Australian Government Corona Virus ( COVID-19 ) Economic Stimulus Method 1 | The instant asset write-off extension

Instant Asset Write off Increased to $150,000 per asset - talk to The Finance Group on how to finance your next asset purchase! 1300882446

Below are the finer details of this Stimulus policy

What is the Tax Benefit?

A Tax deduction of up to $150,000 per eligible asset during the current financial year 2020-2021 if you buy eligible New or Used business plant and equipment and they are ready for use on or before the 31st of December 2020.

From 12 March 2020, the Federal Government will increase the instant asset write-off threshold for depreciating assets from $30,000 to $150,000. While the deduction was previously limited to small and medium-sized businesses (being those businesses with an aggregated annual turnover of less than $50 million), the revised limit will be extended to businesses with an aggregated turnover of less than $500 million. The increased asset and turnover thresholds will apply immediately until 31st December 2020.

Read the Treasurer's announcement here.

Example:

Freddy Krueger Transport Pty Ltd is a transport business and owner Chucky wants to upgrade some of his older trucks to more reliable and fuel efficient trucks with Automatic transmission so he can more easily find drivers. The company has an annual turnover of $4 Million for the 2019-20 income year. On the 15th of July 2020, Chucky places an order for the following;

4 x Brand New trucks each for $150,000 each. = $600,000

2 x Used Trucks for $100,000 each = $200,000

1 x Toyota Work ute with Tool Boxes and other accessories $100,000 for Chucky. Since the Ute is not designed to carry people and is clearly a work ute for 100% business purposes the whole $100,000 can be used as a Tax Deduction under the Instant Asset write off Scheme.

1 x Used Toyota Sahara for $100,000 for Chucky's wife who also works in the business. As the cost of the Toyota Sahara is above the the $59,136 "Car Cost Limit*", the business can only claim an instant asset write-off of $59,136 for the year ending 30th of June 2021. The business can't claim the excess cost of the car under any other depreciation rules.

Chucky realises the benefits of having a happy wife driving a safe modern car, which will also be handy for towing various types of trailers, so he is not concerned that there is a limit of $59,136 claimable for this Car.

All the trucks and Vehicles are due to be delivered and ready to use prior to the 31st of December 2020 so the business is eligible for the scheme.. Chucky is actually expecting them to be delivered sometime in late September as he does not want to get caught up in the 31st of December Rush and miss out on this very large Tax credit opportunity.

The Company will now have a Tax deduction of $959,136

Since Chucky's normal annual profit and forecasted Net Profit before Tax is $1,000,000 for the 2020-2021 financial year, after factoring in the Additional Tax Deduction of $959,136 due to the Instant Asset Write Off and the 26% Tax company Tax rate in 2020-21, this will result in Chucky having a forecasted taxable income of only circa $40,864, paying only $10,624 in Tax, rather than $260,000 saving Tax of approximately $249,375 in Tax ($959,136 x 26%) which will benefit the business in the short term by improved cashflow and help his business withstand and recover from the economic impact of the coronavirus.

Chucky will also have more reliable Trucks, happier Drivers driving modern trucks and a wider choice of workers to drive the trucks as they are Auto. There is also the added profitability of the more fuel efficient trucks.

Since Chucky will be obtaining finance on the Trucks, he will also benefit longer term by the Tax deductions available on the interest payments, plus the GST credit on the GST of the Trucks. Note: As he is an established business with clean credit and property backed, the interest rates on the new trucks is currently around 4%. p.a.

Another benefit is that since Chucky's current trucks are all paid off, the cash he get's for the sale of the trucks that are being upgraded can be put back into the business to upgrade his business facilities or pay himself a dividend.

So that you don't miss out, Contact us now on 1300882446, so we can put together a solution to help you fund the assets that you acquire for your business, such as Trucks, Trailers, Earthmoving equipment or other eligible equipment. It is important to utilise the services of an experienced Asset Finance broker such as the service that we provide, to make sure the financing structure is suitable so that you remain eligible for the benefits of the scheme. If the wrong type of financing product / method is used, you may find yourself being ineligible to benefit from the Tax benefits available. For example, if you enter into a Rent to Own financing product, you would not be eligible for the tax deduction, since the finance company (or Rental Company) would be the owner of the asset in such a situation. There are also other similar types of finance products that would deem you ineligible, therefore save yourself the disappointment and be sure to call us to get a suitable finance solution approved for you. We can send you a Tips sheet on things you can do to help you plan ahead to give you the best chance of being approved for finance successfully first time.

Contact your accountant to review your situation and determine what action is required.

Take a detailed read of the official government website which explains further details click here.

We can assist you be arranging funding options for any Asset purchases or Debt restructure that you may require. Call 1300 882 446 10am to 10pm, 7 days per week.

Call 1300 882 446 10am to 10pm, 7 days per week.

*Refer to ATO website for details about the Car Cost Limit and worked examples. Read More here