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The advice advantage

Recently a bank asked me to explain what the Federal Government was doing for small business in these recession-threatening times. After putting the dribs and drabs offerings together, it drove home a powerful lesson for everyone about the value of advice.

More than meets the eye

This penny-dropping revelation comes at a great time when many financial advisers are copping a bit of a tirade from clients for missing this financial market meltdown. And they are also copping it for underestimating how bad it could have got.

However, financial advisers do more than just pick investment products. More on that later.
The investment allowance

A number of things have been done for small business, but the biggest and most significant has been their bumping up of the investment allowance. Now, stay with me on this one. I know the words “investment allowance” don’t seem really exciting, but there’s value in reading on even if you don’t own a business.

Initially there was a 10 per cent temporary investment allowance tax deduction that was announced in December 2008, but this was increased from 10 to 30 per cent on assets ordered by 30 June 2009.

The point of the short deadline is that the Government wants businesses to spend in the first half of this year. However it has to be on eligible assets that are acquired, or construction commenced after 13 December 2008 and before I July 2009 and installed by 30 June 2010.

This applies to small business of less than $2 million turnover but businesses with more than $2 million turnover are also eligible for the 30% rate of investment allowance.

The allowance deduction applies to tangible assets worth at least $1,000 for businesses with turnovers up to $2 million. For other businesses the threshold remains at over $10,000 per asset.

How it works

To anyone who owns a business, this could carry a bit of interest but the excitement factor is ramped up when you look at an example of how good this offering is. Stick with me.

The tax office press release looked at a landscaping business entered into a binding contract to acquire a new backhoe — a piece of equipment — on 20 May 2009 at an all inclusive cost of $60,000. The backhoe is delivered and ready for use on 20 June 2009 and has an effective life of nine years.

Now here is the good bit. The business will be entitled to claim the 30 per cent deduction, which is $18,000 and it will have the usual depreciation in respect of the asset.

On the other hand, if the business had delayed this investment until after 30 June 2009 and had it installed ready for use before the end of December 2010, only the 10 per cent rate would apply. The investment allowance deduction of $18,000 shrinks to $6,000!

Did you miss it?

You would have to hope that great accountants would contact their business clients with this inside information, which was available for all business owners to know, but I bet a lot of busy business owners could have missed this offering.

After talking with a camera operator who makes films, he said he would bring forward the purchase of a new camera he was thinking of buying to this year to take advantage of the allowance.

Those in the know

Of course the bigger the investment item, the bigger the pay off and also the bigger the potential loss of missing out simply because a business owner doesn’t read business news and doesn’t have an adviser who thinks about their clients’ business. This is why I argue strongly for businesses and wealth builders to have advisers who can wade through the boring stuff — Tax Acts, superannuation rules, home loan repayment calculators, investment product statements — that can bring exciting results.

Money advice

For example, financial advisers can do the figuring on whether you should pay off your home more quickly or whether it would be better to ramp up your salary sacrifice payments to your super fund. They have computer programs that can work out what’s the best option, which can vary according to age, the kind of super fund option you choose and a whole host of other issues.

Tax planning

They can also look at the most tax-effective option for a client. For example, a 40-year old who is putting together a share portfolio for his eventual retirement needs to think about whether this should be done inside or outside of a DIY super fund.

If the intention is not to touch it until retirement, then to save on tax, the super option makes big appeal. If the investor wants some access, then half could be in a super fund and half out. An adviser considering a client’s goals can come up with a plan based on his or her insider knowledge.

The same argument applies for good accountants, especially when it comes to tax planning.
A shoulder to stand on
Sir Isaac Newton once said: “If I have seen further, it is by standing on the shoulders of giants.”
Do you have giants showing you important stuff?

Published on: Friday, April 03, 2009

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