With EOFY on June 30 is fast approaching, SME owners are being urged to start their tax planning now in order to establish a solid financial and operational foundation for the new financial year.
The reminder comes as the effects of the pandemic still linger among SMEs, whose cash reserves have almost been depleted due to snap lockdowns and downsizing of operations. Also playing an important factor are the various measures and policies that have impacted tax planning processes over the past year, with more changes possible on the horizon. These changes include JobKeeper, as well as the temporary relief payments for businesses.
Roger Mendelson, Executive Chairman of Prushka Fast Debt Recovery, is also urging SMEs to save as much cash as they can through all accessible avenues.
“So many businesses have experienced reduced profits due to the pandemic, however JobKeeper would have boosted this profit,” Mendelson said. “This profit is still taxable, so when the tax bill arrives cash is likely to be very tight.
“For Victorian businesses who have been doing it tough with the recent snap lockdown, it’s crucial to check your eligibility for the Circuit Breaker Business Support Package,” Mendleson added. “Businesses will be able to apply for up to $5000 in grants in sectors most impacted, however, to be eligible for this package there’s a minimum earning threshold of $75,000.”
Mendelson stressed that “cash is king for SMEs”, bemoaning the fact that unfortunately many small businesses won’t meet the threshold limit, making it even more important that they explore all options to divert revenue and bring forward expenses into the pre-30 [June] period.
Mendelson noted that the asset write-off scheme was a “huge win” in itself and this was extended in this year’s budget. This means that SMEs can claim the full value of all new eligible depreciable assets first used or installed by mid-2023. He also advised SMEs to take full advantage of this scheme before June 30 this year to capitalise fully and ensure taxable profits can be further lowered.
“There are many other simple ways to get ahead before tax time,” Mendelson said. “Write off invoices older than four months and don’t worry if they get paid later. This will avoid you having to pay GST on invoices you haven’t been able to recover and make sure you’re not paying tax on income you haven’t received yet.
“Another way to reduce your taxable profits is to write off any stock lying around that you haven’t been able to sell,” Mendelson added. “Also, if your business has strong cash reserves, you could talk to your landlord about prepaying rent to bring your taxable income down. You’re able to claim a deduction for the decline in value of depreciating assets, so it’s important to review your depreciation register.”
Mendelson said that the strategies to improve tax processes by EOFY are ” simple, cohesive, and cost-effective”.
“Operating in an uneasy and unpredictable environment calls for SME owners to be proactive and ensure they are putting their best foot forward entering the new financial year,” he concuded.