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Cash is always king but never more so than during the pandemic and recovery. Many small businesses are hoarding cash and staying on the sidelines until they feel confident enough to invest in their own growth. This is a key takeaway from the March 2021 SME Growth Index, with results showing that over the past […]
Read moreScottish Pacific welcome approaches from the media for commentary, general information, articles, case studies, interviews, speaking engagements and other general media enquiries. For more information contact Kathryn Britt on: 0414 661 616 [email protected] Notes to editors Scottish Pacific Business Finance is the largest specialist provider of working capital solutions for SMEs in Australia and New […]
Read moreToday’s volatile business environment makes it more important than ever for SMEs to shore themselves up against bad debts. The suspension of insolvency laws early in the pandemic may have held debt problems at bay, but this prop no longer exists. Fortunately, there are plenty of ways businesses can reduce the risk of bad debts […]
Read moreHandling taxes is notoriously complex for Australian businesses. It can be overwhelming for SMEs, especially if you lack a dedicated, in-house accounting team.
But it’s vital to understand relevant tax laws, what your company tax rate is and how to properly report this information. This ensures you stay in the clear with the Australian Tax Office (ATO), while avoiding unnecessary penalties and headaches.
Here’s everything you need to know about corporation tax.
The corporate tax rate has fluctuated over the past 45+ years.
Trading Economics explains, it was at 45% between 1973 - 1979. It jumped up to 46% from 1979 - 1986, and rose again to reach its highest at 49% from 1986 - 1988. It has since dropped considerably.
Here’s a breakdown of what the corporate tax rate has been from the late 80s to today:
The full company tax rate is 30% and should remain there for the foreseeable future. This applies to companies, corporate unit trusts and public trading trusts.
Today’s companies pay considerably less for corporation tax than organisations in the past. In fact, it’s now 19% lower than it was at its peak between 1986 - 1988. 30% is actually a record low for Australia.
But as Shane Wright of The Sydney Morning Herald reports, Australia’s corporate tax is still one of the highest in the world. As of January 2019, it was the third highest globally, with only Costa Rica and Chile having higher rates.
For comparison, Australia’s prime competitors such as the United States, Britain, New Zealand, Canada and South Korea all had lower rates. The United States, for instance, is currently at 21%.
Not all companies pay a 30% corporate tax rate, however. Those who are classified as base rate entities are eligible for a lower company tax rate of only 27.5%.
The ATO explains, for the 2017 - 18 income year, a base rate entity is a company that both:
Base rate entity passive income can include royalties and rent, corporate distributions, gains on qualifying security and interest income.
The bottom line is that you can expect to pay a 30% corporate tax rate unless you qualify as an eligible base rate entity. In that case, you would only pay 27.5% until 2020. However, that is set to change in the near future.
Initiatives to lower the corporate tax rate will be taken in the near future, meaning corporate tax for base rate entities will drop over the next few years.
Companies who qualify will still pay 27.5% from 2018 - 20, but the aggregated turnover threshold will increase from $25 to $50 million AUD. After that, they’ll pay 26% with an aggregated turnover threshold of $50 million AUD from 2020 - 21. The following year, they’ll only pay 25% with an aggregated turnover threshold of $50 million from 2021 - 22.
In other words, corporation tax is decreasing for base rate entities over the next few years and will drop a total of 2.5% between 2017 - 18 and 2021 - 22.
Besides understanding what your company tax rate is, you need to know the basics of filing.
The Australian Government’s website, Business.gov, explains, “A company business structure is taxed as a separate legal entity that does its own tax return.”
They must lodge an annual company tax return, which includes company income, deductions and the income tax it’s liable to pay. Business.gov also points out companies must lodge their own tax return, and if an associated trust is involved, then they must lodge their own tax return as well.
Note: “As a director, if you draw wages as an employee or receive dividends from the company, you must report this as income when you lodge your own individual return. You may also need to lodge a fringe benefits tax return, if you receive fringe benefits.”
It’s important to get all your ducks in a row to ensure everything is reported properly. It’s also crucial that it’s done on time.
Tax returns for Australian businesses cover the time between 1 July and 30 June and are due by 31 October. Not filing on time is what’s known as a Failure to Lodge (FTL), which can potentially lead to penalties. The cost of the penalties can vary and is primarily determined by the size of your company.
Here’s how that breaks down.
The ATO says, “For a small entity, FTL penalty is calculated at the rate of one penalty unit for each period of 28 days (or part thereof) that the return or statement is overdue, up to a maximum of five penalty units.”
This becomes larger for a medium entity with turnover of more than $1 million and less than $20 million AUD, where the penalty is multiplied by two. And it increases again for a large entity with turnover of $20 million or more, where the penalty is multiplied by five.
So the larger your company, the more severe the penalty.
It should be noted that the ATO is fairly understanding and accommodating when it comes to FTL. Organisations generally aren’t penalised when it’s an isolated incident, and warnings will be given either over the phone or in writing before incurring a penalty.
That said, it’s still extremely important to stay on top of corporation tax and take measures to ensure it’s taken care of by 31 October.
If there’s an issue where you have difficulty meeting the deadline or fulfilling your tax obligations, you should contact the ATO via this link. A registered agent can work with you to figure out a solution.
There’s one last thing to point about in terms of meeting ATO compliance standards.
You must retain your corporate tax records for five years. This is a required tax law, and the ATO can potentially penalise you for not retaining records for this length of time.
So be sure to keep everything on file so information can be quickly retrieved. Having both physical, paper documents as well as digital versions is ideal.
The information above covers the fundamentals of corporation tax and what you need to know to correctly file your taxes.
Here are some ways to simplify things and streamline the process.
Keeping organised, accurate records is vitally important. That’s something managing director at Australian Invoice Finance, Greg Charlwood, can’t stress enough.
You need an efficient, well-run filing system that provides you with a detailed snapshot of your company’s earnings at all times. Not only does this save time come when lodging and prevent frustration, it can be a godsend in the event of an ATO audit. It ensures that you’ve always got a paper trail and earnings can be easily traced.
Investing in a comprehensive corporate tax software like ONESOURCE is perfect for SMEs and offers a straightforward, cloud-based solution.
Charlwood also mentions it’s a good idea to write off bad debts before 30 June rolls around. If you’ve incurred a bad debt or partial bad debt because of a client failing to pay in full, it can be claimed as a deduction if it was included in your company’s assessable income.
In the event that a client doesn’t pay or doesn’t pay in full, this can help offset your costs.
This only applies to newer businesses with a turnover of less than $10 million AUD. But if your company falls into this category, you can claim a tax deduction for certain costs including:
While this may not have a huge impact, it should still be helpful and lower your overall corporation tax.
There’s a lot involved with Australian corporate tax. And it’s easy for SMEs to be confused and overwhelmed sorting through all of the details.
What’s most important is knowing what tax percentage you owe annually, whether you’re eligible for a base rate entity, correctly lodging corporate taxes on time and retaining tax information for five years.
Do that, and you should have a firm grasp on corporation tax, and your company should be in good shape.
What do you find most confusing about corporation tax? Please let us know about your experience, call us on 1300 505 883, or click here for us to get in touch.
Read moreProfit doesn’t always equal money in the bank. When you offer extended payment terms to your customers, you can often experience cash flow shortages waiting to receive payment for your outstanding sales invoices. Debt factoring is a finance solution that helps businesses to overcome cash flow gaps by releasing the capital tied up in unpaid […]
Read moreKeeping track of money owed is important for your business’s working capital and long-term financial health. Even a profitable company with a full order book can suffer from cash flow issues if its late-paying customers go unnoticed. Effective accounts receivable management is vital for avoiding cash flow disruption due to late payments. According to the […]
Read moreA business activity statement (BAS) is a form that certain Australian businesses must submit to the Australian Taxation Office (ATO) to report their tax obligations. Some specific obligations include goods and services tax (GST), pay as you go (PAYG) tax instalment, pay as you go (PAYG) tax withheld, fringe benefits tax (FBT) instalment, and luxury car tax (LCT).
Some businesses are required to lodge a BAS, while others are not. In this post, we’ll explain all of the important details so you’ll know whether or not this is something you’re obligated to do, and we’ll also offer helpful tips and resources.
When it comes to determining which businesses are required to lodge a BAS, the criteria is pretty straightforward. If you’re registered for GST, then you must lodge a BAS, as this allows you to report and pay your GST and other tax obligations. If you aren’t registered for GST, then you’re not required to lodge a BAS.
GST registration is required for businesses that have a turnover of $75,000 or more or offer taxi travel. For non-profits, the minimum turnover is doubled at $150,000 or more. Check out this resource from the ATO to learn more about how GST works, and find out how to register.
To simplify matters, the ATO will automatically send you a BAS form when it’s time to lodge once you have registered for an Australian business number (ABN). This way you always have a heads up and aren’t caught off guard.
The frequency in which you must lodge a BAS depends upon one single factor — GST turnover. Here’s how it breaks down:
As a result, most businesses lodge quarterly. However, it may differ depending upon your circumstances. In terms of the specific quarterly dates in which you must lodge throughout the year, they are as follows:
If monthly reporting is required, you must lodge and pay your BAS by the 21st of the month following the taxable period. So if you were lodging a BAS for March, the due date would be 21 April.
If annual reporting is required, the deadline is 31 October of each year.
You can lodge a BAS yourself or have a registered tax or BAS agent do it on your behalf. Also note that businesses with a GST turnover of $20 million or more must lodge and pay online. For more details on due dates for lodging and paying your BAS, check out this resource from the ATO.
Lodging on time is crucial to avoid penalties and is required even if you didn’t do any business and have nothing to report.
“We recognise that sometimes people don’t meet their lodgment obligations on time, even with the best of intentions,” the ATO explains. “Generally we don’t apply penalties in isolated cases of late lodgment.” However, if you do get hit with penalties, they can be costly and something to avoid at all costs.
If applied, the failure to lodge (FTL) penalty is “calculated at the rate of one penalty unit for each period of 28 days (or part thereof) that the return or statement is overdue, up to a maximum of 5 penalty units” for small entities. For medium entities, the penalty is doubled. And for large entities, the number is multiplied by 5.
So as you can see, the costs can really add up in a hurry, especially for medium and large-sized businesses. The ATO will warn you either by phone or in writing if you’ve failed to lodge. So if you receive one of these notices, you need to respond right away and lodge your BAS as soon as possible.
If you’re unsure whether you can pay on time, you should contact the ATO to check and penalties. To make the process smoother, be sure to have your tax file number (TFN) handy when calling so an agent can quickly find your tax records.
Even if you expect difficulty paying your BAS, you’ll still want to lodge on time to avoid penalties. You can learn more about debt and lodgment enquiries on this resource.
In some cases, you may be able to set up a payment plan where you can break it down into more affordable instalments. “You can use our payment plan estimator to work out a plan that meets your circumstances, taking into account the payment plan conditions and how quickly you can pay off the debt, including how much interest you’ll be charged, the ATO writes.
You can find the payment plan estimator here.
There are several things you can do to simplify BAS lodging and make it easier when deadlines come around. First, keep thorough records of your sales and purchases. Not only is this important for staying on top of your financials, it will make your life much easier once it’s time to lodge a BAS.
Here are some specific records you need to keep according to the Australian Government:
For a full list of records you should keep and how long you should keep them, consult this resource. There are also numerous software tools you can use to help, and this resource from Capterra offers some great reviews on top platforms.
Next, double check that you enter each tax invoice only once and that all of your expenses and sales are for the correct time period. Any inaccuracies there can throw your numbers off, so it’s critical that all of this information is correctly logged.
It’s also smart to create a separate bank account that’s specifically for GST. Doing so will make it much easier to report and pay once it’s time to lodge a BAS.
Finally, be sure to keep all of your tax invoices and GST records for five years. It’s important that you keep written evidence around for this length of time in case there are any issues or disputes
The bottom line is that business owners who are registered for GST must lodge a BAS. Those who aren’t registered for GST, however, aren’t required to lodge a BAS.
If you fall into the former category, it’s important that you know when lodging deadlines are and always meet them on time. Following the tips listed above should help you do this more easily and avoid any unnecessary friction along the way.
If you’re currently behind on your BAS and in the ATO arrears, there are a few alternate working capital solutions available that can help. Selective invoice financing allows you to leverage certain invoices to obtain a cash advance, which you can use to pay your BAS. There are no long-term obligations, and you can get up to 95% of the value of your invoice, less any fees with approval typically happening within 24 hours. There’s also equipment finance, where you leverage equipment, machinery and company vehicles as collateral to obtain the necessary capital to keep you afloat.
To learn more about these and other options, contact Scottish Pacific today.
What are some techniques you use to keep your tax information organised? Please share your strategies:
Read moreUpdated on 17th September 2024 Australia Tax Office (ATO) debt can be a highly disrupting factor in any business’s cash flow management and can interrupt daily operations in a serious way. Companies facing a debt to the ATO may have relatively few financial options to both repay the debt and ensure enough access to working […]
Read moreOn 1 July 2019, the Fair Work Commission increased the national minimum wage in Australia by 3%. While this may not sound like that big of a deal, it could have a significant impact on cash flow for many SMEs.
In this post, we’ll look at the details and explain how to ensure your business has adequate cash flow in the face of this change.
“The minimum wage from July 1 will be $19.49 an hour, or $740.80 a week for full-time workers,” explains Sydney-based business reporter, Stephanie Chalmers in ABC News. “The Fair Work decision affects around 2.2 million workers on the minimum wage or modern awards.”
This is up from $719.20 per week one year ago in 2018. And considering how minimum wage in Australia continues to steadily increase, this is likely to rise in upcoming years. This graph from Trading Economics of the Australia weekly minimum weekly wage over the years helps put things into perspective.
Designed to increase the wages of employees throughout the country and improve their living standards, it’s a welcome change for low paid workers. It will help this segment of the workforce provide a better life for their families and live more comfortably. So in that regard, it’s positive.
However, these pros aren’t without their cons for employers.
Unfortunately, the minimum wage increase can create potential hardships for many SMEs that employ these workers and put a strain on cash flow. A recent article from the Recruitment, Consulting and Staffing Association (RCSA) examines the situation and mentions the impact it can have on the labour sector.
In it, they quote Scottish Pacific’s head of debtor finance, Wayne Smith, who said, “An extra 56 cents an hour to $19.49 may not seem like much, but labour hire and recruitment businesses have dozens, sometimes hundreds, of temporary staff on their books and the minimum wage increase could impact on both their margin and their cash flow.”
Money that could go to cash flow to buy goods and equipment, cover operating expenses and expand a business must now be spent on increasing the wages for minimum wage employees. For companies where cash flow was already lean to begin with, this is a real concern.
And while the article from the RCSA applies to SMEs in the staffing/recruiting industry, the minimum wage spike impacts far more companies than that. In fact, any business that employs minimum wage workers will feel the impact.
If your company falls into this category, it’s important to look for other ways to improve your cash flow. Here are some ways to go about that.
A good place to start is to reduce the length of payment terms with your clients. While this won’t always be a realistic possibility for every business, and invoices are more likely to go past due, you’re still more likely to receive your money quicker than if you had longer payment terms.
A study by online accounting software company Xero found:
So keep this in mind when negotiating a payment structure with future clients or amending payment terms with existing ones. If you have the leverage to dictate payments, it can take a lot of stress off of you and boost cash flow.
Late payments are an ongoing problem for more than half of SMEs. In fact, research has found that between July 2017 to July 2018, 53% of smaller companies were paid later than the agreed terms by larger organisations, with the average invoice being late by 23 days.
Experts estimate that this equaled $115 billion in late payments. But if those invoices had been paid on time, small businesses would have had an additional $7 billion in working capital.
These numbers show just how big of an impact late payments can have and why it’s so crucial to stay on top of outstanding invoices. This starts by taking steps to improve debtor management so that you’re able to efficiently track what’s owed to you and when.
The RCSA recommends asking clients for down payments or partial payments on big projects where there’s a lot of money involved. This ensures you have at least a portion of payment right off the bat without having to wait for several weeks or even months for the full amount.
You should also be quick to remind clients that they owe you money once the invoice deadline has passed. The last thing you want to do is wait a week before following up. Instead, send a friendly reminder through email. And if you don’t get a response, pick up the phone and call.
It may not always be pleasant conversation to have, but it’s vital for maintaining steady cash flow and keeping your business afloat.
Traditional property secured loans from banks are becoming harder and harder to obtain. Increased lending standards due to the Royal Commission and the current property market downturn have resulted in banks being more selective about who they give money to. In turn, many business owners are exploring financing alternatives that don’t involve using property as collateral.
For instance, peer-to-peer lending, short-term loans and equipment financing are becoming popular choices that can potentially supply you with the cash flow needed as you adapt to Australia’s minimum wage increase.
Another option that’s grown by leaps and bounds is invoice finance or debtor finance where you borrow against the money owed to you from clients. With this arrangement, you submit unpaid invoices to a lender. Once approved (this typically happens within 24 hours), you will be paid up to 95% of the value, minus any fees. You then receive the remaining 5% once your client pays the invoice in full.
There are comprehensive options where the lender assumes responsibility for debt collections, freeing up your time to focus on other areas of your business. Or if you have an in-house team and don’t wish to disclose the fact that you’re seeking financing, you can still handle the collections process yourself.
Debtor finance provides an effective way to leverage outstanding invoices and put them to work in order to improve cash flow. The best part is that you’re not reliant upon funding from traditional bank loans — something that’s become more tenuous in recent years.
And with this change implemented by the Fair Work Commission, it can be a potential game changer for SMEs who are struggling. “It’s not always easy to simply pass on the minimum wage increase to their own customers, some may need to absorb an element of the additional cost themselves,” adds Wayne Smith. “Invoice finance can help them deal with this cash flow challenge.”
Australia’s minimum wage increase is certainly good news for low paid workers who are looking to make a better living. However, it does create an obstacle for many SMEs, especially those who are already facing cash flow issues.
Fortunately, there are several viable solutions available that can meet a variety of needs. To learn more about your business finance options, contact Scottish Pacific today.
How big of a strain has the minimum wage increase put on your company’s cash flow? Give us a call to discuss on 1300 505 883 or click here for us to check in
Read moreFrom the outside it looks like a frustrating career choice: who would truly want the pressure and the hassle of being the country’s Prime Minister?
But if you had the job for just 24 hours and could actually achieve something, free of the headaches caused by the Senate or by pesky backbenchers, well that would be very tempting.
The latest Scottish Pacific SME Growth Index asked more than 1200 small to medium business leaders across Australia what they would change if they were PM for a day, and the results are revealing.
SMEs employ more than two-thirds of Australia’s workforce, so it’s perhaps not a surprise that staffing regulations and excessive red tape feature high on their PM to-do list.
It’s all about the BAS
The top priorities for SMEs were:
• streamlining Business Activity Statement reporting (24%)
• changing the Fair Work Act (22%)
• reducing company tax (21%)
• lightening compliance (10%)
• removing payroll tax (8%)
Following on from the SME Growth Index findings, we asked leading small business advocates what their first action would be to help the sector, if they were PM for a day.
‘Red tape’ has long been a dirty word for SMEs. Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman, has a desire to see workplace relations simplified by establishing a small business industrial agreement that would flatten out penalty rates (as happens under union-agreed EBAs) and make is easier to remove staff who are a bad fit or when the business is trading badly.
“This could be achieved with a payment similar to a redundancy,” she said. “This would reduce red tape, save time and encourage small business operators to hire more people and grow their business.”
“PM-in-waiting” Tracy Woodford, co-owner of a Queensland-based small business Australian Packers and Craters, said her first action would be to make it easier and cheaper to hire staff. “Dealing with compliance, Fair Work Act, super, and all these related issues takes you out of the business a lot,” she said.
“Our business would benefit from having more employees, but that would take us into a bigger business bracket, with tougher unfair dismissal and other regulations. We treat our staff well and pay above minimum rates. We have great staff, but over the years there’s always a few who don’t work out or do the wrong thing, and it’s the red tape around employing people that stops us – it’s just too much.”
Red tape remains a headache
For Scottish Pacific CEO Peter Langham, taking on employment red tape and payroll tax would be a PM for a Day priority. “Adding employees is crucial to growth, yet our SME Growth Index indicates that bringing on new employees, replacing staff and dealing with staff issues is having a big impact on the productivity of the sector,” he said.
For others, though, the chance to get their hands on the Treasury purse strings if they were PM is the big temptation. Grant Thornton Financial Advisory Partner Cameron Crichton would introduce an incremental increase in the base rate of GST (say 1% per year for the next five years) in conjunction with a reduction in personal income tax. He believes the resulting stimulation in consumer activity would flow through to more business for SMEs.
And the benefits wouldn’t end there. “From a working capital perspective, SMEs are generally net remitters of GST (either monthly or quarterly),” Mr Crichton said. “Accordingly, an increase in GST would likely benefit the working capital position of most SME’s as they would control a larger fund of GST collections each reporting period (interest free borrowings).”
Ferrier Hodgson Director Sallyanne Pitt also has her eyes on the tax system, but from a slightly different angle. She would like to see financial incentives or tax relief for SME businesses to arm themselves with greater education to assist them in the day-to-day running of their business and understanding their roles, responsibilities, and obligations being a company director.
“It is not necessarily through want of trying but often directors are not sure where to start or how to approach situations when the going gets tough and what is required of them,” she said.
The Bank Doctor Neil Slonim has always had strong opinions about funding options and a fair go for small business. As PM he would make sure the SME sector was treated no differently from consumers when it comes to providing protection for time poor and sometimes financially unsophisticated small business owners from unscrupulous operators.
And for Craig West, head of the SME Association of Australia, his first task as PM would be to invest in digital technologies to make life easier for small business owners. “I’d get rid of old rules and simplify how SMEs are able to deal with government departments.”
To see our PM for a Day's comments in full, click here.
To find out more about how Scottish Pacific helps businesses click here
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