Accelerated Depreciation

Accelerated depreciation deductions – Key Features

The Federal Budget proposes to extend huge tax incentives available to businesses when purchasing assets and equipment.  Changes will only come into effect once the Budget has passed through Parliament and may vary.  AddCash has developed solutions that allow businesses to retain cash while still taking full advantage of the tax incentives on offer. Eligible businesses who purchase eligible assets for $150,000 or more, can claim significant depreciation deductions against their taxable income.

Read about the Accelerated Depreciation solution example below. For more information download the product fact sheet or application form below, or contact AddCash if you have any questions.

Finance 100% of the Asset purchase cost including Government & other associated costs

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Retain the benefit of any applicable GST refund/credit on Assets purchased

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Spread repayments up to 5 years with final balloon option

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No instant exclusions for Deferred Finance Payments

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Benefit of Accelerated Depreciation will offset associated finance costs in the first year

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Interested in this solution?

Summary of Features & Conditions

Asset Finance

  • AddCash will pay vendor directly.
  • No instant exclusions for Deferred Payment arrangements on other existing finances.
  • Purchase of income generating assets that satisfy the ATO criteria for tax incentives.
  • Finance 100% of the Asset purchase cost including GST, other Government and associated costs, plus upfront finance costs.
  • Asset Valuations – vendor invoice and/or independent valuation.
  • AddCash listed as the interested party on asset insurances.
  • Spread repayments over 5 years with option for a final balloon.
  • Must maintain minimum Customer Invoice Finance requirements.

Pricing

  • Establishment fee 3% of Limit – includes documentation, searches and security registrations
  • Weekly charge 0.375% on outstanding finance balance.
  • Minimum term 1 year – break fee $1,500 thereafter prior to 5 years
  • Monthly Account Charge $50 per month.
  • Asset valuations at cost

Customer Invoice Finance

  • Confidential – business continues to deal exclusively with its Customers.
  • Limit set to value of purchased Assets and associated upfront costs.
  • Self–Managed Business Customers:
    • Maximum LVR^ 30% (e.g. for $150k asset finance the business must
      hold a minimum of $500k of approved Self-Managed Customer debts).
    • Minimum of 5 approved Self-Managed Customers with debts owing at any one time.
    • Customers continue to pay into the Borrower’s existing business bank account.
  • Nominated Finance Customers:
    • Maximum LVR^ 80% (e.g. for $150k asset finance the business must
      hold a minimum of $187.5k of approved Nominated Customer debts).
    • Customer payments to Borrower’s bank account newly setup by AddCash and access to full proceeds of Customer payments while 80% LVR criteria being satisfied.
  • Online read only access to Borrower’s accounting software and bank accounts. AddCash will source directly regular updates of Customer invoicing, debtor and creditor ledgers, bank statements and other relevant accounting information.

^ The abbreviation LVR generally stands for “Loan to Value Ratio” and is used above for ease of understanding this finance product. AddCash facility documentation refers to the ratio “Advanced Payment Percentage”.

Peter’s business operates a fleet of Tipper Trucks many of which are regularly working on a national highway upgrade as part of the Federal Governments Infrastructure stimulus spending. He has decided to purchase a new 2020 Iveco Stralis AT500 6×4 Hardox Custom Tipper for $250,000 before Government and other associated charges.

The new Iveco Tipper is ready to use before 30 June 2021 and Peter’s Accountant has confirmed his business is eligible to apply an Accelerated Depreciation rate of 57.5% (rather than 15%) equating to an allowable deduction of $143,750 against his assessable income for the year because:

  • Annual turnover is less than $10 million.
  • Simplified depreciation rules are used by the business.
  • The Tipper is eligible to be added to the General Small Business Asset Pool.
  • Sufficient profit has been made to take advantage of the Accelerated Depreciation rate
    and reduce the income tax payable for the 2020 financial year.

Rather than take cash out of the business Peter has decided to use AddCash to finance the Tipper Truck purchase.  AddCash will finance 100% of the purchase value including any dealer delivery, stamp duty, registration, insurance and any other options, improvements or accessories either factory or dealer fitted totalling $250,000 plus applicable GST of $25,000. The total amount of finance including the establishment fee of $8,250 is $283,250.

He intends to spread repayments over five years with a final balloon to lower the regular ongoing repayments and minimise the impact to his ongoing cashflow.  Peter can also retain the benefit of any GST refund or credit when he lodges his Business Activity Statement for the next quarter.

The benefit of the Accelerated Depreciation deduction will offset the associated finance costs in the first year. The GST refund/credit will further reduce the cash Peter needs to cover his finance costs in the first year. Peter’s business is registered for GST and the lower company tax rate of 27.5% applies.

Tipper Truck Purchase $
2021 Accelerated Depreciation Tax deduction $143,750 @ 27.5% 39,531
GST Refund/Credit 25,000
Finance Costs first 12 months  
Establishment Fee 8,250
Ongoing Charges 53,875
Monthly Account Charges 600
Total Finance Costs 62,725

Customer Invoice Finance component

Annual turnover for Peter’s business is $8 million. There are 15 regular active Customers who on average pay 55 days from invoice date. Amounts owing from Customers range from $10,000 up to $300,000 and the total owing from all Customers is $1,200,000. The business satisfies the AddCash requirements of a minimum of 5 Customers and maximum LVR of 30% (ratio of Asset Finance to Total owing from Customers | $283,250 divided by $1,200,000 = 24%).

Peter has Nominated 2 Customers for Customer Invoice Finance who consistently have a total balance owing that does not fall below $375,000. He continues to deal with them as normal but instructs them to pay directly into his Business’s bank account held with AddCash. This satisfies the minimum Nominated Customer LVR (ratio of Asset Finance to Total owing from Nominated Customers | $283,250 divided by $375,000 = 76%).

Peter has a new Tipper, is taking full advantage of the Small Business Accelerated Depreciation stimulus while responsibly managing his Business cashflow.

Paul has a concrete pumping business. He has decided to purchase a new 2020 Flowcrete Concrete Pump for $600,000 before Government and other associated charges.

The new Concrete Pump will be ready to use this year and Paul’s Accountant has confirmed under the new Accelerated Depreciation method an allowable deduction of $390,000 can be made against his assessable income for the 2020-21 income year. The calculation being half the Pump’s value immediately deducted $300,000 plus 30% of the remaining half $300,000 x 30% another $90,000. All up equivalent to 65% of the Pump’s value can be deducted in the first year. This is because:

  • Annual turnover is less than $500 million
  • The business does not use Simplified Depreciation rules
  • Sufficient profit has been made to take advantage of the Accelerated Depreciation
    and reduce the income tax payable for the 2021 financial year.

Rather than take cash out of the business Paul has decided to use AddCash to finance the Concrete Pump.  AddCash will finance 100% including any dealer delivery, stamp duty, registration, insurance and any other options, improvements or accessories either factory or dealer fitted totalling $600,000 plus applicable GST of $60,000. The total amount of finance including the establishment fee of $19,800 is $679,800.

He intends to spread repayments over five years with a final balloon to lower the regular ongoing repayments and minimise the impact to his ongoing cashflow.  Paul can also retain the benefit of any GST refund or credit when he lodges his Business Activity Statement for the next quarter.

The benefit of the Accelerated Depreciation deduction will offset the associated finance costs in the first year. The GST refund/credit will further reduce the cash Paul needs to cover his finance costs in the first year. Paul’s business is registered for GST and the lower company tax rate of 27.5% applies.

Concrete Pump Purchase $
2021 Accelerated Depreciation Tax deduction $390,000 @ 27.5% 107, 250
GST Refund/Credit 60,000
Finance Costs first 12 months  
Establishment Fee 19,800
Ongoing Charges 129,336
Monthly Account Charges 600
Total Finance Costs 149,736

Customer Invoice Finance component

Annual turnover for Paul’s business is $20 million. There are 20 regular active Customers who on average pay 46 days from invoice date. Amounts owing from Customers range from $17,000 up to $425,000 and the total owing from all Customers is $2,500,000. The business satisfies the AddCash requirements of a minimum of 5 Customers and maximum LVR of 30% (ratio of Asset Finance to Total owing from Customers | $679,800 divided by $2,500,000 = 27%).

Paul has Nominated 7 Customers for Customer Invoice Finance who consistently have a total balance owing that does not fall below $875,000. He continues to deal with them as normal but instructs them to pay directly into his Business’s bank account held with AddCash. This satisfies the minimum Nominated Customer LVR (ratio of Asset Finance to Total owing from Nominated Customers | $679,800 divided by $875,000 = 78%).

Paul has a new Concrete Pump, is taking full advantage of the Medium Size Business Accelerated Depreciation stimulus while responsibly managing his Business cashflow.

Learn about our Instant Asset Write Off Solution

FAQ

The Accelerated Depreciation tax incentive applies to New Assets that have not previously been held by another entity (other than as trading stock).
Yes the Accelerated Depreciation tax incentive for eligible businesses is available for each new eligible asset purchased. AddCash will finance multiple asset purchases provided you satisfy all other criteria.
Subject to other criteria Accelerated Depreciation can be applied to new Assets purchased and ready for use in the 2020-21 financial year.  Importantly eligible assets acquired and ready for use prior to 31 December 2020 up to the $150,000 threshold can be instantly written off.  After this the instant asset write-off threshold reduces to $1,000 however the Accelerated Depreciation incentives will remain through to 30 June 2021.
Government and other associated costs and charges required to install or make the asset ready for use will be funded by AddCash. These include GST, Dealer Deliver, Stamp Duty, Registration, Insurance and any other options, improvements or accessories either factory or dealer fitted.
AddCash will provide sufficient finance to cover any GST included in the asset purchase. On your next BAS you can claim the GST and retain the benefit of any offset or credit. The GST component is included as part of the ongoing finance package repaid over the term up to 5 years.
The Accelerated Depreciation deduction applies to New assets first held, used or installed ready for use from 12 March 2020 through to 30 June 2021.
The ATO rules and associated legislation are complicated and change regularly. AddCash does not know all the circumstances unique to every business. You should seek independent expert advice from your Accountant who can confirm the eligibility of your business and the assets you acquire for the Instant Asset Write Off or Accelerated Rate of Depreciation. AddCash provides no guarantees that you meet the ATO eligibility criteria.
The changes proposed look to expand the availability of tax incentives to larger businesses, over a longer period of time with consideration to making the Instant Asset Write-Off available for new Asset Purchases of $150,000 or more by removing the threshold. The details need to be agreed and pass through Parliament but in essence, huge tax incentives should remain available for businesses purchasing assets.
This allows AddCash to offer features not otherwise available for Asset Finance. These include financing the asset purchase plus associated government charges and costs, allowing you to retain any GST credit and provide finance regardless of your deferred payments.
You can pay out AddCash at any time. If this is within the first 12 months you will be required to pay the balance of finance charges that would have been otherwise payable if you had retained the facility for 12 months. This is the minimum length of time for AddCash to make the product offering economically sustainable.

Interested in this solution?