Read our latest articles:
- Take your business to the cloud
- Conquer tax time, every time
- Succeeding in the age of disruption
- Getting your business culture right
- Economic Update
- Top tips to max your tax return
- Get ahead with these business-boosting apps
- 8 business trends to watch out for in 2017
- Politics are changing the financial landscape
- Give your business plan a workout
- Buff up your social strategy
- Businesses that power through Christmas
- Economic update
- Give your networking skills a lift
- Fit in a recovery holiday
- The workplace workout
- Dive easier with AirBuddy
- Increased confidence leads to increased spending
- Federal Election and economic update
- Moving to a cashless society
- May we live in interesting times
- Lease or loan? A car buyer’s dilemma
Here’s how you could get ahead in the run up to tax time, and turn the final financial quarter into a revenue growth opportunity.
1. Consult your accountant
It’s easy for small and medium-sized businesses to focus on the day to day, at the expense of broader strategies. Your accountant or financial adviser can offer you growth and cash-flow strategies to help with the bigger picture – just ask them.
2. Take advantage of a $20,000 asset write off
Businesses with annual revenue of up to $2 million can benefit from a generous government write-off scheme for plant and equipment purchases. The accelerated depreciation measure applies to all asset purchases up to the value of $20,000. It could reduce the amount of tax you pay on acquisitions from May 2015 to June 30, 2017, after which the limit reverts to $1000.
3. Maximise any other deductions
Aside from the write-off scheme, businesses should take advantage of all legitimate deductions. Did you know you can bring forward expenses such as office supplies, repairs and maintenance into the current year, and prepay monthly costs such as rent, electricity, wages and utilities before 30 June?
4. Write off bad debts
Ensure you prepare minutes documenting any bad debts and all efforts you have made to recover them, otherwise they cannot be claimed as deductions. This action also enables adjustments for any GST charged on the bad debt invoices.
5. Comply with your superannuation requirements
Super is not tax deductible until it has been paid, so it is important to ensure all super contributions for employees are completed by the end of the financial year.
You can also make concessional contributions into their super fund to take advantage of tax benefits (contributions are taxed at just 15%). The limit is for this year is $30,000, or $35,000 for those aged 50 and over. From 1st July 2017 this will reduce to $25,000.
6. Understand how to manage cash flow
Review your cash-management processes and adopt the most appropriate funding solutions.
A common error is injecting too much cash into superannuation to take advantage of tax breaks, while not considering the potential impact on the business’s cash reserves. This can lead to an income pinch on 1st July.
7. Check your trust obligations
The use of trust structures has come under scrutiny from the ATO, so it is important to understand your obligations. The trustee must sign off on the distribution of income to beneficiaries before 30th June or you may be taxed at a penalty rate. Normally this is done by way of a meeting minute that may specify distribution on a percentage basis without dollar amounts.
8. Consider any capital gains tax benefits
If your business has made a capital gain in the current financial year, it makes sense to assess the presence of any other capital losses that may offset those gains. For example, you could include selling assets that have incurred a capital loss.
Acting on all of the above now, and doing as much as you can to maximise your returns, could really benefit your business as you head into the new financial year.
Every day a new app pops up to help make our lives easier or faster or better connected. Here are some great free apps that we think might help your business run more smoothly, wherever you are and whatever you’re doing.
Available for free, Yammer is a versatile tool that makes it simple for project team members to stay connected. It lets you set up project groups like Facebook pages – allowing members to share information, collaborate in real time from anywhere, and even invite partners and clients to participate.
OneNote is for collaboration in the office or on the road. It lets you create online notebooks that can be shared and synchronised across devices and users and is fully integrated with the entire Microsoft Office suite. Combine it with Outlook to create a powerful organisational tool.
Dragon NaturallySpeaking can automatically transcribe your meetings, interviews or phone calls for later reference. It also allows you to dictate letters, blog posts, social media updates and more. Incredibly, its speech recognition is 99% accurate and three times faster than typing.
Wunderlist is a comprehensive organisation and task-management tool. You can create, categorise, share tasks, add reminders and organise activities to suit your workflow. It’s available on all major mobile platforms and there are browser plug-ins for Chrome, Firefox and Safari.
MailChimp helps users design and send their email newsletters. It can scale with your business and provide the granular controls you’ll need as your email list grows and your marketing campaigns become more sophisticated.
Some apps are truly universal, and the three below will keep you mentally sharp and ready to work. You’ll find them in any app store:
- Kindle: Amazon’s Kindle reader app is available for most modern platforms and operating systems. If you don’t want to buy anything from the world’s largest bookstore, there are plenty of free books available, from literary classics to self-published novels, essays and monographs.
- TED: TED talks are a forum for the world’s leading thinkers to share their ideas. The app puts a library of over 1,700 talks at your fingertips, covering leadership, politics, musical performances, scientific research, economics, business and more.
- Super Stickman Golf 3: No time to hit the golf course? Download this award winning app because we all need a little stress relief from time to time.
Being aware of what’s happening in the world of small business, and taking advantage of these trends, could put you on the front foot in 2017.
1. Digital engagement is a must-have
A Deloitte Access Economics report shows that Australian small and medium businesses with ‘advanced’ levels of digital engagement are 1.5 times more likely to grow their revenue than those with ‘basic’ levels of engagement. To get ahead, now’s the time to digitally upskill your business.
2. Software enables flexible workforces
In flexible workplaces, full-time employees work side by side, or virtually, with freelancers. Smart businesses are using cheaper, cloud-based software, better remote work tools and affordable enterprise-level platforms to reduce fixed costs while benefiting from the specialist skills of freelance talent.
3. Millennials are starting to get a fair go
Millennials are becoming more important as companies appreciate the need for employees who can respond to digital disruption and help implement IT changes. The oldest Millennials are now about 35 and are set to take on more senior roles. Progressive companies understand this and are seeking to harness their skills and tap into their insights on the consumption habits of their peers.
4. Software and services spending to boom
Market researcher Gartner predicts that companies worldwide will spend US$3.5 trillion on IT in 2017, with spending on software and services with cloud computing to be the big-ticket area.
5. Social media is on the up and up
Social media is thriving in the business sector on the back of its ability to connect with consumers via mobile devices. Expect real-time engagement to be in vogue in 2017 as client-support programs empower social media teams to answer questions and resolve issues quickly. LinkedIn will remain popular, but some analysts believe Instagram may become the next most-important social platform for businesses.
6. Influencer marketing is becoming mainstream
Influencer marketing is becoming an alternative to traditional advertising. But what is it?
In the world of social media, some ‘personalities’ on YouTube, Instagram and other platforms have huge followings and can sway consumer behaviour with their recommendations. As word of mouth generates more than twice the sales of paid advertising, influencer marketing is becoming a key advertising strategy.
7. Content marketing drives brand impact
Big brands are becoming far more sophisticated with content marketing. By delivering outstanding content, they position their companies as thought leaders. It’s harder for smaller businesses to compete. To give your business a content marketing advantage, link your content to social themes and values, post regularly on targeted blogs, and create opportunities for community participation.
8. Healthcare, business services and education to create opportunities
Businesses should always be aware of growth sectors as they connect with consumers and respond to recruitment shifts. Three sectors currently stand out for jobs growth: healthcare, education and training.
A boom in online education and training is also set to create employment opportunities and allow employers to fast-track the skills of a new generation of workers.
Being aware of these trends early on could set you up to take advantage of them. Think about which ones align with your business and how you could make them work for you.
It has been an eventful start to the year for the global economy. Change and uncertainty are keeping investors on their toes and making life interesting for all of us.
Populist movements are driving uncertainty
Politics is now playing a bigger role in influencing global financial markets. Policies around the world are heading in the direction of becoming less open to free trade and immigration. The UK ‘Brexit’ vote to leave the EU is one example of this shift. The election of Donald Trump as US President also epitomises this new world view. And that’s not all. This year in Europe, elections in Germany, France and the Netherlands could see the rise of more inward-looking and protectionist policies. These will likely create a significant amount of uncertainty in the year ahead.
Fluctuations are the new normal
The initial reaction of financial markets to Trump’s election victory was one of optimism. Share markets rallied, bonds sold off and the US dollar surged on hopes that Trump will deliver significant fiscal stimulus and boost US economic growth. More recently, these moves have faltered as concerns over Trump’s protectionist policies have come into focus. Trade restrictions could be detrimental to US and global growth, particularly over the long term. However, US share markets are still close to record highs, and global bond yields are still higher than they were prior to the US election.
Good news – for now
In Australia, share markets have also rallied. The environment of higher global bond yields has meant that Australian swap yields have risen. There is a risk that swap yields will continue to head higher, particularly if the US Federal Reserve continues to lift short-term interest rates.
What’s to come?
We expect that US rates could be lifted twice in 2017. Moreover, if Trump’s plans for fiscal stimulus provide a stronger boost to the economy than expected, the Federal Reserve may need to hike rates by as much as three times this year. This would in turn drive US bond and swap yields higher.
Time to hedge our bets?
This might suggest that it is an appropriate time for businesses/individuals to think about locking in rates. Given there is significant uncertainty in the world, particularly with regards to the political environment, there is always a risk that things may not turn out as expected.
To help you develop a plan for a successful business year, we’ve listed out three useful questions for you to ask yourself.
Question 1: What does my business want to achieve?
It’s a simple and obvious question and it is crucial that whatever activities develop out of it align with your mission statement.
A risk that many businesses run is that they can get distracted from their mission and fail to achieve what they set out to do.
Question 2: How is my business going to achieve it?
While there are always a multitude of activities that will have a really good impact on your mission, the challenge is that there are rarely enough resources to execute those activities.
This is where it pays to be absolutely ruthless. To determine which activities you will do, rank them by their ‘impact to mission’ against their ‘return on investment’.
Question 3: How will I measure success?
By how it positively impacts your business mission, or by how it supports ongoing operations.
Useful performance measures will do one of the following things: track how close you are to achieving your goals or identify options to address problem areas. Use these criteria to define your own performance measures, then rate your progress against them at the end of your planned period.
The end of the year is a great time to pause and reflect on how successful the year really was. It is also a great opportunity to plan for future success. By defining a clear plan with measurable goals, you are setting your business up with a roadmap to help navigate the twists and turns that the coming year will bring.
Yearning for the ‘good old days’ of simple advertising decisions? The days before the enormous fragmentation of media? You’re not alone - most business owners are. In fact, one of the greatest challenges businesses face today, compared with 5 years ago, is how they use digital advertising.
The challenges of keeping up to date with changes in digital advertising and social media are enormous. Most feel that this is a ‘dark art’ and privately confess to struggling to keep up to date. However, what ALL business owners agree on is that promoting business IS important.
Some businesses thrive in the new online world. We heard this from a retail manager with 8 full time employees:
“The beauty of digital is that it’s so great to track – you can see the exact return on your spend”.
While others pointed out that using digital channels offer the same challenges as traditional media.
“We do a bit of it but it’s the old story – we all know that half of our advertising spend is wasted. But which half?” (Mechanic with 6 full time employees).
So what can you do about this?
- Ask trusted staff what they think of your advertising.
- Ask customers how they found out about you.
- Monitor what your competitors do.
- Monitor the effectiveness of every advertising initiative as well as you can.
- Simply be attuned to the fact that what worked before may not be working now.
Many small to medium-sized businesses struggle to keep up with the changes that online advertising presents them with. However, by challenging yourself to understand it more thoroughly, you open your business up to improved promotion and increased revenues.
George Andreou of Lugarno Seafood Restaurant takes us through his Christmas day.
For me, working over Christmas is a regular occurrence. It marks a period when our patrons are winding down to spend the festive season with family and loved ones. Because Lugarno is a venue for a dining experience, not just a business, Christmas Day gives us the opportunity to provide a festive feast of fresh Aussie seafood.
We start preparing for Christmas mid year, making sure that the 25-30 staff we rotate will be ready. Chefs, kitchen staff and waiters must all be capable of performing their roles.
As we specialise in the highest quality local seafood, menus have to be ready at the beginning of November so I can begin sourcing and placing orders. This is also the time we begin our social and traditional promotions.
Christmas Day starts with the Head Chef and kitchen staff at 8.00am, floor staff and myself are on deck by 10.00am and the day usually ends before midnight.
Christmas dinner at home this year is for all our family and overseas friends. I will arrive home to about 30 people when the merry making will be well under way. I will be exhausted, but I always celebrate with gusto!
As we move into 2017, the national economy is ticking over at a reasonable pace but with wide differences between the States and Territories. The ‘two speed’ economy is still with us but the players have changed. Job growth and activity are now strongest in NSW and Victoria while Queensland, Western Australia and the Northern Territory have moved down a gear. The ACT, South Australia and Tasmania appear to be set for ongoing modest growth.
Key issues for 2017 will be trends in interest rates, the Australian dollar and population growth. The shape of the Federal Budget will also impact on business and consumer sentiment.
Interest rates are at historical lows and seem set to remain that way for the next while. If the economy slows and inflation remains well below 2.0% then the Reserve Bank could well nudge its cash rate below its current level of 1.5%. An RBA cash rate of 1.0% is possible in 2017 if there are hiccups in the global economy as well as persistent, extremely low inflation in Australia.
The Australian dollar is well down on the levels it reached five years ago. This has given a boost to international student enrolments, international visitor numbers and agricultural exports. If the US lifts interest rates during 2017 there could be downward pressure on the Australian Dollar which would further lift activity in Australia.
Population is a driver of economic activity but varies widely between the States and Territories. Western Australia, South Australia and the Northern Territory are expected to see softer population growth than last year. New South Wales, Victoria, Tasmania, Queensland and the ACT should see stronger population growth in 2017.
The Federal Budget is always a source of uncertainty. In 2017, it seems unlikely that the Budget will provide a boost to business activity, with further spending cuts forecast.
In summary, we should expect ongoing low interest rates, modest economic growth, a potentially weaker Australian Dollar in the first half of 2017 and the usual uncertainty around the Budget.
Words by Chief Economist, Hans Kunnen.
Effective networkers have a killer advantage over many of their business rivals. Key business connections often come from the owners ability to network and Christmas parties offer the perfect opportunity to build on that list. Here you’ll find advice that will enhance your networking abilities.
Effective networking starts before you arrive at the event. Set yourself a measure for success and while at the event manage your time and stick to your goal. That way, you’ll be sure to get what you need.
Throughout the event, maintain a positive attitude. Small groups of 1-2 people are easier to engage. When you’re approaching them offer a smile and a confident handshake. As with all business interactions, first impressions matter.
Avoid the temptation of getting comfortable with friends. The opportunity to improve your network can pass you by. Pre-prepare a conversation starter and ender as it makes it easier to back out of a conversation without offending anyone.
Once you have made some connections at the party (or if you are attending the party with a friend), ask if they will introduce you to new people. It’s much easier to get talking once you have a mutual connection.
Finally, position yourself near the bar. Hanging around the food and drinks is an easy way to get introduced. You’ll find approaching someone in this way is less confronting.
You are now ready to make the most of networking opportunities this festive season. Remember to maintain a positive attitude, utilise your connections and strive to achieve goals at your next event and you are sure to expand upon your business network in a positive and meaningful way.
Taking a break from the day to day running of your business for a holiday is a tough choice. However, holidays can be a benefit by inspiring creativity and helping you refocus. Below, we’ve listed three family friendly travel destinations that offer year round rejuvenation and provide you with insights to implement in your business.
Japan – A lesson in hospitality
Thanks to unrivalled hospitality, Japan offers the chance for relaxation and inspiration. From the most expensive hotels to the modest setting of a local McDonalds, Japan oozes with valuable business lessons.
Take note of omotenashi, the Japanese term for hospitality. It has developed Japan’s reputation as being the global benchmark for exceptional service. Omotenashi is hospitality that’s extended with the utmost sincerity, grace and respect no matter how small the task.
Once you’ve finished admiring the service, get away on a 300km/h bullet train to the northern island of Japan - Hokkaido. The gateway city Hokadate was voted the most attractive tourist destination in the country. Go skiing, or, in the summer months try hiking, climbing and camping.
Dubai – An innovation hub for technology
Located between the crossroads of Asia, Africa and Europe, Dubai is a city that leverages its unique geography through its innovative use of technology.
Keep an eye out for The Internet of Things. A movement that connects all devices, from electronics to buildings and cars. It influences the way every business connects and transacts with their customers. All of this combines to make service more efficient and provides you with the opportunity to take advantage of the changes occurring to technology at home.
Once you’ve picked up some ways to streamline your business efficiency, take advantage of the 25C winter weather. Have fun with the kids in Legoland’s half-million gallon wave pool or on the Dragon roller coaster, designed to speed along at 60km/h. Fun for the whole family.
Rejuvenate in South East Asia
Apart from improving focus and reducing stress, rejuvenating could help you organise your time better and be more satisfied in your day to day business decisions. South East Asia offers plenty of opportunities to experience rejuvenation in a way that suits your lifestyle.
Treat yourself to a beautiful ocean view spa, glide through the air on a flying trapeze or practice your yoga postures on the beach on Bintan. Just a short ferry ride away from Singapore.
If you’re looking for a family getaway Phuket offers the perfect escape. Stay at one of the many resorts the island provides and experience the Pearl of the Andaman Sea. Splash around on the pristine beaches and savour the fresh cuisine from around the world in a variety of hip and trendy restaurant and bars.
Bali offers the perfect mix of leisure and fun. Be amazed while snorkelling on the coral reefs, hike to cliffside temples or unwind at one of the many yoga and meditation retreats.
Whether you’re looking to get away with the family or hoping to get some inspiration for your business, feel reassured in the knowledge that your holidays can be productive.
Working at a desk all day can lead to your health taking the backseat. So, to give your body a boost, we’ve put together an office friendly workout.
Instead of getting to work via the elevator, take the stairs. To really get your legs pumping take 2 steps, every other flight.
Get out more, take a stroll, host walking meetings or hold meetings within walking distance of your workplace. Before getting to work consider walking an extra stop for public transport.
Legs and glutes
The invisible chair
With your back against a wall, bend your knees and slide your back down the wall until your thighs are parallel to the floor. Sit and hold for 30-60 seconds. You can even do some reading while you’re there.
Make the most of opportunities to stand up. Phone calls or meetings are great opportunities for standing.
Shoulders and arms
Stand one to two feet from a sturdy wall and place your palms flat against it, so your arms are parallel to the ground. Now bend your elbows and perform the first half of a push-up. Hold for two seconds. Use your arms to return to your starting position, completing the push-up. Perform 12-15 reps.
Chest, back and neck
Roll back your shoulders as if your shoulder blades are holding a pen between them. Hold for 5-10 seconds and release. Complete 15 reps.
Raise both shoulders up toward your ears, hold for 5 seconds then relax. Repeat for 15 reps.
If you have a swivel chair, lift your feet off the floor, hold the edge of your desk and use your abs to swivel the chair from side to side. Swivel 15 times.
While sitting at your desk take a deep breath and tighten your abs, then bring your abs towards your spine as you exhale. Stay squeezed for 5-10 seconds and repeat for 15 reps.
Start out by picking one or two activities that suit you before moving onto the full session. And remember, next time you’re working a big day you don’t have to skip your exercise.
Many people are discouraged by the complexity, logistics, cost or the sheer weight of SCUBA gear. This inspired Jan Kadlec to devote the last three years to inventing AirBuddy.
The world’s smallest and lightest diving gear
AirBuddy is a battery-powered, portable dive compressor that floats on the surface above the diver, providing 45 minutes of dive time to a depth of 12m, without air tanks or a BCD.
Winning the St.George Kick Start Competition
A friend of Jan’s encouraged him to take part in the St.George Kick Start Competition and, in Jan’s words:
“We were fortunate enough to get chosen from over 400 applicants for the finals. Then came a once-in-a-lifetime opportunity to pitch AirBuddy at the TEDx Sydney 2016. In front of a prominent jury, a live audience and probably tens of thousands of viewers online. An absolutely amazing experience and massive exposure for a small start-up like us!
The thought of compressing our story into a 1-minute pitch and delivering it in front of such a huge audience was daunting at first, but, thanks to the support of St.George, the coaching skills of Stephen Feneley, and a rehearsal at the VIP dinner with St.George business clients – we nailed it.”
A big deal for a small start-up
Imagine how he felt when AirBuddy was announced as one of the winners. Says Jan:
“Such an enormous blast of positive energy and appreciation was truly magical for the whole AirBuddy team. With St.George’s support and their generous prize, we will be able to further invest in AirBuddy and increase our online presence to build a strong customer base of early adopters for the product launch.
Thanks again St.George for all the great work supporting start-ups on their journeys to bring new innovations to the world.”
Will the Federal Election result prove to be good for small business?
After a marathon election campaign, uncertainty still lingers given the Coalition party has only a slim majority and may face a battle in the Senate for policy changes.
Some good news for small businesses?
A number of Budget initiatives have been positive for small businesses in recent years, like an instant depreciation write-off for assets costing less than $20,000 and a cut to the company tax rate for small businesses implemented in last year’s Budget.
This year, these measures have been extended and broadened. The Coalition is proposing to lower the company tax rate over 10 years to 25% for all businesses, and the accelerated depreciation has been extended to businesses with turnover under $10 million.
While not universally supported, what could be good news for small businesses is that there may be support for tax cuts for companies with a turnover of under $10 million.
There is also the broader question of addressing Budget repair over the long term. This task is even more difficult with a diverse Senate – as any spending cuts or revenue increases will face some opposition.
Credit ratings agencies are threatening to downgrade Australia’s credit rating if these issues are not addressed soon. While a downgrade would be unlikely to result in a significant impact on borrowing costs in the near term, it could potentially harm confidence – and that has a knock-on effect to business of all sizes.
Global issues continue to dominate our headlines, too, and Australia will invariably be affected by these. So the short-term picture isn’t as rosy as this time last year, but as we’ve seen so far this year, things can change in an instant.
It does look like those clouds will be hanging around for a while, though.
Janu Chan, Senior Economist
St.George Banking Group
Leveraging the benefits from digital technology
The benefits of digital technology include reduced cost, faster cash flow and a great customer experience. Here are some insights into key trends, and some tips on leveraging technology.
Choosing payment technologies
Always start with the customer. Consider how they like to make payments, and how any technology will improve the transactional experience within the business.
For example, customers are demonstrating a significant preference for online payments and, when they are in a store there is a preference for tap’n’go style payments. The same considerations should also apply for business-to-business transactions.
How to leverage value out of technology
In a lot of instances, businesses only use a portion of the technology available to them. At one end of the spectrum are strategic considerations such as the ability to use the data collected from technology in a profitable way. At the other end of the spectrum are practical, operational functions that the technology can support the business with, such as:
- Easily making payments to suppliers and staff over Christmas
- Increasing limits for seasonal purchasing to enable customer direct entry files to be authorised
- Enabling additional payment authorisers to cover annual leave commitments
- Future-dating direct entry files to ensure they are not missed during peak periods
To discuss the right technologies to support your business, and how to get the best out of the technology, contact your St.George Relationship Manager or visit your local branch.
In 2005, 73% of all transactions conducted in Australia were completed using cash. Fast forward to 2013, and that number was just 59%. According to the Australian Payments Clearing Associations (APCA) July 2014 study, the trend indicates that only 43% of transactions will be conducted using physical cash by the year 2018.
What’s driving this trend?
There are a wider choice of payment methods, which are convenient and easy to use and have driven down the cost and time of transactions. Coupled with this, is the Australian consumer’s readiness to accept new methods of payment – and the potential benefits to business.
In December 2014, the Reserve Bank of Australia (RBA) released a paper titled ‘The Evolution of Payment Costs in Australia’, that said: “While cash has traditionally been the least costly method available for small payment values, developments since the previous study indicate that electronic payments are increasingly able to offer a low-cost alternative to cash.”
The same RBA paper indicates that contactless payments take approximately five seconds less to process than a traditional cash payment. If you make 1,000 transactions in an eight-hour period, that would be a saving of 1.4 hours per day in productivity time, or an extra 63 days over a full year.
Historically, retailers have significantly invested in security for cash based transactions to prevent potential theft. Cashless payment technologies can potentially remove the need for some of these security measures, as the transaction happens digitally and records of each transaction are maintained.
In addition to reducing many of the security issues, cashless payment methods could improve the administration of the business. All cashless transactions are recorded and can be reconciled to the businesses settlement accounts.
To find out more about cashless payment solutions, contact your St.George Relationship Manager or visit your local branch.
What a year 2016 has been so far. Uncertainty has been elevated in many parts of the world including China and Europe. According to the IMF, we are still in a period where economic growth has been “too slow for too long”. The struggle to boost growth has resulted in extraordinary measures by central banks around the world.
Brexit and beyond
We do not know what impact the Brexit vote will have on our economy. There is early evidence that confidence and activity have been hit in the UK. However, the UK is our 13th largest trading partner, and should therefore have limited implications for the Australian economy. The risk of a negative impact via financial markets is also low, given that sentiment in financial markets has recovered fully after the vote.
Record low Australian interest rates
In Australia, the RBA lowered interest rates to a record low in August, even though the Australian economy is growing at its fastest annual pace in 3½ years. It would seem that Australia is a stand out, but there are underlying issues masked by this strong economic growth. Income growth is weak and there is still a major drag from the downturn in mining investment.
Maybe things aren’t that bad…
Despite the risks, the domestic economy is not in bad shape. There is growing evidence that the non-mining sectors are recovering. Surveys continue to indicate that conditions among businesses are above average and that investment intentions are picking up. These provide good prospects that jobs will continue to grow. The low Australian dollar and low interest rates are still providing support. We may be far off from boom times, but we continue to expect that the Australian economy can maintain a moderate pace of growth.
If you’re thinking of getting a new vehicle, there’s a lot to consider. Whether it’s a personal treat, a much-needed upgrade, or a family essential, you want to make the best financial decision.
A lease: how does it work?
A lease is a long-term agreement to finance the use of a car for a fixed period of time. At the end of the agreement, you can either re-finance the residual amount and continue leasing, or pay the residual value of the lease to gain full ownership of the car.
A financial lease
With a financial lease, the car’s residual value is set upfront. At the end of the term, most financers will consider an offer for the set residual value, however, they are not obligated to accept it.
A novated lease
A business can lease a vehicle on behalf of their employee. The responsibility of the lease lies with the employee and the payments will be made from the employee’s pre-tax income. This reduces their taxable income, and as a result, the income tax they pay.
You can choose between a novated finance lease (where just the vehicle is leased), or a fully maintained novated lease (where the vehicle’s running costs are also included in the lease).
- Preserve your cash flow: A lease usually requires no down payment, and you’re able to get the car right away without making an initial cash outlay.
- Benefit from lower repayments: Because you’re only paying for a portion of the car’s full value, leasing repayments are usually lower than loan repayments.
- Give your employees a leg up: Novated leases reduce your employee’s pre-tax income, so they pay less tax. Plus, they get a new vehicle for work and personal use.
- Trade in for a younger model: You can update the motor vehicle you’re leasing every few years.
- Avoid maintenance costs: If you choose a fully maintained novated lease, the maintenance and running costs are included in the lease.
- Lack of ownership: Leasing does not give you ownership of the vehicle. This means you can’t make any modifications, and have to either return the car at the end of the lease or pay the residual still owing.
- The Fringe Benefit Tax: Vehicles leased through a novated lease attract Fringe Benefit Tax. The amount charged for the car depends on its cost price or operating costs.
- The lessor’s residual value: The lessor has the power to set the residual value at the beginning of the lease agreement. Regardless of the car’s worth at the end of the lease, you still have to pay the agreed residual value.
- Ramifications for early termination: Terminating a lease prior to the end of the term can incur significant costs.
A loan: how does it work?
A loan helps you finance a new vehicle – enabling you to purchase it. You pay the entire cost of the car, as well as the interest rate determined by the lender.
The term of a car or personal loan can vary, but is generally between 12 months and 5 years.
Secured vs unsecured loan
You can choose a secured or unsecured loan. The difference is, with a secured loan, you offer an asset – such as the car you’re purchasing – as security for the loan. If repayments aren’t made, the lender can repossess or sell your asset.
- Ownership of the vehicle: Financing a vehicle with a loan means you have ownership and can make any desired modifications.
- Options to reduce your repayments: You may be able to structure your payments to reduce your ongoing loan repayments by making a residual or balloon payment at the end of the finance term.
- Facing higher repayments: Loan repayments are generally higher than leasing payments, as you are paying to purchase the entire vehicle.
What’s right for you?
Different options suit different people – so it’s best to look at your current financial situation and needs before choosing a loan or lease. Speaking to a financial adviser or accounting professional may be a great place to start.
The articles represent the views of the authors and not necessarily that of the Bank. You should seek independent professional advice before acting on any matters set out in the articles.
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