Are you thinking of acquiring, upgrading or replacing capital assets that will be used in running your business?
You really should be considering doing this in the current financial year before the 30th June 2020, particularly if the cost of the asset (net of GST) is $149,999 or less as this special asset write-off concession up to $150,000 expires on the 30th June 2020!
As you may be aware, there are different ways to finance assets that will be used in your business (e.g. cars, boats, trucks, buses, aircraft, computers and other machinery and equipment).
The type of finance chosen can affect:
■ when the legal ownership of the asset changes hands (e.g. when does the taxpayer become the owner); and
■ the amount and type of tax concessions available (e.g. who can claim the depreciation or monthly payment as a tax deduction).
It is often difficult to decide which kind of finance to use. Here is a brief overview of one of the most common types of asset financing – Hire Purchase.
With a Hire purchase:
■ amount financed is the GST inclusive amount of the assets (less trade-ins or deposits)
■ taxpayer can claim depreciation and interest charged (but not monthly instalment payments).
What is it?
Under a hire purchase agreement the financier buys the asset and the taxpayer hires the asset from the financier for a fixed monthly repayment over a set period of time.
During this time, the taxpayer may use the asset but is not the owner of the asset. The title to the asset only passes once the goods have been paid for.
The financier must finance the GST inclusive amount less trade-ins or deposits.
What happens at the end of the hire purchase?
At the end of the hire purchase agreement, the taxpayer becomes the owner of the asset when it makes the final payment. The residual value can be fully amortised (so there is no residual value) or have a residual value to reduce the monthly instalments.
Income tax treatment
The taxpayer may claim tax deductions for:
■ depreciation (up to the depreciation limit for vehicles of $57,581);
■ running costs of the asset; and
■ interest paid on the loan (apportioned for business use).
The taxpayer may not claim the monthly instalment payments as a tax deduction.
GST treatment
GST is charged on the purchase price of the asset and on interest and fees payable on settlement of the contract (but not on the residual payment). GST can either be added to the loan or paid up-front.
Getting advice before you purchase any asset to ensure you maximise your tax deduction and GST claim is always advisable! Give us a call today on (03) 5561 2643.
Have a great day!
