Summit Accountants and Business Advisors welcome with pleasure a new member to the team - Marcia Smith.
Marcia brings with her a passion for client service ensuring you receive the best service available. Marcia joins us with three years experience in a private practice, preparing financial statements and tax returns for companies, trusts, partnerships, individuals and self-managed super funds, along with Business Activity Statements. She joins Janine’s team providing corporate compliance. With her Bachelor of Business (Accounting), and her desire to complete her CPA accreditation, we believe you will find dealing with Marcia as delightful as we do.
So, you’ve been managing the costs of running the business well during the economic downturn, but is your cash flow ready for June?
June is a notorious month for making a tight cash flow even tighter with a number of payments due to be made to the ATO. Are you prepared to make the following necessary payments:
- FBT Returns – If you lodge a Fringe Benefits Tax Return this is due for lodgement and payment in May.
- BAS payments – Your BAS for Jan–Mar is due April/May.
- Superannuation – Ensure that your superannuation is paid and received by the superannuation funds before 30 June 2009 if you want it to be deductible in the 2009 financial year.
- Company Tax – Many companies leave their tax return lodgement until the last possible minute, meaning that any adjustments to company tax are due for payment in May. If your company had a good 2008, you may be liable for a higher tax payment. This may be challenging to your cash flow if 2009 has not been as strong a year. Additionally, your 2009 PAYG instalments are set on the 2008 return, so you may also end up with a higher tax rate. Let’s look at an example:
George’s IT company made a $20,000 - $30,000 profit in the 2007 year. His company tax was approximately $9,000. George’s 2008 quarterly PAYG was based on the previous year’s return (meaning that he paid instalments of around $2,500 per quarter). However, George had a great year in 2008 and now owes the ATO an additional $130,000 in tax (the difference between the tax he paid in instalments and the actual amount owing on the profit earned). When George’s company tax return is lodged, it triggers the $130,000 tax payment. Based on his 2008 year, his PAYG instalment rate is also reset at a higher rate for 2009. Then, at the end of 2009 in the June quarter, there is another catch up payment of $130,000 for the lag.
It’s easy for businesses that have been profitable and have grown quickly to face a sudden cash flow problem.
- End of Financial year tax savings – The end of the financial year is often the time businesses make purchases or extra payments to super to increase tax deductions.
How long will the recession last?
The treasurer of Australia, Wayne Swan, has finally used the R-word to describe the current financial situation in Australia. While this came as no surprise to the majority of us who have seen our superannuation drop, retail sales drop, the unemployment rate increase and the failure of international banks, what most of us want to know is how long will this last and when will improvements begin to affect me?
Australia has so far ridden the recession wave better than most countries, and while growth is predicted to be slow, the economy is currently doing better than many others.
One way we can measure the length of recessions is by reviewing the rise and fall of equity markets.
The market fall in 1929, which heralded the Great Depression lasted 5 ½ years (from the peak of the market to the point where the market started to rebound.) The 1980 crash lasted 3 years, the crash of 1987 lasted just under 6 ½ years and the OPEC oil crisis lasted just over 6 ½ years. It seems the OPEC crisis is the closest to our current situation in nature. So does this mean we are in for 6 ½ years of financial crisis?
Maybe, but watching the equity market rise and fall is only one measure. Falls in the equity market usually translate into company collapse, bankruptcy and greater unemployment in the market place, but these may not be immediately visible.
Reserve Bank Governor, Glenn Stevens, recently claimed, “The financial turmoil following the Lehman collapse was the most intense in generations. It was contained within about six weeks, and indeed over the past few months conditions have been gradually improving in financial markets, in several respects. But we are now seeing the fallout in the rest of the economy from that financial turmoil.”
Before the Great Depression the unemployment rate in Australia was between 3 and 6%. In 1929, the rate was 10%. It was not until 1932, three years after the market crash of 1929, that unemployment hit its peak of 21%. Following the crash of 1980, unemployment did not reach its peak until 1983, when it reached 10.4%.
Clearly, this is a simplistic view, which does not take into account surrounding factors such as industry types, and a spike in the market does not always follow a market crash. However, this does show that while the market may be recovering slightly, the knock-on effect in the real world may not yet be fully visible. The effect on average Australians may only just be beginning to be felt.
So what does this mean for you?
Simply, be aware. Market improvements do not necessarily mean improvements in everyday life and history would show that we may not have felt the full effects yet.
Did you know?
Owning your business premises through your Self Managed Superannuation Fund is a common strategy for many business owners. But have you ever thought about what would happen if one of the fund members died? In many cases the fund would have to sell the business premises as few have the money available within the fund to pay out the deceased member’s estate for their share of the business premises held in the super fund. And, this all has to happen within a relatively short time frame to meet SIS requirements relating to death benefit payments.
But did you know your fund can insure against this very scenario? Putting the right insurance policy in place can protect you, your business and the other members of the fund. Insurance provides protection from being forced to sell the fund’s assets (particularly at a low point in the market).
Not all insurance policies are the same and you will need financial and tax planning advice to produce the right result. Please call us if you believe this is something you need to review.
Quote of the Month
“In the business world, the rear-view mirror is always clearer than the windscreen.”
Warren Buffett
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