COVID-19 has decimated my business income, why bother?

by Lel Parnis, Partner, Holmans Accounting 28th of May, 2020

COVID-19 has decimated my business income, why bother?
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The initial government COVID-19 stimulus package included the Employer PAYGW Stimulus Boost payments to businesses reporting wages on lodgement of their March and June BAS’.  The boost income is non-assessable income; no tax is payable by the businesses receiving this support, and all related wage costs are still tax-deductible expenses as usual.

Lel Parnis

At the same time, the ATO announced various concessions including low interest rate payment arrangements, four-month interest-free payment deferral on tax liabilities. 

Further still, the ATO allowed taxpayers to vary Pay As You Go Instalment (PAYGI) amounts to Nil – and to claim a refund of any PAYGI paid for the first two quarters of the 2020 financial year.  There was the proviso that taxpayers varying and/or claiming PAYGI refunds did so in line with their estimated tax bill.  At the time of announcing the concession, there was no other relief nor certainty as to business income, in sight.  

This means, we are fast approaching the end of the 2020 financial year with many taxpayers having significantly less tax ‘already paid’ along the way than they may usually have – better in your pocket than as a credit with the ATO.  But bear in mind that the tax ordinarily paid throughout the year as PAYGI serves as a reduction of your tax bill on preparation of your tax returns.  If you have no tax paid along the way, the final tax payable on lodgement of your 2020 tax returns could be higher than you expect even despite the year you have had.  Better the devil you know.  

COVID-19 support income

The Australian government will provide $130 billion in JobKeeper payments to eligible employers in response to the COVID-19 pandemic.

The QLD state government just announced a $100 million package to assist affected small businesses.  Following NSW and Victoria’s lead in offering grants up to $10,000 per business.

The Australian and state government funding announced, and which affected businesses are starting to see showing up in their bank accounts is significant – unquestionably so.

Aside from the PAYGW Stimulus Boost payments, all the COVID-19 support payments are assessable income. Businesses will be liable to pay tax on their income for the year and if this crisis has highlighted anything it is the importance of cash flow management.  

Tax planning 

Now that we have some clarity as to the easing of restrictions and a reasonable basis for forecasting bookings and costs to the end of June, it’s possible to estimate tax liabilities for the year ending June 30, 2020, and factor the outgoings into your cash flow planning moving forward.

While there may be limited strategies for tax minimisation in this climate (with many requiring acquiring assets or contributions toward superannuation), if you do not review your position prior to June 30, any potential for minimising your tax bill is lost.

Reassess your business structure

Ahead of the new financial year take the time to consider your business structure and how you are paying workers yourselves as business operators.  The government support during this period has been weighted in favour of employers and employees. 

If you are currently engaging individual contractors for labour, review the arrangements – it may be that technically they should be employees and you are at risk should you be subject to an employer obligation audit, which can be costly.  Where legitimate contractors are engaged, consider whether that remains the best option for your business or whether employing individuals or using a labour hire firm would provide better security and control over your workforce.

How is your business income assessed in your personal tax returns – trust distributions?  Dividends?  In terms of managing ongoing tax obligations, saving for retirement by way of regular super contributions there is certainly merit to considering a shift – at least in part – to paying business operators a wage whereby the business is responsible for paying tax and super along the way as with other employees.  

Further, there may be additional PAYGW Stimulus Boost credits receivable should such changes be made prior to June 30, provided any restructuring is not made for the sole nor dominant purposes of accessing the boost. 

Take the time now to review your business and potential tax liabilities.  Contact your accountant for any assistance required, without delay, before June 30.

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