Money Matters

by . on 21 Jul 2009 We talk with Mark O’Donoghue from charter boat finance specialists, Finlease Australia to get clarity on the government’s 50% tax deduction investment allowance, plus other financial considerations regarding charter boat investments.

As part of the 2009 budget stimulus package being rolled out by the government, they have put place an investment allowance for the acquisition of business related assets. Up to 50% investment allowance is provided and from what we can see, providing charter boats are meeting the compliance requirements set down by the ATO as being a legitimate business as opposed to an enterprise, this 50% investment allowance will be allowable for charter boats.

In fact in the explanatory memorandum, they showed two examples of where boats were involved in that exact circumstance. What any potential buyer will need to know is that there is a very small window of opportunity, because there are now very few vacancies in Whitsunday Charter fleets for new boats, despite the deadline for orders now being December 31, 2009 and operational by December 31, 2010.

So if you have a $500,000 boat excluding GST, than the investment allowance is $250,000. It is a tax deduction, its not some form of rebate or grant, it’s simply an additional tax deduction over and above the depreciation. I think the best way of looking at it is that it is just a one off tax deduction of 50% that is claimed up front.

It is our understanding, that the deduction can be claimed in one year, but if it results in a level of expenses which exceeds the revenue, including other revenues from other sources, they can certainly carry forward that loss.

What further depreciation can be claimed?
In essence, you can claim up to 30% depreciation (diminishing value), provided that the client actively enters into the Simplified Tax System. In the first year it is only 15% as it is considered a half year, and then 30% each year after this.

Can GST be claimed?
Absolutely. When the boat is a business related asset and acquired by individuals, the individual will need to set up an ABN, as there will be incomes coming in and expenses going out where they will have GST inputs and outputs and providing they are running a business there is the initial input opportunity for GST on the purchase price of the boat which may be say $50,000 or $60,000 depending on the cost of the boat, and that is an input credit available.

What’s a common ratio of debt on a charter boat?
The common ratio that we see in the Whitsundays gears the boat at around 70% debt on the GST excluded price of the boat. So 30% would Money Matters be funded by the client, be it cash or redraw on their property.

What commercial interest rates are available?
Today we are financing charter boats on a typical structure which is usually a five year term with a 40% balloon at the end, and then we regularly refinance that balloon for the client. At the moment you would be looking at interest rates in the low 7’s, fixed rate funding for 5 years, which is at its historically low base. Now that might come down a little more.

For further information, or business model spreadsheet examples, contact Mark O’Donoghue from Finlease Australia on 1800 358 658 or mark@finlease.com.au
Seawind & Finlease recommend to seek independent advice from your accountant or financial planner.