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Financial Services
Schwarz & Reynolds Chartered Accountants are able to arrange and negotiate your business and
commercial finance solutions.
We actively assist in preparation of proposals for financial
institutions, enhancing outcomes, perception of risk and ultimately risk
premium charged.
We have established relationships with a network of debt and equity
providers with the time, expertise and resources to negotiate the most
favourable capital structures for your commercial or business finance
situation as quickly as possible. Debt finance based on low interest
rates, tax effective structures with minimal conditions and a high level
of service. Business finance for expansion, investment funding,
leasing, purchase or refinance of commercial properties, retail shops,
industrial land, factories and offices or cash flow lending.
Using a finance broker
Instead of you trailing from lender to lender, interviewing with
various equity providers, making endless phone calls or trawling the
internet, a finance broker can do it all for you. If you chose the
go-it-alone route, you might be lucky to compare three or four different
products or funding providers. Brokers can compare hundreds!
A good broker will also help you to understand the various deals that
are on offer, explaining all the features and details that might make a
big difference to your repayments, funding terms, and security
requirements. And what's more, your broker will lodge your application
(in many cases electronically, saving time) and chase it through with
the lender – so you don't have to! Your broker is the single point of
contact for you throughout the process.
While using a finance broker can result in substantial savings in
time and money for borrowers, choosing the right finance broker is the
key.
Checklist for choosing a finance broker
Our checklist can help you make this important decision. Your broker
should be:
- A full-time mortgage specialist .
- A member of the Mortgage Industry Association of Australia
(MIAA) .
- Part of a reputable company network with Head Office support
and professional training .
- Free of charge .
- Happy to disclose fees and commissions .
- Covered by professional indemnity insurance .
- Have access to a broad panel of financial institutions
(20+).
- Have specialist software to compare home loan products,
qualify borrowing power, and electronically submit loan applications to
lenders .
- Have a detailed customer charter setting out how they work.
Commercial loans
We are able to facilitate commercial finance solutions tailored to
your needs from a choice of Australia 's top commercial lenders.
We can provide finance for most commercial property transactions from
the simple to the complex.
Accredited Commercial Specialists can assist with commercial lending
advice on:
- equipment and motor vehicle finance
- business loans
- debtor finance
- commercial property finance
- property development.
We act as your commercial finance specialist to help you structure
the deal correctly, advise you each step of the way, and help you obtain
market competitive rates from a choice of top commercial lenders.
Whether you're looking for a business loan, finance for a commercial
property, or a equipment or motor vehicle lease, we can help
Financing and Leasing
Leasing Versus Buying
(Equipment, Vehicles, Plant, Computers)
Leasing is really just another form of borrowing to finance
something. But unlike loan finance - where you take ownership of the
equipment/asset and offer it or something else as security to the
financier as security, lease finance sees the financier take ownership
and gives you the use of the goods under contract for a specified
period. There are two main issues affecting the cost of your new asset
and the returns it generates. The first is the interest rate and
repayment structure you choose, the second is the tax implications
involved.
Your first objective is to structure competitive financing freeing up
your working capital and generally you would do this in conjunction
with the advice of your accountant or relevant advisor. You don't want
to have cash locked up in depreciating assets as it reduces your sources
of flexible capital you can call on at any time. There are different
methods of financing or leasing dependent upon your business need. Here
are some considerations:
The effect on your cash flow
When you're looking to finance new equipment, your first
consideration should be how it will impact your business. The best way
to assess this is with the help of your accountant, to prepare a cash
flow report so you can easily see how the new financing will affect your
bottom line. Some points worth keeping in mind when setting up a cash
flow statement:
Matching repayments with the useful life of the asset
Knowing how and when your equipment will generate income will help
you determine the best way of paying for it. Remember, in many cases a
new asset may not produce cash flow immediately or regularly.
Before organising finance, you should also consider the expected
productive life of an asset. That way you can upgrade or add to your
asset so you won't finish paying for a piece of equipment long after its
useful days are over. Alternatively, you don't want to be paying for an
asset too quickly and putting unnecessary strain on your cash flow.
Taxation Notes
If your investment in new plant and equipment produces assessable
income, there are two main tax considerations that could influence your
finance choice: the tax deductibility of loan interest or rental
payments and the depreciation of the equipment itself.
Deductibility
If you use a hire purchase or equipment loan arrangement to acquire a
new asset, the loan charges and interest component of your repayments
may be tax deductible. Typically within the repayments, the interest
component is usually higher than the principal during the early part of
the agreement. This can lead to higher deductions in this period. With a
finance lease however, the entire amount of your rental payments may be
treated as a tax-deductible expense.
That is why you should check that if you don't require high
deductions in the early life of the goods you acquire, it may be prudent
to lease the goods as the payments are equal over the life of the
lease.
Depreciation
Most assets depreciate in value over time. This could offer tax
advantages because the annual depreciation could be an allowable tax
deduction.
If you finance an asset with an equipment loan, you legally own the
asset and lenders take a mortgage over the asset as security. With a
hire purchase, you own the asset after you have made all the repayments.
In both cases however, you can claim depreciation and interest as a tax
deduction.
On the other hand, if you lease an asset via a finance lease you
cannot claim depreciation, as the financier is the legal owner of the
asset. But, the rental payments may be tax deductible.
You should always seek advice from your accountant on the
depreciation and taxation rules and how they apply to your particular
business and equipment. For more specific information on different
types of leasing & financing:
1.
Hire Purchase Agreement
2.
Novated Lease
3.
Finance Lease
4.
Operating Lease
5.
Chattel Mortgage
Hire Purchase
Agreement
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Purpose
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A Hire Purchase arrangement is an agreement to purchase a vehicle
subject to payment terms to the finance company. You will automatically
own the goods when you pay the final payment, different to a lease.
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How it works
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Term: The term of finance agreement can be from 1 - 5 years.
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Deposits: Deposits are not required. You might choose to trade in
an existing vehicle in order to put in a deposit to reduce the amount
to be financed.
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Residual/Balloon: You can choose to have a balloon payment as the
last payment of your finance agreement. This balloon payment is usually
between 10% - 40% of the cost price, but may be as low as one dollar,
dependent upon the equipment. This decision is usually influenced by the
level of monthly payments you are comfortable with.
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Owner of the goods: The financier retains legal title (ie: owns
the goods) during the term of the agreement. You automatically secure
ownership upon payment of the final instalment.
Accounting Benefits: For income tax and GST purposes, a hire
purchase agreement is treated very differently to a finance or operating
lease. Under GST, a hire purchase agreement is treated as a "taxable
supply" on the commencement of the arrangement between the hirer and the
financier.
With a hire purchase arrangement, there is deemed to be a sale of the
equipment from the financier to the hirer, the GST liability arises at
the commencement of the arrangement. Even though the total amount
payable under the agreement will be paid by periodic installments and
ownership of the equipment will not pass to the hirer until the final
repayment. The financier, being the supplier, is responsible for the
payment of the GST liability.
Therefore the amount financed is inclusive of GST, and your monthly
repayments are not subject to GST unless you are on a cash basis for
GST. (Seek advice from your accountant). You can claim the interest
component of all repayments. The depreciation of the goods is fully tax
deductible providing goods are used 100% for business purposes.
The goods you purchase become an asset that shows on your balance sheet
for your business. The goods will also be a contingent liability until
the end of the finance agreement. You may be liable to pay fringe
benefits tax and should refer to the ATO at: www.ato.gov.au/businesses
for further information)
You should always seek advice from your accountant on the rules and how
they apply to your particular business and equipment.
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Novated Lease
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Purpose |
A novated lease is used for
employees who have the option of receiving a car as part of their salary
package. The employer pays all rental payments to the financier on the
employee's behalf and the employee enjoys full use of the motor vehicle. |
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How it works
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Term: The term of finance agreement can be from 1 - 5 years and
must be in accordance to Australian Taxation Office Guidelines (ATO).
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Novation: The employee then novates the lease to their employer,
who assumes all the employee's rights and obligations under the lease,
including responsibility of meeting the lease payments, normally
deducted as part of the employee's salary package.
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Deposits: Deposits are not required. The full purchase price must
be financed.
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Owner of the vehicle: The contract is in the name of the employee
who remains the registered owner throughout the lease and keeps
effective control of the vehicle at all times. If the employee leaves
the company, the vehicle remains with the employee. In this situation,
generally the employee takes over the payments or gets another employer
to make the payments. This means, the original employer is not left with
an unwanted car and the employee keeps the vehicle.
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Residual/Balloon: You must have a residual payment as the last
payment of your finance agreement according to ATO Guidelines. This
usually varies between 37% to 75% of the cost price of the vehicle).
This amount usually represents the approximate value of the goods at the
end of the lease. A residual payment allows for lower monthly payments
and leaves you with more working capital to run your business. You may
refinance this residual value at the end of the contract (depending on
the finance company). The following range of residual values may be a
useful guide for Finance Lease transactions, which fall within the
guidelines issued by the ATO:
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Terms
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Residual Value
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1 Years
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65.50% - 75.0%
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2 Years
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56.25% - 65.00%
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3 Years
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47.00% - 55.00%
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4 Years
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37.50% - 45.00%
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Accounting benefits: The monthly rental payments are 100% tax
deductible, providing the goods are solely used for business purposes.
The amount financed is exclusive of GST (the finance company covers this
cost as they are purchasing the goods for the employee). The monthly
rental payments are subject to GST and stamp duty. The residual value
and early termination are also subject to GST. Employers can attract
employees by offering a vehicle as part of a remuneration package,
without having it appear on their balance sheet. However you may be
liable to pay fringe benefits tax (Please refer to the ATO at: www.ato.gov.au/businesses
for further information).
You should always seek advice from your accountant on the rules and how
they apply to your particular business and equipment
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Finance lease
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Purpose |
Available for companies and
business professionals to allow them to use business goods such as motor
vehicles, trucks, industrial plant, professional or earthmoving
equipment. So rather than tying up funds in depreciating assets, you can
put your money into what you do best.
A finance Lease is a rental agreement, where the finance company
purchases the goods for you and you rent it from them for an agreed
monthly repayment. The finance company owns the goods at the end of the
agreement. It is important to note that there is no option for you to
purchase the goods either during or at the end of the agreement. However
most finance companies will consider an offer from you to purchase the
goods for the residual value at the end of the lease term. |
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How it works
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Term: The term of the finance agreement can be from 1 - 5 years
and must be in accordance with ATO Guidelines.
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Deposits: Deposits are not required. The full purchase price must
be financed.
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Residual/Balloon: You must have a residual payment as the last
payment of your finance agreement according to Australian Taxation (ATO)
Guidelines. This varies between 25% to 65%. This amount usually
represents the approximate value of the goods at the end of the lease. A
residual payment allows for lower monthly payments and leaves you with
more working capital to run your business. You may refinance this
residual value at the end of the contract (depending on the finance
company).
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Lease agreement: sets out the:
- residual value of the goods
- term of the lease in months
- monthly rental
- depreciation rate
Owner of the goods: The finance company retains legal title
during and after the term of the agreement. However, in most cases, the
finance company will usually consider your offer to purchase the goods
at the agreed residual value at the end of the lease term. Title of the
goods will then be transferred to you as the new owner.
While not usually pursued, legally, the goods should be returned to the
finance company at the end of the term. The finance company would then
auction the goods and you must pay for any shortfall between the sale
price and the agreed residual value.
Accounting Benefits: The monthly rental payments are 100% tax
deductible, provided the goods are solely used for business purposes.
The amount financed is exclusive of GST (the finance company covers this
cost as they are purchasing the goods for you). The monthly rental
payments are subject to GST and stamp duty. The residual value and early
termination are also subject to GST. The goods need to be shown on the
balance sheet as both an asset and liability. However you may be liable
to pay fringe benefits tax for any private use of the financed goods.
(Please refer to the ATO at: www.ato.gov.au/businesses
for further information).
You should always seek advice from your accountant on the rules and how
they apply to your particular business and equipment.
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Operating
lease
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Purpose |
An Operating Lease, Equipment
Rental or Rental Agreement is a versatile option for financing high
depreciation, short life span new technologies such as computers,
telephony and all other office equipment which generally have a short
lifespan due to high obsolescence. The finance company purchases the
equipment and rents it to you for an agreed payment schedule over a
fixed term. Whilst similar to a Finance Lease, an Operating Lease has
greater flexibility.
It provides the ability to upgrade to new technology through a simple
variation of your existing contract (certain criteria applies). This
variation can be implemented during the initial term of the agreement.
You can add in pieces of equipment and if required replace or upgrade
equipment. You can choose to have maintenance software installation and
other intangible items included in the agreement. |
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How it works
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Term: The term of finance agreement can be from 1 - 5 years and
must be in accordance to ATO Guidelines.
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Deposits: Deposits are not required. The full purchase price must
be financed.
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Residual/Balloon: You must have a residual payment as the last
payment of your finance agreement according to ATO Guidelines. This
residual value is determined by the finance company and the finance
company is responsible for paying it. Be aware that the residual values
are generally not disclosed to you.
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Owner of the goods: You have possession and use of the equipment,
however, the finance company shoulders most of the risk of ownership.
Expiry of Rental Period: At the end of the Rental Period, you
have a number of options:
- Return the goods to the finance company, without any
responsibility for loss incurred by the finance company for the resale.
- Return the goods to the finance company and enter into
another agreement on new upgraded equipment.
- Purchase the equipment at a fair market value (usually very
low due to the high depreciation of the equipment).
- Re-rent the goods at a lower rate for a further term
Accounting Benefits: Rental payments are 100% tax deductible
because they are treated purely as an operating expense - the equipment
must be used solely for business purposes. Rentals do not appear on the
balance sheet, therefore there is no contingent liability. Rental
payments are subject to GST, with the amount financed being exclusive of
GST. However you may be liable to pay fringe benefits tax (Please refer
to the ATO at: www.ato.gov.au/businesses
for further information).
You should always seek advice from your accountant on the rules and how
they apply to your particular business and equipment.
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Chattel
Mortgage
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Purpose |
As an alternative to leasing or
hire purchase, a Chattel Mortgage or Bill of Sales arrangement is a
fixed interest rate loan with security provided by a mortgage over the
relevant equipment / vehicle etc. This solution is particularly
favourable for those businesses that wish to retain the equipment at the
end of the term and account for GST on a cash basis. A Chattel
Mortgage, unlike a lease or Hire Purchase Agreement, gives you immediate
ownership of the asset from the beginning of the loan. Apart from
mortgage stamp duty, the contract or repayments do not attract GST or
stamp duty. |
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How it works
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Term: The term of finance agreement can be from 1 - 5 years.
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Deposits: Deposits are optional. You may, however, choose to
trade in an old vehicle or put in a deposit to reduce the amount to be
financed, thereby reducing your monthly payments.
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Residual/Balloon: You can choose to have a balloon payment as the
last payment of your finance agreement, but it also can be the first
month's payment. This balloon payment is between 10% - 40% of the cost
price. A balloon payment allows for lower monthly payments and leaves
you with more working capital to run your business.
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Owner of the goods: Ownership remains with you throughout the
term of the loan. Similarly to a consumer loan however, the vehicle is
mortgaged to the finance company. The mortgage is discharged after the
final payment has been made and you retain the equipment.
Accounting Benefits: You can elect to pay the GST portion of the
invoice price from working capital or fund it as part of the loan amount
(the loan can be structured so that when the income tax credit is
received, from your next BAS lodgment, it is repaid off the loan to
reduce the debt). The interest components of all repayments are fully
tax deductible provided goods are used 100%for business purposes. The
depreciation on the goods is fully tax deductible.
A Chattel Mortgage attracts added upfront fees and varies between the
different finance companies. However you may be liable to pay fringe
benefits tax (Please refer to the ATO at: www.ato.gov.au/businesses
for further information).
You should always seek advice from your accountant on the rules and how
they apply to your particular business and equipment.
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