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Prolonged effects of the pandemic have ripped through SMEs’ cash reserves, and with 30 June fast approaching, SME owners are being encouraged to start their tax planning now to set a solid foundation for the new financial year.
From snap lockdowns, to JobKeeper, to temporary relief payments for businesses, there has been a multitude of changes that may impact SME tax planning processes. In an uneasy environment, this year’s tax time is more important than ever.
As such, Roger Mendelson, executive chairman of Prushka Fast Debt Recovery, is urging SMEs to preserve 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. This profit is still taxable, so when the tax bill arrives cash is likely to be very tight," Mr Mendelson said.
For Victorian businesses who have been doing it tough with the recent snap lockdown, Mr Mendelson urged them to check the eligibility for the Circuit Breaker Business Support Package.
"Businesses will be able to apply for up to $5,000 in grants in sectors most impacted, however, to be eligible for this package there’s a minimum earning threshold of $75,000," he explained.
"Cash is king for SMEs and unfortunately many small businesses won’t meet this requirement, so it’s important to explore all options to divert revenue and bring forward expenses into the pre-30 period."
A big win for SMEs last year, Mr Mendelson believes, was the asset write-off scheme, which 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.
However, Mr Mendelson is advising SMEs to take full advantage of this scheme before 30 June this year to capitalise fully and ensure taxable profits can be further lowered.
As for other "simple" ways to get ahead before tax time, Mr Mendelson offered some additional steps.
"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," he said.
"Another way to reduce your taxable profits is to write off any stock laying around that you haven’t been able to sell. 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."
Mr Mendelson is urging SME owners to adopt these "simple, cohesive, and cost-effective strategies" to improve tax processes.
"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 said.