SME’S and the New Financial Year. Updated July 2020
It’s the new financial year and many businesses across Australia have had their challenges. Last year presented ordeals NO ONE could have predicted, but it’s important to reflect on the things that worked, things that could’ve been done better and how the recent government stimulus incentives affect end of year tax.
The government has introduced a range of measures to support businesses and employees through the COVID-19 pandemic, which you can read about here, and we wanted to address how the new and existing tax laws can be used in the current challenging business environment.
JobKeeper wage subsidy
The JobKeeper wage subsidy allows businesses to continue to pay staff at $1500 per fortnight per employee provided eligibility requirements have been satisfied. The subsidy will be taxable to businesses but they can deduct it when paid to employees so there will be no net tax effect.
The business will also be responsible for superannuation on behalf of employees, but only on the employee’s normal wage if that was less than the $1500. The subsidy is taxable to employees so PAYG payment summaries will have to be prepared for each employee in the usual manner, with superannuation also continuing to be deductible.
With employees being stood down from their employment or taking extended leave, there is a small difference with superannuation responsibilities when leave is paid out on termination of employment. Leave paid out on termination (or retirement) is not regarded as ordinary time earnings. This means that superannuation is not required to be paid on it in such circumstances but leave paid out in all other circumstances attracts super in the same way if the leave were taken.
While cash flow may be limited, eligible businesses can access increased instant asset write-offs. The threshold has been raised from $30,000 to $150,000, on new or second-hand assets first used or installed ready for use from 12 March 2020 to 30 June 2020.
While these tax changes have been recently legislated to help small business in these difficult times, it’s also worthwhile remembering existing tax laws that can help. These include concessions that some businesses may not have previously been able to access but can do so now due to reductions in asset values or business turnover. Organisations that weren’t previously regarded as “small businesses” may dip below relevant aggregate turnover thresholds. Some of these concessions include:
Small business company tax rate
The small business company tax rate of 27.5 per cent is available for businesses operating through companies with an aggregate annual turnover of less than $50 million. Unincorporated small businesses with an aggregate annual turnover of less than $5 million can also access the small business tax offset, although this is capped at $1,000.
Small businesses with less than $10 million aggregate annual turnover (or with aggregate net assets of less than $6 million) can also access cash accounting. This may help reduce cash outflows since tax is only paid on cash income received. The downside is that some deductions may not be available since these are based on cash payments too.
Another concession helps those with trading stock where it does not need to be accounted for if the difference in closing stock from 2019 to 2020 is less than $5,000.
As well as getting your financials in order and understanding where you stand this new financial year, always make time for reflection.
Just as many would do in their personal lives, the beginning of a new financial year is a good time to reflect on and potentially reassess the goals, objectives and achievements of your business. During this reflective period, ask yourself:
- Has my business achieved what was intended over the last 12 months?
- Are my team meeting expectations and deadlines?
- Have I set a realistic budget for the next year?
- Are there any changes that need to be implemented?
Answering these simple questions will allow you to evaluate your current performance and reveal areas that could be improved upon for the following year.
To understand how Timelio can assist your cash flow in the new financial year or for any Government COVID-19 announcement advice feel free to call us on 1300 38 63 63 or email us to chat to one of our experts.