2020 is a year like no other. We’ve witnessed change at a rate and on a scale never seen before, making it challenging for businesses to keep up. When it comes to making decisions in business, it’s important to use only up to date advice, as the regulatory environment and personal circumstances can change to such an extent that initial advice can be considered bad advice.
I want to share with you a case study to show why it is vital to keep up to date:
Lizzy is a business owner and needed a new car. She uses her car for business and personal travel. Lizzy first identified her need for the car in January 2020 after a trip to her mechanic. She sought our advice on whether it should be purchased by her company or personally. This was before Covid-19 was declared a world-wide pandemic.
We sat down with Lizzy to look at the tax benefits and FBT consequences, in addition to other pros and cons of the company purchasing a car. Lizzy decided based on her current circumstances it was simpler and just as cost effective to purchase the vehicle in her name.
Government changes asset write-off
Taking time to pick her perfect car, as business had boomed once the Covid-19 pandemic was declared, Lizzy wasn’t ready to purchase until September 2020. The world had changed significantly from the time we had provided our initial advice. In response to the economic crisis brought on by Covid-19, the Government announced an increase to the instant asset write-off, among other measures. The instant asset write-off had increased from $30,000 to $59,136 on motor vehicles ($150,000 for other eligible assets and post 2020-21 budget now unlimited to 30 June 2022). Lizzy had also decided during that time she was ready to purchase a house.
A call from Lizzy’s diligent loan broker to confirm our original advice, highlighted how much had changed since January and September, and the impact it would have on Lizzy’s plans. She also advised that Lizzy was looking to purchase a home, something that was not being considered in January.
Presented with this new set of facts our advice changed. Being able to receive a 100% tax deduction in the 2021 financial year, by the company, made it much more attractive for the company to purchase the car. Furthermore, it was going to be easier for Lizzy to obtain finance for her new home if the car was purchased by the company.
Getting up to date advice meant Lizzy will now benefit from a reduction of company tax, in the 2021 financial year, in the order of $9,275 on the purchase of her $35,000 car. She was also able to obtain loan approval on her new home.
Things change, and Covid-19 showed us all how quickly change happens. Before making a decision that can and will impact your business or personal plans, make sure the advice you receive is up to date.
If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get with your business. Book your FREE Discovery Call to find out more.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.