AFTER all the hurdles small businesses have had to clear with the New Tax System, their greatest test is coming – end of financial year reporting.
AFTER all the hurdles small businesses have had to clear with the New Tax System, their greatest test is coming – end of financial year reporting.
It has become clear that most businesses used to dealing with the old sales tax regime have taken to the GST with aplomb.
But accountants have been concerned that small business owners have become “taxed out” because the traditional March interim accounting period has been very quiet.
The interim accounting period allowed many small business owners to prepare for their tax returns and identify legitimate tax deductions.
Besides the GST, many small business owners will need to know whether they will be caught by the Alienation of Personal Services income provisions that came in at the beginning of the 2000-01 financial year.
Unless a business is part of the old Prescribed Payments System it will have to face up to alienation of personal services income this year. Those under the PPS will need to deal with it next year.
Small business owners also need to know whether they have put procedures in place to ensure they can claim all of the deductions they are legally entitled to.
This includes things such as the writing off of bad debts. Bad debts offer both a GST and an income tax deduction – if they are written off before June 30.
The jury is also out as to whether the GST would help build better businesses.
It was thought the disciplines required to complete the Business Activity Statement would give small business owners a better idea of how their business was travelling and what areas needed tightening.
Institute of Chartered Accountants in Australia spokesman Roger Sullivan said the New Zealand experience showed most small businesses enjoyed a 1 per cent profit growth two years after the GST was introduced – without having to increase sales.
“But getting there, 40 per cent of the businesses went broke – about double the norm,” he said.
“In Australia, those that haven’t handled cashflow well with the GST really risk going belly-up.
“For those more complex businesses – bigger than mum and dad operations – there are a lot of issues arising that they don’t know how to deal with.”
Mr Sullivan said the BAS simplification changes were made too late and diluted any business benefits gained from the disciplines associated with BAS reporting.
“With the simplified BAS people have gone back to doing what they did last year,” he said.
Fallon Group partner Tony Ince believes the GST is building better businesses, but said the Government could have achieved the same result by starting with a simpler BAS form.
“I think small businesses have a better idea of how they are travelling but the simplification process set that back, especially with the estimation part,” Mr Ince said. “Anecdotally, it seems a lot of people are still opting to do the BAS quarterly.”
He said many small businesses faced problems reconciling their BASs with their income tax return due to the BAS adjustments made along the way.
Small Business Development Corporation managing director George Etrelezis said the fact small businesses had been paying Pay As You Go tax along the way should help prepare them for their end-of-year returns.
“Small businesses don’t want to miss out on any legitimate deductions. I’ve always advocated small businesses should visit their accountants two to three months before June 30 to square away their finances,” Mr Etrelezis said.
WA Small Business and Enterprise Association executive director Philip Achurch said the argument that the GST would build better businesses was rubbish.
“This country was built on initiative and the GST has taken that initiative away,” he said.
“It is loathed by many small businesses.
“Initially, small businesses tried very hard to ‘live with’ the GST, but the new tax has had a significant effect on discretionary spending.”
