21.6 C
Monday, May 27, 2024

Winds of Change

With Shaun Donaldson 

It feels like Christmas was only last week, yet here we are, looking into the last quarter of the financial year. With the end of the financial year coming, I thought it was a good time to reflect on the past 12 months and think about what the next 12 months may hold.

The June 2022 quarter was a good one for Cairns. COVID was largely in the rear-view mirror, with the tourism sector rebounding strongly. The local economy was strong, and unemployment was at or near record lows (as were interest rates). In short, life was good although finding staff and accommodation was a challenge.  

Fast forward 12 months, and I sense the mood amongst many businesses (and the region in general) remains positive; however, some worries are emerging. Interest rates have risen at the steepest rate in living memory, a change in the Federal Government appears a precursor to tax change, and the end of the instant asset write-off sees the last COVID support and tax concessions end. One constant is that people and accommodation remain hard to come by.

Whilst I remain quietly optimistic about Cairns, some worries have emerged that were not present 12 months ago. It pays to think about these changes and how they could impact your business over the next 12 months. One thing for sure is the next 12 months will be different to the last 12, and businesses need to make sure they identify and changes quickly.

Interest rates

The biggest change in the past 12 months has been the steep rise in interest rates from 0.10% in May 2022 to 3.60% now, with more rises tipped to come. For many businesses and households, this has seen secured debt increase from around 3% to nearly 7%. Effectively rates have doubled in 10 months, with more rises tipped to come. I don’t think we have seen the full impact of these raises yet on businesses and the economy.

The direct and indirect impact of these rises needs to be considered. The direct impact is on borrowing costs. This covers not just property borrowings but also other forms of debt, including working capital and equipment finance. Twelve months ago, taking on an equipment loan at 2%-3% was an easier decision than it is today, with rates more than twice that amount. This applies equally to new loans and refinance.

Indirect impacts are more difficult to quantify but need to be considered. What will these rate rises do to your customers? Will they cut back? Will property valuations be affected? I don’t raise these issues to cause alarm but to point out that a doubling of interest rates will have some impact.

Instant asset write off

The instant asset write-off was scheduled to end on 30 June 2023 under the previous Government. This has not been extended. That means only assets purchased, delivered and installed by 30 June 2023 will be eligible for a full write-off. Those looking to take advantage of the instant asset write-off need to get moving, as 30 June is close. Given ordering delays, it may already be too late to order an asset and have it delivered and installed before 30 June.

The other side to consider in relation to the instant asset write-off is that many assets are already written off to nil have no tax base. When sold, tax will be payable on the sale proceeds of these assets. This will create tax traps for those who don’t plan well.

A good example to consider is someone trading a vehicle that was ordered pre-30 June 2023 but delivered after 30 June 2023. This person will end up paying full tax on the trade proceeds with only a 15% deduction in year one for the new vehicle. This could see businesses paying tax to purchase a new vehicle! Businesses need to get good advice in this area.

Tax changes

The Albanese Government has been in power for about 12 months yet has hinted at significant tax changes. The narrative is that spending is going up (everything from NDIS to the new submarines), and taxes will have to rise to pay for it. Some changes to superannuation have already been put forward, with talk about changes to family trusts and other areas of taxation being floated in different channels.

No one knows where this will end up. However, change is all but certain. Businesses need to make sure they are getting the best up-to-date advice to plan for any tax changes. If you haven’t already, you should be talking to your advisers about superannuation.

Everything else

The last 12 months have been characterised by higher prices (inflation), labour shortages, a shortage of available housing and stock delays due to shipping and production bottlenecks. Whilst some of these problems are easing, many remain. Businesses need to make sure they keep abreast with changes in these areas. Already larger businesses have seen supply bottlenecks ease and deliveries increase; at the same time, demand has weakened. This has led to them carrying extra stock.

The winds of change are definitely blowing, and businesses need to make sure they have the most up-to-date information on their businesses, so they know how to respond.

Connect halpinpartners.com.au

Keep up to date with the latest news.

Share on:


Please enter your comment!
Please enter your name here


Latest Articles