In response to COVID-19, the Federal Government has introduced a number of financial incentives which are aimed at helping individuals and businesses to survive uncertain and destabilising times. mivision asked industry finance experts for their strategic advice in relation to taking advantage of the new incentives available to the eye health profession.
Effective 12 March 2020:
- For businesses with an annual turnover up to AU$500m (previously $50m), the Instant Asset Write-Off (IAWO) has been increased from $30,000 to $150,000. That’s a 100% tax deduction for this financial year for assets up to $150,000. This applies to new and used assets bought prior to 30 June 2020, and can be claimed for multiple assets. The IAWO is scheduled to return to $1,000 from 1 July 2020.
- For businesses with an annual turnover up to $500m (previously $50m), an additional 15 month incentive has been introduced. This means optometrists will be able to immediately depreciate 50% of the cost of an eligible asset purchased between now and 30 June 2021. For investments made in this 15 month period, there is no asset value threshold for the 50% investment incentive. Existing depreciation rules apply to the balance of the asset’s cost.
In uncertain times, optometrists should review their current business plans…
Paul McKinley, Managing Director of Optometry Finance Australia, said the incentives are pleasing to see.
“These incentives represent an excellent opportunity for businesses to bring forward tax deductions in this, and the next, financial years,” he said. “As deep concern spreads through the world in light of the recent COVID-19 pandemic, we’re pleased to note that our Federal Government is taking decisive action in wanting to keep Australians in jobs, keep businesses in business, and help Australian households and our economy ticking along.”
However, neither he or Craig Spiegel, co-founder and head of sales at medical financier Credabl, suggest you should rush in and spend without due consideration and professional advice from your accountant or financial consultant.
“In uncertain times, optometrists should review their current business plans and strategies,” cautioned Mr Spiegel. “If upgrading or purchasing new technology fits within those plans, then you should still consider the investment. Ensuring sufficient access to capital is key.”
TIPS AND TRICKS
As Optometry Australia’s Advantage Partner and Finance Broker, and a Chartered Accountant, Mr McKinley offers eye health professionals the following advice:
- As always, first and foremost, seek the advice of your accountant.
- Never let a tax deduction/ incentive be a ‘key influential factor’ in making a purchase of capital assets. The benefit (read ‘return on investment’) should be front of mind as part of your decision making process.
- Know your budget, and stick with it. This can include gaining finance pre-approval before signing an order, so you know you can comfortably afford the repayments.
- Finance pre-approval can sometimes give you buying (negotiating) power when it comes to price, as the supplier senses that you are ready to buy.
Added to that, Mr Spiegel advised eye health professionals to “check whether you have sufficient patient demand and appetite for the new technology to at least cover the cost of the investment.
“Less obvious is the need to check whether your practice has space to accommodate the new technology and to keep in mind any plans for growth/expansion on the horizon. Also, do you, as the principal, have an interest in the technology to ensure that you and your team will fully embrace it?”
TO LEASE, TO BUY AND FOR HOW LONG?
Mr McKinley says this is a tricky question.
“We have to be careful here in giving specific advice, as everyone’s personal circumstances, and tax position, is different – every prospective purchaser should seek professional advice first from their advisor.
“Having said that, as a general comment, leasing equipment (most commonly using a Chattel Mortgage loan product, since the introduction of the GST) as opposed to buying it outright, leaves working capital (cash) in the business to fund its working capital needs. This makes good sense, and surplus cash may be applied to your personal (non-deductible) debt.”
Mr Spiegel points out that another immediate advantage of using a chattel mortgage loan is that you’ll be able to take advantage of the immediate depreciation level for equipment up to $150,000 to 30 June 2020.
As to determining the optimum loan / lease term for equipment financing, Mr Spiegel stresses that no two practices are the same.
“A good rule of thumb is to choose a finance term that sees a loan repaid over the depreciating life of the goods. Generally, this is no more than six years. However, you need to look at all factors such as practice cashflow, new income generated from the investment, other loans expiring as well as other financing needs to name a few.”
On top of this, Mr McKinley said consider whether a balloon/ residual should also be funded – this is a lump-sum to be paid out, or refinanced at the end of the loan term.
“There are many factors to consider here, including:
- The effective life of the asset (having regard to potential technological changes that may make the equipment quickly obsolete),
- Cash flow considerations (eg. a balloon will result in lower monthly repayments), and
- Other considerations (including end of the commercial property lease, sale of the practice, etc),” he advised.
For more information on all the support available to businesses in response to the COVID-19 pandemic, visit /business. gov.au/risk-management/emergencymanagement/ coronavirus-informationand- support-for-business.