How the tax man can help your Colac business to purchase new equipment
The end of the year is nigh!
The financial year, that is. And as it approaches, so too does the window to purchase new equipment or update a vehicle for your Colac business.
Last year, the Federal Government introduced legislation that extended and boosted its small business instant asset tax write-off. This means that if your Colac business is eligible (speak to us if you’re not sure), you could potentially purchase items up to $25,000 this financial year, and claim these expenses back on your tax return next year.
Our Mortgage Broking team – which also provides equipment finance – is in a perfect position to work with your accountant to devise how best to maximise your operation’s cash flow and tax advantages. There’s several ways we can help you with your business equipment. Some of the most popular options are outlined below.
The biggest upside to leasing equipment is you are able to access new assets without a capital outlay. The lender is effectively the owner of the asset and the business leases it back from them for a fixed monthly amount. Once the lease is up, you can either pay out the residual payment (or what’s left to pay) and buy that asset – leaving you in a position to either trade in the asset and upgrade again, or simply maintain ownership. Another option is to refinance the residual and continue leasing.
The advantages of this approach include:
- You will know, from the beginning, what your repayments will be, meaning you can manage your cash flow
- There’s a chance you will be able to claim the lease payments as a tax deduction – this is where we can speak to our specialist Accounting team to ensure options like this are considered
- Our Accountants can also help to explain other tax benefits – these could include making advance lease payments for tax or cash flow purposes There could be other tax benefits, including potentially making advance lease payments for tax or cash flow purposes (again, we would always consult an Accountant if this was being looked at)
- You may be entitled to claim a GST credit for the GST included in each lease payment
- There’s flexibility to reduce the size of your payments by increasing the residual amount at the end
- You can keep your assets up-to-date and some equipment leases can potentially include a service contract
In addition to finance leases, there are also operating lease agreements. This is when you don’t take on the obligation to pay the residual value at the end. The asset is simply handed back to the lender.
Again, a hire purchase allows you to obtain the latest equipment and vehicles for your business, whilst preserving your cash flow. With this finance option, the lender purchases the equipment or vehicles you require, then hires it to your business for a specific period. It’s like a finance lease, but when the final payment is paid, your business immediately owns the asset.
The advantages of a hire purchase include:
- This arrangement won’t tie up your cash
- It may not require additional security
- There’s a chance depreciation and interest on any lease repayments may be tax deductable (again, our Accountants are on-hand to consult with you about this)
- You will own it at the end of the hire period
A chattel mortgage is another type of finance option that works well for businesses. The financier secures the loan, using the “chattel”, or the vehicle or equipment you purchase. You take ownership of the asset, and the mortgage is registered with ASIC. Once the loan is paid off, the mortgage is removed, and the vehicle or equipment is officially yours.
Advantages of this approach include:
- If you are registered for GST on a cash basis, you may be able to claim the GST in your vehicle’s price up-front through your next Business Activity Statement (BAS). As we’ve already said, an Accountant is going to be someone you’ll need to consult with before finalising this option. We have plenty on-hand who specialise in this area and will be able to help.
- An Accountant will also be able to advise whether you will be able to claim depreciation and the interest charges on your chattel mortgage as a tax deduction
- Lower interest rates generally apply, because finance is secured against the asset
- You may be able to decrease your regular repayments by paying a deposit upfront, trading-in a vehicle, or opting for a balloon payment at the end of your loan term
- You can manage your business cash flow more effectively.
The advantage of speaking to Sinclair Wilson about your finance needs is we are able to call on our wide range of experts to ensure we can devise an option that best suits your needs. Contact us today and we’ll get the ball rolling on your finance in plenty of time to make your purchases before June 30.
*This article provides general information only and has been prepared without assessing your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to application and acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Approval times are subject to lenders terms and conditions – fees, charges and eligibility criteria will also apply.