stratton Newsletter #4 2004
Welcome to the fourth edition of the stratton Newsletter for 2004!
In this edition we provide you with an easy to follow finance guide, to help you select the best type of finance for your situation and needs. There is also some useful information about claiming the GST back on a vehicle purchase, and an important article regarding identity theft in Australia.
Please read on, or use the navigation bar on the left to navigate to a specific section.
WHICH FINANCE PRODUCT IS RIGHT FOR YOU?
Employed individual with business use
If your vehicle is going to be used primarily for business purposes, you will qualify for a Hire Purchase contract.
Employed individual without business use
As a consumer you have fairly limited options - a personal loan or a secured consumer loan would suit your needs.
stratton offers loans with or without balloon payments/residuals from a number of high quality lenders.
Depending on your circumstances, terms are available from 36 months (3 years) to 60 months (5 years), and residuals of up to 50% of the vehicle’s price.
By utilizing a residual value you can reduce your payments considerably and improve your cash flow.
Residual values are generally only available to borrowers with a finance history or asset backing, for example someone who is buying their own home.
Employed individual with salary packaging option
If your employer allows salary packaging, a Novated Lease could be a great option.
A Novated Lease is a 3-way agreement between you, your employer and the finance company. Payments are generally made out of your pre-tax income and exclude GST, which can provide you with some great savings.
This type of agreement will attract some Fringe Benefits Tax (FBT), which most employers pass on to the employee. However, the employee usually comes out well in front.
Sole trader, company or partnership on "cash accounting"
If you are registered for GST, you can take advantage of your GST status a number of ways.
You can either use a Chattel Mortgage, which allows you to claim back the GST, or a Finance Lease, which will reduce your loan amount by the amount of GST payable on the vehicle.
Sole trader, company or partnership on "accrual accounting"
If you are using "accrual accounting", you have the option to use a Hire Purchase, which will allow you to claim the GST portion of the vehicle price back as input credits.
How do I find out if I am on cash or accrual accounting?
To find out if you are on cash or accrual accounting, look at the top right-hand corner of your BAS statement - it will either say “Cash” or “Non Cash Accruals”.
If you are on a “Cash“ basis, you cannot claim the GST back on the vehicle purchase price until you make the payments. However, there are some solutions available.
A Chattel Mortgage will allow you to claim back the GST. Alternatively, a Lease will also allow you to benefit from your GST status, as you can reduce the amount financed by the GST portion of the vehicle purchase price.
HOW MUCH GST CAN YOU CLAIM BACK?
The maximum input credit you can claim on a vehicle purchase is $5,182.64 - 1/11th of the luxury car limit ($57,009).
Even if you buy a $300,000 car, you can still only claim $5,182.64 as input credits. However, if you sell that car for $250,000, you will still have to remit 1/11th of the sale price in GST - this is designed to trap luxury car buyers.
By simply structuring the purchase of a luxury car in your personal name, you not only avoid Fringe Benefits Tax (FBT), but also the GST on the subsequent sale of the vehicle. This will often far outweigh the benefit of the $5,182.64 input credit.
You will still be able to claim deductions for the vehicle against your personal income, proportionate to your level of business use.
PROTECTING YOUR IDENTITY
In recent years, identity theft has become the most common type of fraud in Australia. Be aware of the things you throw out, such as drivers licence information, bank account details, and so on.
A few pieces of vital information can allow someone to take out credit in your name, and the first you will know about it is when a finance company contacts you regarding a car you don't even have. It can take months to unravel the mess created, and in the mean time you will have a black mark on your credit history.
Always destroy personal information before putting it in the rubbish, and if you lose your wallet it is worth registering with Baycorp Advantage (for a small fee) to be notified of any unauthorized credit checks by e-mail.
The information in your wallet - a drivers licence and a business card for example - can be enough to replicate your identity.
Food for thought...
Stratton Finance Pty Ltd
Disclaimer: Always refer to your accountant; the advice we give can only be general advice, as we are not aware of your circumstances. While we make every attempt to give you the best possible product information, Stratton Finance Pty Ltd, its agents, employees and accredited lenders will accept no responsibility for any loss that may arise.