Find out why the end of the financial year may be a great time to invest in assets for your business
23 May 2022|5 minute read
The end of the financial year provides businesses and self-employed workers with the opportunity to assess their income and potential future profit.
If a business is looking to invest in vehicles, assets or equipment, it can be beneficial to make a purchase before June 30.
In this article, we discuss the benefits of buying assets before the end of the financial year and the ins and outs of business and asset financing.
Before EOFY, many businesses choose to upgrade or replace their existing vehicles and equipment. This essentially allows them to prepay for an asset that will be used in the next financial year while minimising tax in the current financial year (more on this shortly).
A wide range of businesses can benefit from this – from self-employed solo operators, to larger businesses, to individuals using assets for business purposes.
If you fall under one of those categories, you might want to consider investing in equipment that will help you expand production or secure a new contract. Or, if existing equipment needs repairing or replacing, now could be a great time to take action.
Both new and used vehicles are among the most popular purchases at this time of year. And for business owners, now may be the time to consider whether your business could use a new vehicle, like a ute, van, car or truck.
If you’re a business owner, purchasing at EOFY can help maximise your tax advantages by allowing you to have the asset on book for the full financial year.
Loan interest and expenses such as fees are tax deductible and you can claim a credit for any GST included in the price of assets you use for your business. This is called an input tax credit, or a GST credit.
The temporary full expensing option, which is available until June 2023, was introduced by the Australian government to support businesses and encourage investment. It allows businesses to fully expense the business portion of the cost of an asset in one financial year to offset their taxable income.
There is no limit to the number of assets claimed under the temporary full expensing option, but all assets must be purchased and installed for use by June 30.
For example, let’s take a cafe owner who purchases a passenger vehicle for $80,000 before 30 June 2022. They calculate that 80% of the vehicle’s usage will be for business purposes. This means they can claim 80% of the maximum deductible amount ($80,000 x 0.8) as an expense in their tax return for 2021/2022. This comes to a total of $64,000.
Let’s take a look at another example. Let’s say a construction company purchased a truck for $160,000 on 1 May 2022. If the truck will only be used for business purposes, the full $160,000 can be expensed in their 2021/2022 financial year tax return.
To get an indication of how much you could save in tax, multiply your tax rate (which is generally 27.5% for a company) by the cost of the asset. For the truck we used in our previous example, this means an indicative tax saving of $44,000 ($160,000 x 0.275).
A sole trader or partnership would use their own tax rates to calculate how much they could save.
If your business is set to report a profit, spending a portion of that before the end of the financial year could help you pay less tax while acquiring the assets your business needs to grow.
Similarly, if you are an employee and you require assets for business purposes, purchasing these items may result in a higher tax refund. Keep in mind, you won’t get a dollar-for-dollar refund for your purchases.
While there's a place for EOFY spending and investment, it’s often beneficial for business owners and individuals to do the maths.
It could be a smart idea to consult with your accountant to ensure you come out on top before making a decision.
The COVID-19 pandemic has played a huge role in causing global supply chain shortages and shipping delays over the past 2 years. This has also largely affected vehicles and equipment.
Due to a mismatch in supply and demand, discounts and deals may not be as widely available as they were during pre-pandemic times. However, depending on the asset, availability and competition between suppliers, you may still be able to find a great deal during EOFY.
For example, highly sought after utes like the Ford Ranger and Toyota Hilux may be difficult to find discounts for. However, dealers might want to clear stock of less sought after models, so these may have heavier discounts.
On the other hand, if you require more niche equipment like a scissor lift or concrete pump, there are typically only a small number of suppliers to choose from, which may mean fewer chances of getting a discount.
Did you know Aussie offers asset finance as well as home loans? Assets like vehicles and equipment that have a serial number can typically be financed, including via new, used or private sales.
Financing allows you to purchase assets now without having to immediately spend cash from your pocket. The full purchase price amount can usually be financed and often no deposit is required.
We can also provide you with the option of a balloon repayment at the end of your loan term to ease cash flow, depending on your situation.
If you’re looking to buy a vehicle for business use, interest rates offered by lenders are generally lower than for consumer vehicles.
But keep in mind that the type and age of the asset may affect the interest rate and how much can be financed. For example, used assets often have a higher interest rate than new assets.
Vehicles purchased for $150,000 or less are often financed with low doc, which usually only requires an ABN and GST registered for two years and a property rates notice in your name. Larger loans and equipment types will require BAS statements and financials.
If you’re borrowing more than $150,000 it’s a good idea to make sure your paperwork, taxes and superannuation requirements are up to date so finance can be obtained quickly.
If you’re an employee, a vehicle will only qualify if it is at least 51% used for business purposes and you have an accountant’s letter to confirm this.
If you’d like to learn more about your financing options, reach out to an Aussie Broker before tax time comes around.
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