Where non-SMEs are concerned, now that the order deadline has passed for those businesses whose turnover is greater than
$A2 million, in order to claim the 30 per cent investment allowance don’t forget delivery/ready-for-use needs to occur by 30 June 2010, so long as you placed your order by the cut-off date.
It is important to note that where finance has been used as the method of purchase, any pending delivery is correctly documented with the right finance product to claim the Investment Allowance. Under the most recent version (Version 2) of the Investment Allowance, a lease or commercial hire purchase (CHP) facility will render the purchaser ineligible for the Investment Allowance as it is the financier who is sold the goods and not you the purchaser.
So at this stage, it may mean that any post 30 June 2009 deliveries, where finance is involved for a non-SME, would need to be completed as a Chattel Mortgage loan facility. It may come to light in subsequent documentation that CHP will be okay, however it is best to be cautious and default to Chattel Mortgage being the “÷expected’ safe threshold with further investigation (including the review of the soon to be released Version 3 of the investment allowance guide from government) to see if CHP is also acceptable.
If you have missed the boat for the 30 per cent investment allowance do not despair, as you are still eligible for the allowance but at a reduced rate of
10 per cent on the basis that your order is placed by 31 December 2009 and delivery/ready for use occurs by 31 December 2010. Don’t forget the minimum spend is $A10,000.
In regards to SMEs, businesses with a turnover less than $A2 million per annum, the investment allowance increased to 50 per cent in the May budget has been extended to 31 December 2009 with orders to be placed by the this date and delivery/ready for use to occur by 30 December 2010. Don’t forget minimum spend is $A1,000.
Naturally you must do your own research; however various scenarios prepared by Finlease for clients revealed that the tax savings could add up to many thousands of dollars.
When taking into account the 50 per cent investment allowance the return on the capital cost is, in effect, 15 per cent. This amounts to a significant saving and contributes to the many other reasons why you may be looking to purchase new vehicles, plant and equipment.
While the savings look easy to come by, the finance might not be as banks have tightened up lending criteria recently. In addition certain multinational lenders have withdrawn from Australia altogether, so it’s worth talking to the right people. A specialist finance broker who understands the unique dynamics of your industry can help you avoid some of the usual pitfalls.
One of the important pitfalls is the decision of who to fund your new purchases through. It is still a common trap to see established businesses place all their funding requirements with the one bank to such an extent that, under traditional banking practices, there are no further opportunities to borrow funds from the primary bank – especially when working capital is concerned. The primary banker applies the “÷all monies’ clause and takes into account all debts including your overdraft, term loans, vehicles, plant and equipment, etc. In these testing times when cash flow becomes tighter for various reasons, this type of pitfall needs serious consideration with your next round of vehicle, plant and equipment purchases.