The accuracy of the content is not guaranteed. Please rely only on the authorised document. The Australian Securities and Investments Commission (ASIC) today urged all tradespeople and small business operators to be aware of "knock-on" effects to their businesses after the introduction of the GST on July 1. ASIC’s Public Information Program Director Jeremy McNeice warned that many small businesses are currently experiencing increased activity as consumers try to beat the price increases they expect to occur under the GST, and this could leave some operators scrambling to cope with the new tax system. Companies should be aware by now that the first GST payment to the Australian Tax Office (ATO) must be made in October. Operators will need to set aside money collected for GST to make this payment rather than using it as a source of cash flow. They must also be aware that some creditors who have not set this money aside may make their GST payment to the ATO in preference to paying their outstanding business accounts. The non-payment of money owed by creditors can have a serious effect on the financial viability of a business. Company directors face added pressure in that the Corporations Law requires companies to cease trading if they are unable to pay their debts. Mr McNeice expressed concern that some business operators and tradespeople may be overextending themselves at present in order to cope with demand, and might not be aware that periods of great activity were often followed with periods of reduced activity. "Business operators must take steps to determine if they will have sufficient resources, in an environment of reduced activity, to meet both their past financial obligations and their future GST obligations," Mr McNeice said. Mr McNeice emphasised that unless businesses disclose their Australian Business Number (ABN) on invoices, then 48.5% of their payment must be withheld by the business who received the goods or services. This money will be passed on to the ATO and can only be claimed back by the original supplier at tax time. "Small companies must assess their cash-flow positions and ask themselves: can my business remain viable if I only receive half my invoiced costs?" Mr McNeice said. Companies must also consider any fixed price contracts they may enter for the provision of goods and services, which do not allow for an increase in price due to GST obligations that may accrue. Work carried out after July 1 will incur additional costs, and operators must assess whether they will be able to meet these additional financial commitments when no allowance has been made in the contract to recoup any GST paid in completing the work. "Unfortunately experience has shown that business operators and tradespeople often overextend credit facilities and suffer severe financial difficulty when creditors fail to meets their obligations or go into liquidation," Mr McNeice said. Mr McNeice referred to the cyclical nature of the building industry in particular, and commented that busy periods were often followed by slow periods resulting in many sub-contractors being unpaid when the contracting builder went into liquidation. ASIC urges small business operators and tradespeople to take steps now to protect their interests by carefully scrutinising their cash flow position, the credit worthiness of clients and their contractual obligations.
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