitted based on your pre tax cut earnings, you may like to contact your Jade consultant and amend your application with the revised net income. This may enhance your application in terms of your ability to furnish the loan.
- About to purchase a car and apply for a personal car loan: If you have received a tax cut, your net earnings will be higher. This will be included when you contact Jade and go through the loan application process with your consultant.
- Planning to proceed with a car purchase and car loan after 1 April 2021: In addition to the tax cuts, changes to consumer credit laws are planned to come into effect from 1 April 2021. We covered the details of these changes in another article and referred you for a review of the specifics. In essence, the changes are designed to simplify the consumer credit process to ease the flow of credit and eliminate duplication in the system which is seen as holding up the process.
- Received your tax cut and thinking of buying a car: Head to our business car finance calculator page to calculate rough estimates on what the repayments may be on different-priced cars.
Business Vehicle Finance Implications
There is a raft of business investment measures introduced in the Budget and these are also now brought into law with the passing of the Budget Bill on 9 October 2020. We have published several articles on key aspects based on the pre-budget announcements and will be posting more detailed analyses in future articles.
In brief, the annual turnover of your business essentially determines which investment incentives including the Instant Asset Write-Off scheme, you can apply to your business.
About business car finance:
- Existing finance contracts in place for vehicles purchased before the introduction of the IAWO in March and before the budget-related measures announced on 6 October, are not eligible to be included.
- To be eligible for the budget-related measures (excluding IAWO) eligible businesses need to purchase eligible vehicles after 6 October 2020 and up to 30 June 2022 depending on the measure. It would be our understanding that the relevant date would apply to when the sale contract was finalised for the vehicles, being after 6 October. If you had submitted a finance application before 6 October but it was not finalised and the settlement was achieved after 6 October, the asset should be eligible for the investment allowance/full expensing measures.
- To depreciate and write off assets, the asset must be on the business balance sheet. Businesses are advised to discuss the most suitable type of motor vehicle finance for their business with their accountant.
At Jade Car Loans we stay across the financial markets and developments in government policies that may impact our customer’s car finance and will publish updates as relevant information or elaboration on key issues becomes available.
If you’re interested in a car loan to purchase a new or used car, contact Jade Car Loans at 1300 000 003 to discuss a quote.
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.