Act NOW if you wish to access immediate tax deductions for your small business

The Government is planning to remove the immediate tax deduction for depreciating assets costing less than $6,500 and the accelerated depreciation allowances for motor vehicles which  are currently available to small businesses (i.e. businesses with an annual aggregate turnover of less than $2 million).  It is important that you ACT NOW to access immediate tax deductions for your small business.  

These concessions were enacted by the previous Government and were to be funded by the Minerals Resource Rent Tax (MRRT). However following the proposed repeal of the MRRT, these concessions will be removed as well. The Bill, if passed, will be effective from 1 January 2014.

Current Rules

Presently, the main concessions available for small businesses with depreciating assets used in the business are as follows:

  • Plant and equipment – Assets costing less than $6,500 are subject to an immediate tax deduction; and
  • Motor vehicles – An immediate tax deduction of the first $5,000 value of the motor vehicle plus 15% of any residual value. The remaining value is allocated to the small business general pool with a rate of 30% to be claimed in subsequent income years.

Impact of the Proposed Amendments

The proposed amendments will remove the current rules and replace them with the following small business concessions:

  • Plant and equipment – The $6,500 threshold will be reduced to the previous limit of $1,000, with assets exceeding the $1,000 threshold to  be allocated to a general small business pool for tax depreciation claims (i.e. 15% tax depreciation in the first year and 30% in subsequent years on a diminishing value basis); and
  • Motor vehicles – No immediate tax deduction will be available. The total cost of your motor vehicle will be treated like any other depreciating asset and allocated to the general small business pool.

It is expected that if the Bill is passed to repeal the MRRT in the new year, the proposed amendments will be applied retrospectively. This means that the repeal of these small business concessions will be expected to commence from 1 January 2014, which is less than four weeks away.

What you can do

If you are an eligible small business wishing to maximise your tax deductions for the 2013-14 income year, it is advised that you bring forward your purchases of the above-mentioned depreciating assets to before 1 January 2014, so you can utilise the immediate deduction concessions currently available to you.

To be able to access these concessions the asset purchased will need to be installed ready for use before 1 January 2014.

Therefore if you have equipment that you know needs to be replaced shortly these concessions may make it worthwhile making the purchase and arranging delivery before the year ends. This could include for example ageing IT equipment or furniture.

 

Give your employees a well deserved break…on tax

With the Coalition winning the recent election and scrapping the Rudd Government’s proposed changes to FBT rules on salary packaged vehicles, current low interest rates and high Aussie dollar, now is a good time to negotiate a good deal on a car – and get a tax break too!

Giving your employees the opportunity to purchase a vehicle under a novated lease arrangement provides them with the most tax-effective way to buy a car of their choice for their own use – and at no cost to the business.

To many employers however, the mention of novated leasing immediately brings concerns around administrative burden, FBT liability, requirement for vehicle logbooks and maintenance and perceptions that it only applies to employees who need a car for work or high income earners. It ends up in the too-hard basket.

But novated leasing is not as complicated as it first seems. In fact, by utilising a dedicated external provider (like Prosperity), there is very little the employer needs to do. At Prosperity we provide the complete solution – from the initial consultation with an employee (lease quotes, tax saving calculations etc), finding the vehicle, arranging the finance, to managing the ongoing requirements (payroll deductions, reporting etc).

What is a Novated Lease?

A novated lease is simply an agreement between the employer, the employee and a finance provider/leasing company.

Under a novation agreement, the employer agrees to deduct money from the employee’s salary (each pay period) to cover the costs of the lease payments, registration, running costs, insurance and maintenance costs of the car. These costs are calculated upfront and usually remain constant during the lease period.

During the lease the employee is responsible for the registration, insurance and maintenance of the car. If the employee leaves, then the responsibility of the lease is transferred to them and they must arrange to make their own payments.

At the end of the lease, the employee has a few options; sell the car, pay any residual and own the car outright; keep the vehicle and extend the lease; or trade in purchase new vehicle on a new lease.

Employer Benefits of a Novated Lease

  • You can offer all your employees the extra incentive of a car in their remuneration package – the vehicle does not have to be used for business purposes;
  • It potentially takes away the burden and responsibility of managing a company car fleet;
  • It takes away the necessity of recording the car as an asset or liability in the business;
  • It takes the responsibility of making lease payments away from the employer as soon as the employee leaves their job;
  • It leave no FBT liability. FBT is deducted from employees pay as part of the lease agreement.

Employee Benefits of a Novated Lease

  • No GST is charged on the purchase of the car or on its operating costs;
  • Tax savings are provided through salary sacrifice arrangements as the lease payments are taken out of pre-tax wages;
  • Employees have the freedom to choose their own vehicle;
  • Vehicle can be used unconditionally for both work and private purposes;
  • Employee can get discounts on vehicle purchase price and operating costs – as a result of Prosperity’s purchasing power;
  • Employee has the option to own the vehicle outright at the end of the lease term.

Let’s look at how it works in real life…

Juliet works for an IT company and earns $60,000. She is looking to buy a Toyota RAV4. She has found the perfect one for $35,000. Her employer puts her in contact with a Prosperity Smart Drive consultant and they provide her with a novated lease quote.

Juliet instantly receives a discount of $3,181 on the car as she doesn’t have to pay GST. On a three year lease, her repayments are $1,278 per month which includes all costs (finance payments, CTP and comprehensive insurance, registration, roadside assistance, fuel, tyres and servicing).

As a portion of these costs are taken from Juliet’s pre-tax salary, she ends up $3,290 better off each year as compared to paying for the car out of her disposable income.

Juliet is happy that she saves some money, has the car she wants and she simply puts all petrol and servicing costs on the fleet card provided.

In summary, novated leasing has become increasingly popular over recent years and provides real advantages to both employers and employees.

Talk to us today!

 

Sydney – investing for the future

Prosperity Advisers is planning for substantial growth in 2014 despite the tight economic conditions. The expected increase in operations has prompted a move recently to larger custom designed premises in Elizabeth Street.

Sydney Office Principal, Stephen Guthrie said “the move allows ample space for growth, provides our people more modern and effective work spaces and importantly for our clients and visitors it provides additional briefing rooms and convenient transport links.”

The firm has over 100 staff across its Sydney, Newcastle and Brisbane offices. CEO, Allan McKeown says “Prosperity has invested in building our capability in a number of areas.

“The development of personal global connections through our international alliances has resulted in much activity as Sydney benefits from direct Asian investment and international interest in Australia as a safe harbour entry point. Our well resourced Asian desk with multi-lingual capability has been particularly well received.

“Our ability to meet the sophisticated needs of ultra high net wealth individuals through a comprehensive seamless service offering and the expansion of our medical and allied health speciality through our acquisition of the East Coast clients of a speciality firm, will also fuel our growth this year.”

Primo Smallgoods gets a boost from Affinity

The Prosperity Advisers Transactions team has been hard at work driving one of Australia’s largest capital transactions throughout 2012, and now, we are pleased to celebrate Primo Smallgood’s success.

Prosperity have acted as Central Advisers to the owners of Primo Smallgoods as they have sought capital and sold a significant stake in their business to Affinity Equity Partners at the tail end of 2011.  With Primos’s enterprise value reported to be in the order of $1 billion, the transaction was a remarkable coup for the owners in a difficult capital markets environment and one Prosperity Advisers is proud to have been involved in.

Primo is one of the great stories of an Australian family creating an enduring and iconic brand across three generations.  They are Australia’s leading manufacturer of small goods with their products finding a place in most Australian fridges.

“The group has an impeccable record of growth, and this new capital allows the business to enter a significant phase of opportunity with the construction of a major new factory,” said Stephen Cribb, Director and head of the Transaction team.

“In the case of Primo Smallgoods, a four track process was conducted because of the volatility of capital markets.  Our process involved simultaneous work on a potential IPO, trade sale, external private equity and “in-house” private equity arrangements through syndicated borrowing,” Stephen said .

Prosperity Advisers have been there through every step, working closely with shareholders, management and panel advisers to help balance the competing objectives of raising fresh capital for new investment and reducing shareholder portfolio risk.