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GST: What the changes mean for business

By Heather Jennings

3 min read

How will the GST reforms affect your small business? Find out what you can do to safeguard your business once the reforms kick in.

With the Australian economy having one of the lowest GST rates in the world, the planned GST reform package is designed to boost economic activity across the country. While the nature of the reforms is yet to be confirmed and implemented, raising the GST from 10% to 15% is among the key changes being considered.

Under this change, the GST base would be expanded to include all food and non-alcoholic drinks and aim to generate an extra $42.9 billion in the first year. Other options that have been floated include expanding the GST to include health and education services, introducing a financial sector tax and raising the Medicare levy to 4% over eight years.

So what does all this mean for small businesses, and how can you prepare for the changes?

A Knock to Customer Confidence 

With a higher GST raising the cost of all goods and services, this could have a knock-on effect to customers becoming hesitant to pay for more expensive items.

Despite the possibility of the government introducing assistance measures for lower-income households who would struggle with a rise in GST, low to middle income earners may still pull back on spending. Additionally, with the growth of online retailers in recent years, customers may turn to online to buy discounted products and services, which could affect the overall sales of small businesses.

In case of a GST rise, small businesses should notify customers well in advance of price changes to their products and services to reduce any ‘price shock’, particularly for higher-priced items. Offering product bundles, discounted items and loyalty programs are also smart tactics to keep buyers engaged in the business if a GST hike happens to affect consumer confidence.

What You Can Do

There are several things you can do across your operations to prepare your small business for a GST increase. In the instance of a rise, review your accounting systems to ensure they can adjust to a change in the GST rate.

Secondly, look at all your ongoing contracts to ensure they have the ability to incorporate the cost of a higher GST. Thirdly, review your stock levels and product and services price points – particularly for businesses in retail, there may be a surge in purchases before the GST changes hit.

Controlling Cash Flow 

Maintaining healthy cash flow in the lead-up to and during a GST rise is essential for small businesses. Start by creating a cash-flow forecast, which maps out the peaks and troughs in your cash balance annually. This will help you plan when to spend on big-ticket items and retreat on purchases in certain months.

Meanwhile, don’t forget to put an appropriate amount of money away towards tax – especially if a GST rise is on the horizon within the next financial year or two.

Seasonal businesses that receive the bulk of their earnings around busy times such as Christmas should also have a separate savings account set up to hold money for future tax bills. Having this set aside will ensure you are not short on money when tax time rolls around.

Lastly, if you need to buy any expensive items for the business such as furniture or computer software, aim to do this before the GST rise takes effect.

Read more about cash flow: 7 Ways to Improve Your Business Cash Flow.

With the government looking to implement a GST increase in the next year or two, your small business should begin to assess its operations should this occur. Review your ongoing contracts, look at your accounting software capabilities and plan a cash-flow forecast to ensure your business will be fully prepared for the government’s tax reform.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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