The government stimulus packages are now finally being paid to businesses to help with their cash flow. It is providing businesses a much needed cash injection to get through what has been a very tough period.
Recently, there has been an information overload, but see below a few important items that you should be considering: 1. Ensure you are maximising available incentives; 2. Tips & tricks 3. How to correctly account for the incentives in your accounting software 4. What’s next
Ensure you are maximising available incentives
JobKeeper Subsidy - $1,500 per fortnight per employee payment from 30 March 2020 to 27 September 2020
Small Business Cash Flow Boost – a rebate on your Business Activity Statement (BAS) between $20,000 to $100,000
NSW small business grant – a $10,000 grant delivered by the NSW Government for businesses that have been highly impacted by COVID-19
Apprentice & Trainee Wage Subsidy – up to 50% of an apprentice or trainee’s wage up to a maximum subsidy of $21,000
Increase and extension of the instant asset write off – now might be a good time to purchase business assets to reduce your tax bill
Land tax relief
Payroll tax relief
Early release of super – individuals who are in financial distress can access up to $20,000
Reduce minimum pension payment – a 50% reduction for the 2020 and 2021 financial years
Tips & tricks
There are over 30 ways that you can calculate the drop in turnover test for the JobKeeper Subsidy. If you think you do not meet the test, it doesn’t hurt to ask to ensure you are not missing something. Things are still being released on JobKeeper eligibility that may help your case.
Regarding the JobKeeper - your projected GST turnover needs to be a reasonable assessment of what was likey at the point in time you calculated the test. i.e. if you did the projections back early April when things were a little worse, and things improved after that, that does not mean you are not eligible. If it later eventuates that your actual turnover for your turnover test period is greater than your prediction of your projected turnover, you do not lose access to the JobKeeper scheme.
If you do not initially meet the JobKeeper eligibility, it does not mean you are not eligible later. You can retest in later periods.
Super is not payable on the JobKeeper top up payment.
Ensure you keep paying each JobKeeper eligible employee atleast $1,500 per fortnight to remain compliant with the JobKeeper rules.
Do not pay GST back to the ATO on the government stimulus payments that you are receiving. See below on how to correctly account for them in your accounting software.
Think about varying your PAYGI to free up cash flow now. You might even be able to use that cash to reinvest in your business, to make your business more profitable in the future and to reduce your income tax liability this year. A win win win.
The ATO will be spending a lot of money to ensure businesses remain compliant and they are not incorrectly accessing the incentives. Ensure you meet the criteria and ensure you have the paperwork to support your claim if you are asked a question from the ATO.
How to account for the incentives in your accounting software
We are advising clients to set up two accounts in their accounting software to correctly account for the income that is being paid from the government incentives. 1. Government Subsidies – Taxable
Payments such as the JobKeeper Subsidy & apprentice subsidy are allocated here. 2. Government Subsidies – Non Taxable
The small business cash flow boost payment will be allocated here. Both accounts should be set up so the payment does not report on your Business Activity Statement (BAS). For businesses using Xero, this will be a “BAS Excluded” code. For MYOB, a “Not Reportable” or “N-T” code would be used.
Cash flow forecasts – when your doors open back up, you need to evaluate; - Your current position, i.e. cash in bank, cash owed from customers, cash owed to suppliers including the ATO & superannuation obligations - What you think the next 3-6 months will look like from a profitability point of view & a cash flow point of view. - You need to stress test this, i.e. a worst case scenario, a OK scenario, a good scenario, to ensure you know exactly where you stand and exactly what you need to do depending on what happens with your business.
Tax planning this financial year is going to be critical. Not only to legally minimise your tax payable for the financial year to ensure you are not paying too much tax, but to see if you have had a poor year to then vary your PAYGI, or if you have had a good year, to get a tax payment plan for the next 12 months.
Please visit our COVID-19 Support page for more information.
Disclaimer: The material and contents provided in this article contains general information and does not take into account your personal objectives, financial situation or needs. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, please contact Peer Wealth on (02) 8014 7608.