What COVID-19 means for your End Of Financial Year statement
Are you wondering how COVID-19 has affected business and business tax? Here, we look at the ways the pandemic is impacting businesses End of Financial Year statements.
The COVID-19 pandemic has tested many business owners. As a result, tax time may look a little different this year. From fluctuating profits to tax incentives, here’s how the pandemic may impact your End of Financial Year (EOFY) statements in 2020.
Coronavirus has caused profit drops in almost every industry, so if your business has been affected, it’s also likely to affect your EOFY statement. So one of the key ways that your EOFY statement might look a little different is that you may be registering decreased profits. If you’re a sole trader, that could mean that you’ve suddenly slipped within the tax free threshold. Conversely, if your profits have unexpectedly increased, you might find yourself exceeding the threshold. In this case, you might have to pay business tax this year.
Since companies do not benefit from a tax-free threshold, the government has lowered company tax for 2020 from 27.5% to 26% for businesses with an annual turnover of less than $50 million for this financial year. Anticipating a long recovery phase post-pandemic, there will be another drop in company tax in the following financial year, down to 25%.
Unincorporated businesses with aggregated annual turnover below $5 million may be able to benefit from an increased tax discount rate. Initially sitting at 8%, it’s been increased to 13% for FY20-21 and 16% for FY21-22.
The government is offering a number of incentives to aid the recovery of businesses impacted by the pandemic. For example, via the instant asset write off scheme, which now has an increased threshold. Where businesses formerly could only claim asset purchases of up to $30,000, you can now write off purchases up to $150,000, so long as they’ve been acquired after 12 March 2020 and installed before 31 December 2020 – so it might be a good time to invest.
There’s no denying that COVID-19 has had a devastating impact on the economy, causing cash-flow crunches across the board. That’s why the ATO introduced the option to defer your business tax payments this financial year to help businesses get their cash flow back on track. Tax payment deferral applications can be lodged up until 14 September 2020 with no interest or penalties to be applied should your business be approved.
Though the pandemic may have brought your business to its limits, the government is committed to helping Australian businesses get back on their feet. As a result, you should check how your business’s End of Financial Year statement should reflect that, so you can take advantage of the tax breaks and deductions you may be eligible for. An accounting professional may be able to help you navigate the changes.
This article is a general overview and should be used as a guide only. We recommend that you seek independent professional advice about your specific circumstances before acting.