4 advantages for businesses investing in vehicles in 2020
Even with Government stimulus measures, many businesses have postponed vehicle upgrades and purchases this year. This indicates a lack of confidence in the economy. However, there are many reasons why investing in a car this year can make financial sense.
In this article, we will look at four reasons why some businesses are choosing to invest in a vehicle in 2020, and how they plan to profit from their purchase.
Using an instant finance write-off.
A major incentive for buying a vehicle is the Australia Government’s announcement to increase asset write-offs. The Instant Asset Write-Off Threshold was increased from $30,000 and $150,000 as part of the COVID-19 Federal Government stimulus package, and only available to businesses with an annual turnover of less than $500 million, with write-offs for passenger vehicles capped at $57,581.
If your asset is for business and private use, you can only claim the amount you use your vehicle for on business purposes. New and second-hand vehicles can both be claimed in this way, provided each vehicle costs less than $150,000, and the write-off amount is below the cap for passenger vehicles.
Upgrading your company vehicle.
If you are wanting to upgrade your vehicle but are already paying for a vehicle under finance, you may wish to consider comparing the cost of your current monthly repayments to see how you could benefit by upgrading.
You will need to apply for a new car loan and use the funds to repay the balance of your existing car loan. However, you could upgrade your vehicle and reduce your payments at the same time. For example, if your current car loan is $30,000 with an interest rate of 10 per cent, and you trade in your vehicle and refinance your car loan at a rate of 7 per cent – your new loan will be $25,000 with the 7 per cent interest. The estimated monthly repayments at 10 per cent over five years are $637, whereas for 7 per cent are only $495.
Not only have you reduced your regular monthly payments, but you will have upgraded your vehicle and potentially come out better off if you can also take advantage of the instant asset write-off.
Adapt to a changing business world.
A change in how we do business may also reflect a change in your need for business vehicles. While company cars have always been popular with certain businesses – such as real-estate agents – a shift in how people are choosing to communicate, commute, and engage with businesses may encourage more SMEs to change the way they operate.
Flexible options in choosing how to finance a vehicle.
If you are choosing to purchase outright, you will be able to visit a dealership directly, however, you may wish to look at other forms of vehicle finance, such as:
- A car loan has no restrictions on vehicle choice. The vehicle can be used for personal and business purposes – however, only the business portion may be claimed in the asset write-off.
- A chattel mortgage provides GST benefits and business tax benefits. The vehicle must be used for business purposes at least 51 per cent of the time, though it can be used entirely or mostly for business use to maximise write-off amounts.
- A novated lease provides GST and personal tax benefits, and the vehicle can be used for personal and business purposes. Generally, only used by employees, however, in certain circumstances can be used by business owners who pay themselves a salary.
Combined with the benefits of the Asset Write-off Incentive currently available, purchasing a business vehicle now may be a rare financial opportunity you will not want to miss.
Business vehicles are a vital part of many SME operations, yet they are a major expense used almost exclusively by one or two employees. With recent changes to asset-purchase write-offs and a paradigm shift in how we choose to conduct business with each other, if you have been considering investing in a vehicle this year, now could be the best time to do so.
About Helen Baker
Helen Baker is a financial adviser, author, speaker and spokesperson for online finance information platform Money.com.au. Helen has a passion for empowering Aussies to find financial freedom through strategic planning and goals-based financial advice. She has worked as a qualified financial adviser since 2009 and was a finalist in both the Financial Planner/Advisor of the Year and Women’s Community Program of the Year categories in 2017 as well. For more information, visit Money.com.au.