Australian businesses are cautiously optimistic about 2022. COVID-19 restrictions have been lifted, and consumer spending remains high. However, inflation and interest rate hikes threaten to eat into profits, making tax obligations a key concern for the Small and Medium-sized Enterprises (SME) community.
The recent and forecast rate hikes put the cost of living pressures at the centre of the election campaign, with these expected to put a turn on consumer spending.
The increase in interest rates and increase in inflation means that consumers’ cost of living will increase as mortgage repayments rise and consumables increase in price, it also impacts wages as employees demand increases in wages to counter the cost of living. All this means SME’s will in most cases experience a decrease in revenue, an increase in their costs, pressure from employees to increase wages, and will have higher repayments on commercial debt.
Facing these pressures, it is now more important than ever for business owners to review their budget, revise their forecasts and seek out strategies to grow their business, if not at least ensure they have in place strategies to maintain revenue.
The new government will have powers that enable them to a certain extent to control inflation and stabilise the economy. What SMEs are looking for is certainty and an understanding of how their customers will be impacted to shape decision making.
Labor’s policy platform says little about taxation. Their policies focus on other topics which are not as business orientated. However they have expressed a desire to cut the red tape come tax time and to collaborate with the sector to ease the process. Labor wants to be “pro-business, pro-employer”, the Shadow Treasurer said.
Key tax measures in action:
- The pre-COVID tax cuts have now come into play with the tax rate for SME’s now at 25% for companies with a turnover less than $50 million.
- The federal government has committed to pay-as-you-go tweaks, predicted to boost cashflow to the tune of $1.85 billion. This meaning that you will pay less throughout the year but may end up paying more at the end when you lodge your tax return.
- The 2022-23 federal budget included bonus tax breaks for spending on technology and digital training, a $120 deduction for every $100 spent on relevant upgrades and staff upskilling.
- Instant asset write-offs and loss carrybacks still around for the 2023FY.
Things to consider in your business planning:
- How will the cost of living pressures and interest rate rises impact your customers spending with you?
- Look at the key tax measures and how you can take advantage of them to grow your business, e.g. announced tax breaks for spending on technology and digital training, on the flipside diversifying to provide these goods and services to which demand should increase as a result of these policies.
- Reduced uplift in PAYG tax instalments, make sure you understand your cumulative tax liability so you don’t find yourself too short at the end of the tax year. If you’re not already, it’s now time to factor your cumulative tax liability into your management reports.
If you have any questions about how your business can plan for the future, contact us today.