We have had many sole traders contact us and ask “what the government has done for us in the stimulus package”. It may seem like most support is being given to employers, but we wanted to compile some information for you to consider for your sole trader business.
Although the majority of this article is focused on your financial health, the vital thing is that your number one priority should be to take care of your and your family’s health; and that you take all precautions necessary so you can to ensure you stay healthy – for yourself, your family, and the community.
For those who do contract COVID-19, unfortunately any income protection will not be likely to cover you. To read more about what your insurance will and won’t cover in regards to corona see. https://luckfg.com.au/coronavirus-covered/
Is it viable for you to trade?
Calculate your Break Even
Firstly, before looking at stimulus package you should be asking yourself if you should keep trading.
It is important to understand for your business, at what point does it become no longer viable for you to keep operating (for those in industries that have not been forced to cease operation).
The key to this is understanding the sales/customers you need to be earning to cover your costs – your break event point.
To calculate,
Break-Even Point (Sales in $AUD) = Fixed Costs ÷ Contribution Margin
Contribution Margin = Price of Product – Variable Costs
Once you have your Break Even, you will be able to determine if it is financially feasible for you to keep on trading or if you are better to pull up stumps. If you need assistance to calculate your break even, feel free to contact us – we will be happy to assist you.
The rest of the article will be broken down into two scenarios –
- You determine you can keep trading profitably
- You determine you can no longer trade (whether that be due to forced closure or not financially viable to continue)
Scenario A.
You determine you can keep trading. What is available to you?
Once it is determined that you will keep running your business to help keep you on track financially, you should review your cash flow budget to ensure that you have minimised unnecessary expenses and understand the timing of all your upcoming payments.
It’s also worth knowing in this time of uncertainty, your bank/financial providers may be an ally for you. Many are offering deferred payments on existing loans. Please contact them to discuss as they are assessing on a case-by-case basis.
Instant Asset Write-Off for Sole Traders
For those of you that are continuing to trade profitably and are concerned that you may even have a tax bill at the end of the year, as a sole trader you are eligible for the $150,000 instant asset write off.
If purchasing assets prior to 30 June, you will help you to reduce your taxable income and any subsequent tax liability.
State Government Economic Relief Packages
The state Government has also offered support in its economic relief package including incentives such as:
- Financial workshops and mentoring to help SMEs;
- A small business hotline; (Ph: 1300 654 687 or visit business.qld.gov.au/home)
- A $1.1 million ‘Market Ready’ initiative to provide tailored export advice to SMEs;
- A $500 rebate off energy bills for businesses that consume less than 100,000 kilowatt hours;
- Rent relief for businesses that rent state government premises.
- QLD also has a $500 million loan facility comprising low interest loans of up to $250,000 for carry on finance with an initial 12-month interest free period, to help businesses to retain employees and maintain operations. Although it is called Job Support Loan the guidelines do state that a sole trader can be eligible as it may consider the business owner to be regarded as an employee when working in the business – more information visit walshaccountants.com/coronavirus-state-government-stimulus-packages/ – information on the Job Support loan can be found at the top of the page.
ATO Relief for Sole Traders
You are also eligible for ATO relief in terms of
- Deferring the payment of activity statements (including PAYG instalments), income tax assessments by up to four months
- Allowing businesses on a quarterly reporting cycle to opt into monthly GST reporting to get quicker access to GST refunds
- Allowing businesses to vary PAYG instalment amounts to zero for the March 2020 quarter, and claim a refund for instalments made for the September 2019 and December 2019 quarters
- Remitting interest and penalties incurred on or after January 23 that have been applied to tax liabilities
- Low-interest payment plans.
Scenario B. You determine you can no longer trade – What is available to you?
If you are doing it tough and decide/forced to cease operation; there is financial support available to you. The Government has announced that Jobseeker Payment (Newstart) will be available for sole traders (who meet the income test) and that they will waive asset tests and waiting periods to make it more easy for you to access this support.
They have also temporarily doubled the amount which will provide an additional $550 per fortnight – for more information, refer to The Australian Government Income support for individual’s fact sheet.
Once you register/receive the Jobseeker payment, you will also be entitled to receive the additional $750 payments which will be automatically paid on July 13.
Self employed are also eligible to apply for the new Job Keeper payments . This The subsidy will last for 6 months, will be payable directly to employers from May (backdated to 1 March) and is aimed at keeping employees and, to some extent sole traders, in work. Businesses will need to demonstrate a 30% fall in revenue to qualify.
Government has also allowed access to $20,000 tax free from your super fund ($10,000 in each the 2020 and 2021 financial year. As a sole trader you would need to demonstrate that your income as dropped by 20 per cent or more as a result of the pandemic. This is applied for through your MyGov Account.
Also all the ATO Relief for Sole Traders options listed above in Scenario A. are also applicable to Sole traders who cannot continue to operate.
Finally, it’s also worth knowing if you have ceased trading, your bank/financial providers may be an ally for you. Many are offering deferred payments on existing loans. Please contact them to discuss as they are assessing on a case-by-case basis.
So remember, even as a sole trader you are not alone. Walsh Accountants have a dedicated Start-up, Trades and Services Division and we are here to support you in any way we can.
The following support services are available to you:
- Help you understand the stimulus package and what may be relevant/available to you
- Work through government applications to take advantage of stimulus measures
- If you are having severe financial difficulties, contact the ATO on your behalf negotiate assistance
- Help you ascertain your financial position, prepare cash flow budgets and determine your break even
- Help develop a financial action plan to get through the downturn
- Connect you with business professionals to support you other areas.
If you are in need of our assistance, please do not hesitate to contact us today.
