When will businesses have to pay back the JobKeeper?

For many businesses as the clouds of COVID 19 begin to lift there is an uneasy feeling around the amount of money the government is giving to them. There is no doubt business has suffered and will continue to suffer for many months to come. But for more businesses than you may think, they are actually returning to levels that are busier than before! Many have made more profit than they expected with a lower cost model over the lock-down period.

The combination of wages being paid for under the JobKeeper program, state electricity rebates and reduced or exempt rent may mean very quickly you have additional profit. Add this to what until March was a bumper year for many and BOOM(!) you have an inflated profit and the tax man hasn’t gone away.

A common scenario may be as simple as this…….

John and Jenny run a small carpentry business. They normally employ 6 people and make a profit of $120k. They take home a profit of $60k each paying around $3,000 each per quarter in PAYG instalments to cover their tax.

They were having a big year and profit to the end of March was already $115k. In April they had a number of jobs cancel and with nothing on the board they rightly so enrolled in the JobKeeper program. On the 7 May they received their first JobKeeper payment of $21,000.

They also asked for rent relief and from 1 April their landlord offered a $3,000 per month rent reduction. They applied for the state energy grant and received $2.5k there.

Being frightened of what the next few months would hold they also decided to cancel the March PAYG instalment and claw back the PAYG instalments they had previously paid for the 2019/2020 tax year.

Business isn’t quiet. As other businesses and employees start receiving money the phone rings. They are booked solid for May and June and look like making profit of $20k in both these months with no rent to pay.

So………………. here is where the perfect storm happens...

Pre COVID-19 Profit$115k2 x Taxable JobKeeper Payments$42kElectricity rebate$3k (rounded)Additional profit May and June$40k

Taxable profit $200k  - Tax payable $50k

John and Jenny will have taxable income of $100k each this year which will have tax payable of $25k each. As they have paid no instalments for the year this will be a combined bill of $50k due in May 2021!!!

Have you run the numbers for your business? Are you ready for when the tax man comes knocking? With another cashflow boost still to come, now is the time to plan.

We have designed a tax planning model specifically to cater for the Stimulus package and are always happy for a free chat….so call us now to discuss how you can best prepare before 30 June ticks over.

To contact us, call either of our offices.

Author: Gemma Denton CPA, Director. Find out more about our team here.