What a time we have had over the last six months, first with the devastating bush fires and now with the Covid-19 pandemic, it certainly has been a different time, the likes that many of us have not seen before.
Many small businesses and sole traders would have been entitled to receive Government assistance during this period including grants and concessional loans for those affected by the bush fires and JobKeeper reimbursements, cash flow boost for employers and State Government grants for those affected by the Covid-19 pandemic.
Of these assistance packages some will be tax-free, while others will be considered taxable income. Here are some of the packages and their tax treatment:
- DISASTER RELIEF PAYMENTS [BUSH FIRES] // these are non-taxable payments + do not need to be included in your tax return
- JOBKEEPER REIMBURSEMENT [COVID-19] // as the name implies, these are reimbursements + are therefore considered taxable income
- CASH FLOW BOOST [COVID-19] // these payments are tax free. They are not required to be paid back once the business’ cash flow improves
- STATE GOVERNMENT BUSINESS SUPPORT FUND GRANT [COVID-19] // this one-off payment to eligible businesses is considered taxable income
Due to Covid-19, your business income may have been affected to such a degree that you will not have any issues with the 2020 Financial Year tax, but if you will here are some tips to help reduce your taxable income:
- SUPPLIER INVOICES // pay any supplier invoices prior to 30 June, even if they are not due until July or later.
- SUPERANNUATION // pay the June quarter superannuation obligations prior to 30 June. Generally, it takes 5-7 business days for payment to be received by the employees superannuation fund, so payment will need to be processed earlier to allow for this.
- BUSINESS OWNERS // if you are a business owner, you could pay an additional superannuation contribution to maximise the $25,000 concessional contributions cap.
- SOLE TRADER // if you are a sole trader, you may take a concessional contribution to your superannuation fund and claim a tax deduction for it.
- INSTANT ASSET WRITE-OFF // the threshold currently stands at $150,000, so any piece of equipment or business vehicle, below this threshold, will be able to be deducted in full in the 2020 financial year, if purchased and in use by 30 June 2020.
Danny Grigg – Senior Accountant
If you are like most small businesses, you may find Christmas and January the hardest time of year for cash flow!
Tradies find there is no income as building ceases and materials that haven’t already been received aren’t available until February. This effects not only those directly in the building trade, but also concreters, plasterers, glaziers and everyone who supports the building trade.
For small businesses like ours, who support other small businesses, we find our clients close over the New Year and January. It’s not just accountants though who are effected by this, it’s commercial cleaners, security firms, lawyers and all whose services support small businesses.
And if you support the education sector, then you can look forward to closing shop for around six weeks! Small businesses that run schools (sport, art, dancing and music schools come to mind) or support education (cleaning, security or education providers) can be confident there won’t be much hitting their bank account in January!
Yes, things get hard when cash flow is tight, but there are a few simple things you can do to help manage it. Remember that forewarned is forearmed!
- Talk to your clients/customers and let them know you need them to pay before Christmas. If you are able to reduce your outstanding debtors and get this money in the bank, it will help cover the Christmas wages and also January when receipts are low. Ideally, all your customers should finalise all accounts that are over 30 days before Christmas. This will make an enormous difference to your cash flow.
- If possible, invoice clients in advance. A very clever client of ours (who shall remain nameless and who knows exactly what work will be provided in January), offered her customers the opportunity to pay in advance. If you operate a larger business, it may be convenient to pay January in advance to your suppliers. Then you won’t have to worry about bills over the holiday period. If some of your customers fall in this category, consider invoicing in advance.
- Speak to your bank about an overdraft. Although we generally like to avoid overdrafts and minimise borrowing, there are times each year when you may need extra help to meet the bills. If you can get approval for an overdraft this is a good safety net.
- Last, but not least, put off paying any creditors you can. Naturally it feels bad putting off paying our suppliers. However, if we contact them in advance and let them know how much we will be paying and when they are usually happy to accommodate. We all know from our businesses, that if we know when someone is paying and how much they are paying, we feel more comfortable than if we don’t hear from them or they avoid our calls.
Don’t forget that the superannuation for your employees is due before 28th January 2019, so make sure you have enough in your account to cover that. Your BAS will generally be due before 25th February 2019 (unless you are a monthly BAS lodger), so thankfully cash flow should return to normal by then.
In the meantime, if you need any help with cash flow or want any information to help you budget over Christmas and January, please don’t hesitate to contact our Accounting team.
Director – CPA, BComm