To say 2020 has not been the year any of us were planning for is an understatement, however it has presented plenty of opportunities for business owners to take advantage of in order to strengthen their business for future success.
Given the decisions that you make now will have future implications on your business it’s more important than ever to have an accountant you know and trust. Your accountant should help steer you in the right direction and be more involved in key decisions for your business rather than just lodging your tax returns each year. Here are some areas that all business owners should be considering to set their business up for success:
Should you take advantage of the instant asset write off or wait?
The instant asset write-off gives eligible businesses the ability to write off the cost of a second hand or newly acquired asset, up to $150,000. This write off is allowed regardless of if you pay cash for the asset or the asset is financed. For the right business, this is a significant benefit and can have a huge cashflow benefit as we lead up to tax season.
Due to the COVID-19 pandemic, the government reworked the instant asset write-off, and as of 9th June 2020 have extended it further from the initial announcement. From 12th March 2020 to 31st December 2020, the threshold for assets has increased from $30,000 to $150,000. Eligibility was expanded to cover businesses with an aggregated turnover of less than $500 million – up from $50 million.
Although this sounds great, it is not for everyone. Immediately writing off $150,000 worth of assets for some businesses will mean pushing their business into a loss position for that year. Although the losses will be carried forward in most instances, it may mean that some of the lucrative “low income brackets” for individuals connected to the business will not be utilised for that year, which in real dollars means the tax saving could drop from somewhere around a 34% – 46.5% tax saving down to between 0% - 19% tax saving which obviously makes a substantial difference to the net “real cost” of the asset. In situations like this, it may be best for your business to hold off until the instant asset write off is finished.
Tax Planning, don’t go too far.
Like every year it is important to implement strategies to make sure you understand your tax liabilities as well as minimise the impact of tax on your business for the coming 12 months. It’s more important than ever to know what you are wanting to achieve in your business for the next 12 – 24 months, as decisions you make now could have positive or negative effects on your ability to execute on your goals. For instance, additional expenses in your business that erodes bottom line may save tax money this year but could prevent you acquiring other business assets or personal assets in the near future. On the flip side, delaying key expenses until next year may see you pay tax on profits that are not real given you haven’t reinvested back into your business. It is key to know where you stand and what steps you need to make next.
Don’t wait too long to start your tax return.
As we approach tax season there are always two schools of business owners: Those who want their accounts finished early and those who want them deferred as long as possible. This year, more than ever before, we recommend completing your 2020 accounts ASAP for a number of reasons:
- Given COVID-19, banks are unlikely to rely on historical 2019 tax returns like they have in previous years. They will want to know how your business has performed during COVID-19 and if you are someone they want to be lending to.
- Although your business may have struggled during COVID-19, it is still possible that you have a lingering tax liability for the year. Finding this out as early (although still not payable to later in the year) gives your business the most time to budget around it and make sure there are no surprises.
Review your staffing costs.
Due to the pandemic, many businesses saw a change to their staffing and as life returns to normal, staffing costs are being reviewed. Having the right amount of resources will be crucial for your business moving forward. Being over staffed will erode key profits and cashflow for your business, while on the other hand being understaffed may hurt just as much by under servicing or under delivering on key target dates and/or customers. Also, your ability to scale up your team will be critical for industries who may experience some short-term growth (like the construction industry with the building grants) post COVID-19. Typically, those that can be nimble and move the fastest will ride the wave the longest and get the most out of the recovery window.
Considering your business plan: Acquiring, Merging, Scaling up? Now is the time to look.
If this is part of your business strategy, don’t be put off by the COVID-19 pandemic. In fact, it’s a great time to start discussions as lockdown has seen less buyers in the market meaning you have more time to investigate your options, more options to look at and higher grade businesses to consider. On top of this, interest rates are at all-time lows which helps soften the cost of acquiring a business or ramping up activities internally. Again, what you do from a tax perspective could help or hinder these steps, so be mindful to plan ahead for this.
Next steps.
Carefully reviewing and considering these five areas will help business owners make informed decisions, and this is particularly important this year given the future implications to the business. It’s imperative for business owners to work with a proactive accountant who is in regular contact with you, even more so during this busy and important time.
While COVID-19 has taken most of our time and focus this past quarter, there is still time to make changes that could have a positive impact to your business so get in contact with your accountant. If you can’t get a hold of them, we’re only a phone call away.
If you are looking for further assistance, or for an accountant who will help you strengthen your business for the future, contact us on (08) 6381 2404.
