GST ruling could force SME rethink

THE Australian Taxation Office’s recent ruling on the treatment of deposits for GST will hit SME cash flows. Further, it will leave many with the challenge of finding additional finance or having to make the difficult decision to get tougher on customers in order to meet GST liabilities. Bibby Financial Services managing director Greg Charlwood said businesses with significant funds tied up in unpaid invoices would be the worst affected. “Businesses rely heavily on these deposits for the cash flow needed to meet their immediate liabilities to suppliers, staff and the ATO, particularly around tax time,” he said. “The ruling will mean businesses with already tight cash flow will either have to source the additional finance from within the business – from savings – or increase borrowings just to meet GST liabilities. “For many, the cost will have to be passed on through higher deposits or stiffer terms of trade, steps which could make small businesses less competitive.” Under the ruling, deposits of greater than 10 per cent, formerly considered security deposits and therefore GST-exempt, will now be considered part payment and attract GST on the full value of the sale, even when full payment is yet to be received. For example, a printing company accepting a $5,000 deposit on a $20,000 job will be required to remit GST on the full $20,000 sale upfront and not on the deposit actually received. To make matters worse, suppliers will now also have to pay GST on payments collected from customers who have forfeited their deposit. “Businesses already struggling with their quarterly ATO liabilities, are in danger of falling even further behind,” Mr Charlwood said Businesses hit by the GST ruling were urged not to lose sight of the need to maintain a healthy cash flow. “Businesses need to be proactive in their approach to cash flow management and develop and implement a strategy to ensure cash flow is consistent,” Mr Charlwood said. He said the increased pressure brought on by the new ruling would lead many SME operators to turn to factoring to help them meet their GST liabilities. “By allowing businesses to convert up to 90 per cent of their unpaid invoices into instant cash within 24 hours, factoring gives companies the continual injections of cash they need to pay their bills on time and to grow,” Mr Charlwood said. “The beauty of using a factor is that it allows businesses to keep their terms of trade with customers unchanged and avoid taking on additional debt.” Industries most likely to be affected by the ruling include transport, construction and printing. Year end tax tips With the end of the financial year on us, small business operators have been urged to get in early with tax preparations. Small Business Development Corp managing director George Etrelezis said tax time did not have to be a taxing time. “In terms of tax reporting, now is the time to consider stock valuation methods, bad debts, depreciating assets and pre-payments,” he said. “Now is also the time to attend to slow moving stock and clear it from your shelves.” Following are some tips for small business tax preparation. •Make sure records are complete. Consider using the ATO’s E-record, a free electronic record keeping software product that makes it easier for small business operators to meet their tax reporting obligations. •Review the depreciation schedule or asset register and scrap any equipment that is obsolete or not in use. •Bad debts can be written off before the end of June and may be able to be claimed as a tax deduction. •Talk to an accountant about pre-payments and when they qualify as a tax deduction. •Make sure car expenses records are complete. •Prepare payment summaries for all employees, including details of reportable fringe benefits. •Lodge any outstanding BAS statements immediately. Failure to do so may result in penalties. •Consider the simplified tax system (STS). Under this system, companies can account for most business income only when received and deduct most business expenses only when paid.

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