FiNaNce
Rosemary Shapiro-Liu
Making Things Work
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Survival is a challenge in tough financial times. For non-profits it's all about increased impact of your work.
Now is the time to de-clutter and get down to core business, but it might also be time to develop your
business strategically. It's all about small changes for big results.
Let me help you strategise and reach your goals by 2010.
coaching and support to executives and management
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guidance on technology and funding
A healthy dose of "Can Do"
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Making Things Work for you and your cause.
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tHe mOneY mAn
-- graeme mcDonald
Hello all, as we move towards the end of the current financial
year it's time to think about how to take advantage of the various
stimulus packages that are out there.
One of the key drivers for business in the two packages so far has
been the investment allowance. Now I hear many of you saying
that as a not-for-profit the investment allowance is of no great
benefit for you as you don't pay tax. That's not quite true - there is
an advantage to yourselves if you choose the right funding model
for your purchase.
As it stands now the basic terms of the allowance are as follows:
}
The item must have been ordered between the 13/12/08 and
30/06/09 to qualify for the 30% and installed no later 30/06/10.
}
If the item is ordered after the 30/6/09 but before 31/12/09 and still
installed by 30/6/10 you will still qualify for a 10%
}
Minimum invoice amount is $10,000.00. $1,000.00 if your turnover
is under $2Mill
}
Items must be new (used items at this stage are not covered by the
allowance.)
So what does it all mean? The Investment Allowance is essentially
an extra allowance (10%- 30%) allowed by the ATO on the
acquisition of plant, equipment and any item that qualifies under
Division 40 (Capital Allowances) of the Income Tax Assessment
Act (ITAA97). Specifically the areas under Division 40 that
cover depreciable assets. Within this section there are a number
of exclusions which will also apply to the Investment Allowance,
these things to name a few include intangible assets, land, and
trading stock.
In a normal business they would take advantage of the investment
allowance to reduce the taxable income figure in the business come
June 30.
Here's a non-specific example to give you an idea. (Please refer
to your accountant or financial adviser for specific information in
relation to you.)
In this case the item is $100,000.00 incl GST. Installed 1/7/09. It
is financed over 5 years / nil Balloon at 7.50% with payments in
arrears. Payments are $2003.79 per month. For ease of the example
I have assumed a flat 10% depreciation rate and a 10% investment
allowance. Total cost for the item on finance over 5 years will
be $120,227.40. Under the Investment Allowance your year
one claim, (dependant on your own circumstances) would look
something like this.
GST Claim
$9,090.91
Depn Allowance
$9,090.91
Normal Depreciation
$9,090.91
Assumes installed 1 July and full 12 month claim able to be made.
Interest Claim
$6,919.17
basic assumption as above with no allowance for your particular situation
Total
$34,191.90
So in the first full year that would mean, assuming you had a full
12 months claim you would potentially be able to claim back
34% of the value of your purchase, and that just with the 10%
Investment Allowance. Now in most cases this won't be of any
great assistance to you as you don't need the deductions, but as
with most businesses you still have a need to upgrade equipment
and cars etc. So let's look at how you can reduce the cost of
borrowing by taking advantage of the Investment Allowance.
The best answer to this is to do Finance Lease on the equipment,
in this case the Financier is the owner of the goods and as such
becomes entitled to the Investment Allowance, they then pass on
the benefit of this in the form of a rate reduction to you. Under a
Finance Lease the Financiers takes up the GST on the purchase and
you only fund the Non GST component as well as further reducing
the cost of acquisition.
Now it depends on a number of things as to how big the reduction
can be, including the equipment, term, time in the financier's
tax year etc, but reductions of between 0.50% and 1.00% are not
uncommon. When you take into account the current low rates, an
additional deduction makes funding all the more attractive. So if
you need to replace things and cashflow is tight, this may be the
way to reduce that cost.
If you want to know more on this, or you have a money or financing
related question feel free to email me on graeme@moneyresources.
com.au The above information and / or scenarios are for information
purposes and should not be treated as specific advice, Please refer to
your accountant or financial advisor for information related to your
own particular circumstances.