With June 30 behind us and the economy slowly re-opening, most business owners are thinking about the challenge of repairing and rebuilding their finances after the COVID-19 lockdown.
Over the next few months, key tests will come with the withdrawal of government stimulus measures like JobKeeper and the return of your normal wages, rent and financing expenses.
An end to landlord rent deferrals and business loan repayment holidays, for those who had them, will make cashflow and debtor management increasingly important. Throw in closer scrutiny of on-going business viability by the banks and an end to higher debt amounts before creditors can issue statutory demands or initiate bankruptcy proceedings, and the future looks challenging.
Things to do now
Given the challenge, there are important actions you should consider in order to rebuild your business finances and get your tax affairs in order.
A great one to start with is getting your Business Activity Statement (BAS) lodged promptly if you’re eligible for the Boosting Cashflow for Employers
Qualifying businesses will receive a second boost for the period July to September 2020 after you lodge your BAS. If you want to receive the stimulus you must lodge by the 28 July and 28 October quarterly due dates.
Check your tax compliance
It’s also important to ensure your Single Touch Payroll (STP) data remains correct, as the ATO is using it to actively review business entitlement for government support measures. Remember, the STP data is also likely to be audited
in the future, particularly in relation to JobKeeper payments.
If you’re having payment or reporting difficulties, consider contacting the ATO as it’s offering tailored support plans for individual businesses. You may even be able to defer
some of your tax obligations until later in the year.
Monitor your financial position
Key activities in the months ahead will be performing a detailed financial health check on your business and ensuring your budget matches current business conditions.
With the economic situation continuing to evolve, assumptions used to develop your budget can quickly become out-dated, so you may need to revise them.
As the insolvency relief measures
come to an end, regularly measure your solvency to ensure you do not accidentally trade while insolvent.
If you happen to find yourself in financial difficulty, talk to us early on so we can develop a strategy to work through your problems, or help fast-tracking an application for financial assistance.
Review your debtor management
You should also regularly check your debt position. Ensure you invoice promptly and follow up old debts.
If debtors have been severely affected by the pandemic, consider writing-off the debts. Debts can be written off against your income in the financial year in which they are written off, regardless of when you invoiced them.
With business conditions likely to remain difficult, think about reviewing your credit policy and consider whether your credit conditions remain appropriate.
Develop strong liquidity
During a recession, your cashflow and cash reserve positions need to be constantly monitored
so you are forewarned of any potential problems.
You may also need to change your accounting processes. For example, changing your GST reporting cycle
or moving to accounting for GST
on a cash rather than accruals basis means you pay GST to the ATO when you actually collect it – not when you issue your invoice.
Consider asset purchases
If you are lucky enough to still have strong cashflow, you could take advantage of the government’s further extension
to 31 December 2020 of the $150,000 instant asset write-off.
Purchasing capital equipment could help reduce your taxable income in the new financial year and grow your business. We can help you work out if your business has sufficient cashflow to make a purchase and whether it’s best to use the instant asset write-off or normal depreciation rules.
Review your business structure
A new financial year is also a good time to start long-term tax planning. Think about planning your tax affairs to ensure you minimise your overall tax payable, so next June isn’t all about making last minute decisions.
This could include looking at the appropriateness of your current business structure. The structure you started out with may no longer be the most tax effective if your business has grown, or for surviving a recession.
We can review your current business structure to see if it’s still the best option, or if changing it could help cut your tax bill. Restructuring from a sole trader to a company for example, could reduce your tax rate from 45 per cent to the flat 26 per cent company rate.
Start your business exit planning
If you’ve been in business for a few years and are contemplating selling or retiring in the next 10 years, it’s wise to start planning your exit now.
Six months before you want out is not the time to begin planning if you want to do it tax effectively. Having a detailed strategy to access the valuable capital gains tax concessions available for small businesses will potentially save you thousands in tax when you sell.
Please contact us if you would like help getting your business back in business and ready for the future.
10 tax tips to get 2020-21 off to a good start
- Ensure your STP finalisation declaration is lodged by 14 July if you have 20 plus employees, or 31 July if you have 19 or fewer staff.
- Get your BAS lodged promptly to receive the government’s second cash-flow boost payments if you’re eligible.
- Consider lodging your annual tax return earlier to access your refund and to gain updated figures for your bank.
- Take advantage of the Super Guarantee (SG) amnesty before 7 September 2020 to pay employees any unpaid amounts.
- Opt to move onto monthly GST reporting to get quicker access to your GST refunds.
- Take advantage of the $150,000 instant asset write-off extension to 31 December 2020.
- Forecast your expected JobKeeper payments and the likely tax payable.
- Check the COVID-19 payroll tax concessions provided by your state government.
- Upgrade your business tax records to ensure you can substantiate any tax deduction claims.
- Remind your employees they will not receive a payment summary as the information is now available on myGov or through their tax agent.