Are tax benefits of Chattel mortgage dead and gone?
For those of you that are registered for GST on a cash basis, you have most likely been financing cars (& equipment etc) on Chattel mortgage (“CM”).
This enabled you to claim the GST up front on vehicles or equipment financed. Excellent cash flow benefits here.
e.g. Scott acquires a three year old BMW M3 from a dealer under a 4 year “CM”.
Cost $62,000. GST being $62,000 / 11 = $5,636 **
** Luxury car limit being $57,466 (for 2012 year) so maximum GST claimable is $5,224.
As such, $5,224 would be claimed back by Scott in the next BAS.
What if this BMW was financed under a Commercial Hire Purchase (“CHP”)?
GST would have been claimed over 48 months. ($5,224 / 48 = $108.83 monthly)
So next full BAS quarter would have resulted in $108.83 X 3 = $326.50.
It is vital to make sure that the purchaser (tax invoice) and registered owner are correct, i.e. the entity you have chosen to acquire the vehicle.
Please contact our office if you are unsure. Above assumption is that the vehicle is acquired for business use in a company.
So why are we telling you this?
Effective from 1 July, 2012 (Gillards 2012 budget) GST treatment is the same for chattel mortgage as commercial hire purchase.
(Note lease treatment remains the same)
As such, the additional charge costs may soon render chattel mortgages obsolete.
So when next financing equipment in your business, the GST treatment is now the same under chattel mortgage or CHP.
How is your business cash flow?
Feed back from clients has indicated that cash flows are tighter than ever for most small business owners.
Are you aware of the costs of your accounts receivable (debtors owing you money)?
e.g. If your average debtor balance is $100,000, this is costing you at least $7,000 per year in finance charges.
If you have credit cards, or other finance that is late, this same debtor balance could be costing you up to $20,000 p.a. as ultimately you are paying unsecured finance rates on this.
Some quick tips to better manage / improve your cash flow
i. prepare a cash flow improvement plan, with a budget and cash flow forecast
ii. provide more payment options for your customers / clients (credit card, BPAY, paypal etc)
iii. request new payment terms from suppliers
iv. see if you can obtain stock on consignment terms
v. consider consolidating unsecured debt, other forms of expensive debt
vi. better manage your inventory
vii. communicate regularly with customers / clients which may lead to additional sales, referrals
viii. offer carefully calculated early payment incentives
ix. impose penalties for late payment
x. review your customer base, client base and be prepared to cut bad payers
xi. review your own inventory, menu, services pricing to determine if it has kept up with rising overheads
xii. review your overheads and classify each as an overhead V’s a value adder in your management accounts
(a value add should be an expense that adds value to your business, i.e. as accountants our goal is to add value by saving you tax, structure your assets / wealth for long term benefit, help you focus on KPI’s vital to your business success)
xiii. improve and document your systems to improve efficiencies within your organisational chart
xiv. improve your collection policies
xv. consider factoring your accounts receivable in the short term
If you would like assistance with preparing a capital expenditure plan, for the next twelve months please contact our office
We suggest that the best time to prepare this is in conjunction with preparing a 12 month budget / forecast for you.
We can assist you with both of these. If you are looking for a review of your equipment or finance rates we can also recommend a specialist to assist here.
2. Reminder about upcoming tax due dates
14.08.12 – Lodgment of Annual PAYG payment reconciliation reports (if not using a Tax Agent)
21.08.12 – July IAS payment & lodgment (wages tax)
27.08.12 – June 2012 BAS (ELS through our office)
21.09.12 – August IAS payment & lodgment (wages tax)
30.09.12 – Lodgment of Annual PAYG payment reconciliation reports if prepared by our office
31.10.12 – Income tax returns for late lodgers with outstanding returns at 30.06.12
Andrew G McDonald