Our Prime Minister, Mr. Kevin Rudd and the Labor camp have come out and made a pitch to get some votes from the business community by declaring that if they win the weekend’s election, Business Activity Statement (BAS) will only need to be lodged annually, rather than quarterly.
This is a recipe for disaster!
Currently to lodge a BAS, any business owner has to have all their financial records up to date; everything they have spent or earned during the quarter needs to be accounted for, allocated and recorded in some shape or manner on a quarterly basis.
The Prime Minister’s proposed policy will encourage some business owners to defer recording their financial transactions until the end of each year, depriving many small business owners of an up-to-date understanding of their financial position – a must for any successful business!
The Prime Minister’s research suggests that small and medium businesses spend almost 500 hours a year on their tax obligations. In fact, what the Prime Minister seems to have forgotten is many of those 500 hours are spent recording and tracking the financial health of their business; and as an accountant, I would remind the Prime Minister that this forms an integral part of managing any successful business. If a business owner doesn’t have regular and up to date numbers at their disposal, how can they expect to make well informed decisions to benefit them and/or their business?
It has been suggested that GST could be paid in installments throughout the year based on the previous year’s performance. Having processed many thousands of BAS forms over the past 13 years, I know for the most part the amount businesses pay fluctuates, sometimes considerably from quarter to quarter, let alone what will happen from year to year.
Subsequently, any assumptions made about how much GST a business should pay based on the previous year’s results are likely to be inaccurate and may result in the business owner paying thousands too much in GST.
For the government, a few thousand dollars here or there might seem inconsequential, but for many small business owners it may be a massive hit to their cash flow situation. It could mean the difference between them being able to pay their rent, electricity or even staff wages.
For most small to medium businesses, paying GST in installments throughout the year based on assumptions on how much revenue they earned the prior year would result in one of two things happening: –
1. Overpaying their GST obligations, or
2. Worse still, underpaying their GST obligations.
The consequences of under paying could be quite detrimental to any business owner. If GST has been underpaid (let’s be honest, who is going to overpay), the end result will be a tax bill they may not be expecting that could have serious cash flow implications.
As an accountant dealing with many business owners, I know a shortfall in cash is one of the major killers of small businesses – have a guess where that will leave many small business owners who are currently just staying afloat?
In case the Prime Minister hasn’t realised, small and medium business is the lifeblood of our economy – just like cash flow is the lifeblood of any business as is the financial management of any business.
As someone who works in the accounting industry, I am constantly witnessing the results of business owners who do not understand this side of their operations. Many business owners are creative thinkers and visionaries who at the best of times struggle with the more financially-minded side of their enterprise.
This proposal, which would allow many small businesses to file their BAS just once a year, would give them permission and encouragement to ignore it and the financial side of their business for the other 11 months of the year.
The consequences of doing this could be an absolute disaster!
I can only plead with the Prime Minister, to talk with the community or better still, talk to accountants like myself who deal with the real world and real people, each and every day.
If you need more information or clarification about your BAS obligations get in touch and look us up at www.zjl.com.au