How will the unchanged Cash Rate affect you?

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Reserve Bank of Australia has today decided to leave the official cash rate unchanged at 2.00%.

The Reserve Bank has continued with its wait and see approach after a week of turmoil on financial markets as a result of the Greek financial crisis.

Even though the cash rate has remained unchanged, there are still daily changes in the finance market as a result of increasingly intense competition amongst lenders. So, it’s still wise for us to talk if we haven’t spoken in a while to ensure you’re still in the right finance solution.

Email Info@wealthpluslending.com.au or call 1300 974 974 to make sure you are taking advantage of daily changes in the increasingly competitive mortgage market.

Why Paying Off Your Credit Cards Is Not Enough

Getting your mortgage application together can require quite a bit of financial scrutiny. In order to figure out your serviceability, your potential lender will look deeply into your finances.

It’s a no brainer to take your credit card debts into consideration when applying for a mortgage. But what many people do not realise is that high credit card limits will not bode well for a home loan application.

If you have a high credit limit, you also have a high debt risk in the eyes of your lender. As the logic goes, there is no stopping you from boosting your credit card limit the day after your loan is approved.

“We have to take account of 3% of the total credit card limit, regardless of what the applicant owes,” says Homeloans Ltd BDM Sally Carmichael.

“If they had a $10,000 limit but they only owe $1000, we still have to assess $300 a month and that comes directly out of their liability. It does make quite a difference.”

Even if you haven’t put a cent on your credit card for the past five years, a high credit limit will negatively affect your serviceability. The best thing you can do is lower your credit limit, or cancel that credit account entirely.

“You need to pay out your credit cards and avoid having any other debt,” says Carmichael. “You need to be able to use your full amount of income.”

For those that have to pay off their credit account before dreaming of cancelling their liability, it is imperative that you pay your debt on time, according to your minimum repayments.

The first step towards finding your new home is speaking to an MFAA accredited finance broker to help to sort out your finances.

End of Financial Year Tip: How Small Businesses Can Minimise Tax Liability

End of financial year is a great time to take advantage of business equipment deals, particularly with the threshold for accelerated deductions for small business being raised from $1000 to $20,000. Planning ahead and thinking carefully about your business needs are key to minimising both tax liability and cash flow impact.

As business owners rush to minimise tax liability and equipment suppliers fight for the dollars those businesses are looking to spend before 30 June, end of financial year generally sees commercial equipment heavily discounted.

This year, with the threshold for immediate tax deductions increased from $1000 to $20,000 for businesses with annual turnover of less than $2 million, small businesses have the opportunity to lower their FY 2014/15 liability substantially.

However, there are several caveats.

“The $20,000 expense limit must allow the item to be usable in the business,” explains Aptus Accounting and Advisory Director James Solomons. “So it must include, for example, any transport or installation costs.”

The actual limit also varies slightly depending on whether a company is registered for GST. “If an entity is GST registered, it will earn GST input credits for the GST component of the expense, so the GST-exclusive amount must be below $20,000. If an entity is not registered, the GST-inclusive cost must be below the $20,000 threshold,” Solomons says.

The company tax cuts that will come into effect from 1 July will also impact the actual benefit accrued from the increase in immediately deductible expenses. With the company tax rate falling from 30 to 28.5 per cent, a $20,000 expense before the end of the 2014/15 financial year could represent a $300 higher benefit than one after 1 July 2015. But profit in the 2014/15 financial year also needs to be considered in the decision of when to purchase.

“Obviously, if you are going to take advantage of the $20,000 accelerated write-off, you only get a marginal rate of tax back as a benefit,” Solomons explains. “So if you rush out to buy, but you didn’t have a $20,000 profit in the year, there is no benefit.”

Finally, as with any purchase, actual need must be considered. While a purchase will help to bring down tax payable, it is only sensible if the item is legitimately required!

“If an existing asset is fine, there is no reason to spend the cash now, particularly as the anticipated end of this benefit is 2017,” says Solomons.

Small businesses with annual turnover of less than $2 million can also minimise tax liabilities by prepaying business expenses that will be incurred within the next 12 months, such as rent on premises or other regular, reliable costs.

Savings can also be made by prepaying for goods or services that will increase in price shortly, as long as the price differences are greater than the interest that would be earned on deposits in the time between prepayment and when payment would otherwise be due.

However, there is very little point to decreasing tax liabilities or making savings by making large purchases or prepaying expenses if doing so will cause cash-flow problems, so planning ahead is key.

“If you have significant profit this year, you might do that, but you then can’t access that working capital so you need to be very careful that it really is surplus,” Solomons says. “And consider whether that capital could be put to better use, for example on advertising. What is the opportunity cost of prepaying?”

Solomons compares this consideration to the decision about whether to pay cash for a company car or to buy it with finance; the interest is an extra cost, but it allows the company to hold onto capital that may be put to a use that provides a higher return than the cost of the interest.

There are several ways to finance the purchase of business equipment, including straightforward commercial or equipment loans, finance leases, hire purchase, and a host of function-specific products, for example, for medical or technology equipment, for agribusiness, or to purchase energy-efficient equipment that will reduce the cost of business operation.

  • Commercial/equipment loan: the lender provides full or part finance for the purchase and holds a mortgage over the equipment. The mortgagee owns the equipment and makes repayments over a fixed term.
  • Finance lease: the lender purchases the equipment and owns it, leasing it to the business. At the end of the lease term, the business can hand back the equipment or purchase it, and may be able to refinance to fund the purchase.
  • Hire purchase: similar to a finance lease, except the business owns the equipment after the final payment.

 

For equipment that is continually superseded by newer models, for example computers, finance leases offer a structure that plans for regular upgrades, but care needs to be taken to ensure that the lease period is not longer than the period in which the technology will be superseded, as it is fixed. This structure also offers businesses the ability to procure the equipment they need without impacting their line of credit, as it is not considered a credit liability.

An MFAA Accredited Finance Broker’s expertise in commercial finance can help you work out the best time and the best way to structure equipment purchases.

 

Tips On Getting Ahead With Your Finances – New Financial Year Goals

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For most households July 1 dawns with barely a cross on the calendar. But just as January 1 prompts many of us to take a pulse check on our health and resolve to do better, the new financial year is the perfect time to take stock of our fiscal fitness.

Build a budget

It’s easy to lurch from payday to payday and bill to bill in the hope there’s more money coming in than going out. The best way to manage your money and ensure you are not living beyond your means is to set a budget and stick to it.

Building a true budget requires honesty with yourself about how much you actually spend. Consider all of your costs for an entire month – groceries, bills, loan repayments, clothing, coffees, school fees, entertainment and everything in between – and stack them against what you earn. If you find there is little left over or worse, nothing at all, it’s time to cut costs.

Consider expenses you can control versus those you can’t. Loan repayments, school fees, rent or council rates are fixed. But take-aways, movies or a new pair of heels are all at your discretion – and where you can cut back.

Axing one takeaway coffee from your work day can net you nearly $900 a year, while making your own lunch can save more than $1,800. Pare back on impulse purchases and eating out and your annual savings could soar.

Set some goals

Nothing spurs savings like something to look forward to, such as a holiday or even a deposit on a home. Build your savings goal into your budget and set funds aside as soon as you get paid. Better still, have funds debited from your pay into an account you can’t access easily, such as an online savings account.

Pay down debt

The new financial year is the perfect time to assess debt and make a plan to reduce it, starting with those debts with the highest interest. Consumers often make the mistake of paying extra off their home loan while carrying high-interest debt (up to 20 per cent per annum) on their credit card. You will be far better off financially if you clear the high-interest debt first. A $5,000 credit card debt at 17.5 per cent, for example, attracts $850 in interest a year, while the same amount on a 4 per cent per annum home loan costs just $200 in interest. Credit card providers must now outline to customers how long it will take to pay off their debt if they pay just the monthly minimum. Check out the numbers on your next statement and take steps to pay as much off as you can.

Organise your deductibles

Start the new tax year by knowing what you can deduct and sorting your receipts. Australian income-earners are entitled to minimise their tax so find out what you are allowed to deduct in your line of work and keep a record of all relevant receipts, even if it’s just in an envelope or folder. If unsure of what you can claim, visit ato.gov.au or talk to your accountant.

Get savvy with your super

If you are at a point in life where you have extra disposable income, it may be worth socking more into your super. Talk to your tax advisor or accountant about your individual circumstances and how much extra you’re allowed to contribute. Superannuation is reported after the end of each financial year so keep an eye out for your next statement in coming months to see how your retirement fund is faring.

Make sure you are covered

Insurance may be considered a grudge purchase but it could be the difference between financial ruin and getting back on your feet if the worst happens. Check your home and contents policy to ensure you have enough cover to rebuild and replace your possessions in the event of a total loss. Many home owners make the mistake of just taking out enough building cover to repay their mortgage, but the sum insured should cover the cost of rebuilding your home at today’s prices, including any landscaping and fences. Similarly, contents insurance should be sufficient to cover all of your belongings if you have to buy them again as new. If you have an investment property, make sure you have a specific landlords’ policy to cover claims for loss of rent or tenant damage (see our article about managing unruly renters in this edition of Haven), which are not covered on standard home policies.

Mortgage matters

The new financial year is an ideal time to review your mortgage, regardless of how long you have been with your lender. It never hurts to look around at other institutions and their loans to ensure your mortgage is still structured to suit your circumstances. Even 0.5 per cent shaved from a $250,000 loan will save more than $23,000 over 25 years.

Talk to your mortgage broker about your financial goals and circumstances for this financial year so they have enough information to help you determine the right loan for your situation.

* Tax information: the information in this article does not constitute advice. As taxation legislation is complex, we recommend you speak with your financial advisor, tax advisor or contact the ATO for further details and expert advice regarding your personal circumstances.