An opportunity for small business … and your dealership!
By Neil CahirAssociate Partner, Fordham Business Advisors
The 2015 Federal Budget Government announcement that small businesses will be able to access an immediate write-off on any assets acquired (provided the asset costs less than $20,000), creates a significant opportunity for your dealership!
This immediate write-off, which will apply to all assets acquired and installed ready for use between Budget night, 12 May 2015 and 30 June 2017, is effectively an extension of the existing $1,000 threshold for the immediate write-off afforded to small businesses.
This write-off concession will create a significant tax saving for small businesses, reducing the cash flow cost of purchasing replacement or additional vehicles for their business.
Whilst it is important to note that this announcement requires legislation to be passed, there is an opportunity for your dealership to focus its advertising campaigns (particularly in terms of media, mail outs, text and EDM marketing) to ABN holders in your database and wider market. The focus should be to advertise vehicles in your new and used inventory that retail for under $20,000 drive away (excluding GST).
Small businesses are now in a position where – if they acquire a vehicle under $20,000 for business use prior to 30 June 2015 – they will be entitled to a tax deduction for the full cost of the vehicle in the 2015 income year (a potential tax saving of up to $9,800)!
What we do know
- This tax incentive to small businesses is likely to apply to both new and used vehicles, where the retail price is under $20,000 inclusive of all on-road costs, but excluding GST.
- Assuming the announcement is based on the current $1,000 depreciation write-off threshold, it will apply on a per asset basis, meaning that if a customer was to buy 10 vehicles under $20,000 (for example), they would qualify for the immediate write-off for the cost of each individual vehicle (that is, potentially $199,990 in this example)!
- Vehicles with a cost greater than $20,000 will not be eligible to receive a write-off. Vehicles over $20,000 could however, if sold to small businesses, be eligible to be included in the small business simplified depreciation pool and depreciated at 15% in the first income year, and 30% each year thereafter. Furthermore, once a pool balance is below $20,000, the entire pool balance can be immediately deducted in full.
What are the benefits?
The table below illustrates the estimated tax benefit to a small business customer buying a vehicle for $19,000 excluding GST.
Small Business Company Pre 1 July 2015*
Tax saving $5,700 After tax cost of purchase^ $13,300
Small Business Company Post 1 July 2015**
Tax saving $5,415 After tax cost of purchase^ $13,585
Small Business Sole Trader#
Tax saving $9,310 After tax cost of purchase^ $9,690
* Based on current 30% company tax rate for purchases between 12 May 2015 and 30 June 2015 for small business companies. ** Based on proposed 28.5% company tax rate post 1 July 2015 for small business companies. # Assumes top Individual Marginal Tax Rate plus Medicare Levy and Temporary Budget Repair Levy of 49%. ^ Calculated as purchase price of vehicle, less tax cash saving.
In the current market, where quality used vehicle inventory is proving difficult to procure, this announcement is sure to create more pressure on supply. What this opportunity does create however, is a greater incentive for dealers to be more earnest in acquiring trade-ins from the sale of new vehicles, particularly where the trade-in is one that could be sold to a small business eligible for this write-off.
In addition, salespeople should be held to account in ensuring that strong gross profit margins are retained on these vehicles (utilities under $20,000 especially), as this incentive is expected to entice many additional buyers into the marketplace.
The next seven weeks (the run up to 30 June 2015) provides small business customers with a unique opportunity to acquire a replacement vehicle at a substantially reduced after tax cost (subject to the legislation being passed). Therefore, this period represents a unique opportunity for your dealership as well!
Providing advice – beware!
We would caution that if your salespeople are discussing this opportunity with small business customers, they advise the customer to seek their own taxation advice on the eligibility for this write-off concession.
Should you wish to discuss this further, please contact a member of ourFordham Motor Dealer Services team.
Download: Motor Dealer Alert-An opportunity for your dealership-May 2015
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