Forecasting in a Pandemic

Clarke McEwan Accountants

Understand where you stand now

Businesses fail (or fail to thrive) for a myriad of reasons, but the precursor is often a failure to understand what is occurring and what to monitor. Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are - the things that make the difference between doing well and going under - then it's time to find out.

Understanding your cost structure

Do you know what your real cost of doing business is? Your breakeven point is the level of sales activity where your business is neither making a profit or a loss. Calculate your breakeven point by dividing your fixed expenses by your gross profit margin. This figure represents the level of sales income you need to breakeven.

Understanding your breakeven point is crucial particularly when supply chains are impacted.

Not only will your breakeven point assist you to monitor business performance, it's critical when deciding whether or not to offer a discount. If your breakeven point is well below your current operating level then you have a good buffer in your profits to manage growth, invest in further capital opportunities, and to protect yourself against further downturns in operating performance. And before you say "I know that," ask yourself how many people actually put this theory into practice. Even some of the largest businesses have been caught out on this one and tie up valuable resources in unprofitable projects and products.

Putting up your prices during down times is not an act of social betrayal. If your prices have increased you should flow these through unless you are comfortable making less for the same amount of effort, or you are in an industry that is so price sensitive you have no choice but to follow the lead of larger businesses.

Discounting creates a leverage impact on profits. By discounting you are giving away some or all of your profits. The key is to understand the impact and just how far you can go. For example, a business with a 30% gross profit margin that offers a 25% discount (certainly nothing unusual about that in today's market) needs a 500% increase in sales volume just to maintain the same position – and, in almost all cases, that's just not going to happen. The result generally is that the business trades below its breakeven point and generates a loss. You can only do that for a limited amount of time (and some of your larger competitors might be engaging in a discounting war with you in an attempt to bury you once and for all).

If your business needs cash and needs it quickly, discounting might be the only way to shift stock but understand the implications.

Plan, review and adjust

Your budget should be your best estimate of what is likely to occur based on current knowledge. To manage change, you can scenario plan where your budget forms the baseline, but you also forecast best and worst case scenarios based on potential risks and their likelihood (for example, the impact of another lockdown). Or, the simplest method is to use your budget as a baseline and regularly review and adjust depending on current conditions.

The greatest risk to your profit is unlikely to come from your cost structure. It is more likely to be revenue volatility. Keep your eye on your cost structure and make sensible cuts where appropriate. But, in your search for savings don't remove your essential revenue generating capacity that you need.

A lack of profit will eventually erode your business, but not enough cash will kill it stone dead. Businesses will fail because they don't manage their cash position. Plan, track and measure your cashflow. This not only means closely monitoring your debtor collections and inventory but also running a rolling three month cashflow position. This should provide an early warning of brewing problems.

Manage your debt levels carefully (your bank is likely to). While there is nothing wrong with debt, it is likely that the banks will be closely watching customer accounts. Where you have loan facilities in place make sure that you understand the loan terms and any debt covenants that you have entered into. These covenants could include regular reporting to the bank, debtor and working capital ratios, or debt to equity ratios. Where the banks may have been more relaxed about these in the past, this year will be different. If you believe that you need additional funding, talk to your bank early and don't wait until the last minute. You'll need to present your case on why you need it, how much, for how long and when it will be repaid.

Cash flows, operating budgets, cost control and debt management all need to be part of your business management. The more in control you are the lower your risk position.

Understand the external environment

The COVID-19 pandemic has implications well beyond the economy; it has changed how business operates and how consumers act. While comparisons are made to the 2008 Global Financial Crisis and the recessions of the 1980s and 1990s, the reality is, we have no case study. There is no rule book for the post pandemic road to recovery as this is not an economic event. The pandemic pulls the economy up short curtailing both supply and demand; businesses are not operating at capacity and fewer people are working.

The Federal Budget is released on 6 October and we're expecting to see the Government invest heavily in job creating projects. Many of these will be focussed on infrastructure. Each of these projects will have a flow through effect to the broader economy. We'll bring you our insights the day after the budget and you should loom to see if there are opportunities your business can capture.

Understanding your supply chain is important. Risk manage and plan for changing conditions. For example, what is your business's ability to manage a surge in demand, do you have a small supply base and what would happen if your primary supplier went into bankruptcy, do you have a good flow of information across your supply chain or is there a lack of transparency and knowledge, do transport problems risk your ability to supply? Assess it, understand it, and manage the risks.

When it comes to demand, there is no instant fix. The RBA suggests the decline in GDP in the first half of 2020 is around 7% and the contraction in hours worked around 10%. The economic impact of the restrictions in Melbourne extend well beyond Victoria and are impacting more generally on consumer sentiment. This week we expect Australia to have a formal "recession" label added to our economy, formalising what most business operators already know.

But it is not all bad news with confidence lifting on early signs that revenue is no longer declining for the majority of Australian businesses. The latest ABS data on the impact of COVID-19 shows fewer businesses reported a decline in revenue in August (41%) compared to July (46%), and fewer still expect a decline in September (28%).

However, 35% of businesses expect it to be "difficult or very difficult" to meet financial commitments over the next three months, with small and medium businesses almost twice as likely as large businesses to fall into this category. Understandably, the response to this question is heavily weighted towards those operating under Government required restrictions and lockdowns.

The RBA is working with three scenarios for Australia's economic outlook: a baseline, upside and downside scenario. In the baseline scenario, conditions improve in the second half of 2020 and slowly improve over 2021 and 2022 but fall short of returning to pre COVID forecasts with Victoria's lockdown not materially extended and Australia's international borders remaining closed until mid 2021. The upside scenario saw no extension of the Melbourne lockdown, and further easing of Government restrictions nationally, which in turn bolster consumer confidence, encouraging spending and the reversal of GDP decline over 2020-21. The downside scenario envisages a global resurgence in infections with Australia facing periodic outbreaks and rolling lockdowns. The RBA notes that the downside scenario has a sharper fall than the increase of the upside scenario because of the damage to consumer confidence of further lockdowns.

Business investment is also expected to be relatively flat with the ABS survey showing that 37% of those surveyed had no actual or planned expenditure. Of those that are spending, IT hardware and software, and equipment and machinery topped the list. The instant asset write-off is helping to stimulate business investment in the small and medium business sector. In general, large businesses are paying down debt rather than spending and small and medium businesses have not sought to extend debt to fund investment.
Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

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Running a successful medical practice requires more than delivering excellent patient care.

Why Good Financial Management Matters in Medical Practices

By Clarke McEwan • August 11, 2026

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Changes to Self Managed Super Fund (SMSF) borrowing rules

By Clarke McEwan • August 10, 2026

To ensure passage of the negative gearing and CGT discount changes that were announced in the May 2026 Federal Budget the Government agreed to make amendments to the SMSF borrowing rules. SMSFs are able to borrow in restricted circumstances which includes borrowing under a limited recourse borrowing arrangement (LRBA) to purchase a single acquirable asset. While there have previously been no specific legislative restrictions on the type of asset a SMSF can borrow to purchase, most commonly we see LRBAs being used to purchase property. Up until this point, this could have been any type of real property. These amendments will mean that when SMSF trustees wish to borrow to purchase a property, it must meet the business real property (BRP) definition. This BRP definition relates to usage of the property rather than zoning or what the property was originally built for. This change became law on 26 June 2026, but the Bill includes a 45 day transitional period which will finish on 10 August 2026. This transitional period may allow for arrangements that are currently being implemented on non-BRP assets to be allowable under the new rules where settlement occurs after 10 August 2026, provided the arrangement to purchase the property was entered into on or before 10 August 2026. We recommend that SMSF trustees who are currently implementing LRBA arrangements on non-BRP assets seek specialist SMSF legal advice to ensure their arrangements meet these transitional rules. While this change has been referred to in the media as a ban on super funds borrowing to purchase residential property, the use of the BRP definition makes the change slightly more complex than this. As this definition relates to usage of the property, it is possible that some residentially designed properties could meet the BRP definition (for example, a medical practice that operates from a residentially designed terrace dwelling). The BRP definition also requires that the property is wholly and exclusively used for business purposes. This could mean that some properties that may initially appear to be commercial in nature may not meet the BRP definition (for example, a mixed use residential and retail property on a single title). We recommend that SMSF trustees entering into new LRBAs seek advice from specialist legal and financial advisers to ensure the new requirements are met. Existing arrangements The updated rules allow for existing LRBAs over non-BRP assets to continue. They also allow for existing arrangements to be refinanced, subject to lender availability and approval. For any further information please contact our office.

Navigating the 2026–27 Car Thresholds

By Clarke McEwan • August 10, 2026

If you're thinking about purchasing or leasing a vehicle for your business in the new financial year, it's worth understanding the updated car thresholds that apply from 1 July 2026. While these limits may seem technical, they can have a practical impact on the amount you can claim for tax depreciation deductions, the GST credits that are available, and whether luxury car tax (LCT) could apply. Knowing how these rules work before signing a contract can help you make a more informed decision and potentially improve your overall tax and cash flow position. The car limit – understanding the depreciation cap For vehicles first used or leased in the 2026–27 income year, the car limit is $69,883. This limit generally represents the maximum value that can be used when calculating tax depreciation deductions for a passenger vehicle, regardless of how much was actually paid for the car. 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It's also worth confirming which depreciation rules apply to your circumstances, including whether any simplified depreciation Concessions are available so that deductions can be claimed at a faster rate. GST credits – also subject to a cap Businesses that are registered for GST may also be entitled to claim GST credits when purchasing a business vehicle. However, where the purchase price exceeds the car limit, the GST credit is also capped. For the 2026–27 financial year, the maximum GST credit available is $6,353 (being one-eleventh of the $69,883 car limit) for passenger vehicles. Even if the vehicle costs considerably more, the GST credit will generally not increase beyond this amount. However, when the vehicle is sold you will normally need to pay GST on the full sale price. For many businesses, GST credits can provide an important short-term cash flow benefit, so it is important to ensure they are claimed correctly and within the relevant time limits through your Business Activity Statement (BAS). Luxury Car Tax thresholds increase The Luxury Car Tax (LCT) thresholds have also increased from 1 July 2026 and are now: $91,661 for fuel-efficient vehicles. $80,809 for all other vehicles. Where applicable, LCT is generally imposed at 33% of the value above the relevant threshold, increasing the overall purchase cost of eligible vehicles. If you're considering a premium vehicle, these thresholds may become an important part of the purchasing decision. In particular, many fuel-efficient vehicles, including a range of hybrid and electric models, benefit from the higher threshold. Depending on the vehicle selected, this could potentially reduce the amount of LCT payable while also delivering lower running costs over the life of the vehicle. Planning ahead can pay off These updated thresholds apply to vehicles first used or leased from 1 July 2026, making now an ideal time to review any planned vehicle purchases. Before making a decision, it may be worthwhile considering: The total after-tax cost of ownership, including depreciation deductions, GST credits and any LCT; Whether purchasing or leasing is likely to be more suitable for your circumstances; The expected business use of the vehicle and the records you'll need to maintain; and How the purchase fits within your broader cash flow and business plans. Whether you're replacing a work vehicle, expanding your fleet or purchasing a new car for client-facing activities, taking these factors into account can help ensure the vehicle meets both your operational requirements and your tax objectives. Key takeaways A business vehicle is often a significant investment, and while tax considerations shouldn't drive the decision, they can influence the overall cost of ownership. Before committing to a purchase, it's worth speaking with your accountant to model the likely tax outcomes based on your individual circumstances. A little planning upfront may help you maximise available tax concessions, avoid unexpected costs and ensure the purchase aligns with your broader business strategy. For more information, refer to the ATO’s Small Business Newsroom: Car thresholds from 1 July | Australian Taxation Office, or contact our team to discuss how these changes may apply to your business.

Don’t Let Sharing Economy Income Catch You Off Guard This Tax Time

By Clarke McEwan • August 10, 2026

The sharing economy has created new opportunities for Australians to earn additional income. Whether it's driving for a ride-sharing service, renting out a holiday property, completing freelance work, hiring out equipment, or creating digital content, many people are supplementing their regular income through online platforms. However, one aspect that can sometimes come as a surprise at tax time is that this income generally needs to be declared in your tax return. Unlike salary and wages, sharing economy income isn’t always fully pre-filled in your tax return, so it's important to maintain your own records and check that tax returns are completely accurately. The ATO continues to focus on income earned through the sharing economy and has expanded its data-matching capabilities in recent years. As a result, it is becoming increasingly likely that income reported by online platforms will be compared against returns that are lodged by taxpayers. What counts as sharing economy income? 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This regime applies across a growing range of sharing economy activities, including ride-sharing, short-term accommodation and certain personal services. This information may be used by the ATO to compare against the income reported in tax returns. Where discrepancies arise, the ATO may contact taxpayers to seek clarification and, in some cases, adjustments, interest or penalties could apply. Practical tips to help stay on top of your tax If you earn income through the sharing economy, a few simple habits can make tax time much easier. Keep good records While many platforms provide annual income summaries, it is generally worthwhile maintaining your own records as well. Keeping receipts and tracking expenses such as platform fees, vehicle costs, repairs, cleaning expenses or equipment purchases can help support any deductions you may be entitled to claim. Understand what expenses may be deductible You may be able to claim deductions for expenses that are directly related to earning your sharing economy income. This will always depend on your particular circumstances and the nature of the expenses you are incurring, so it's worth discussing your situation with us to ensure claims are appropriate and adequately supported. Plan ahead for your tax bill Unlike employment income, tax is often not withheld from sharing economy earnings. This can result in an unexpected tax liability when you lodge your return. Depending on your circumstances, it may be worthwhile considering strategies such as making voluntary tax payments during the year, setting aside part of your earnings in a separate account, or, where appropriate, entering the PAYG instalment system. Don't overlook other obligations In some situations, GST registration may be required if your activities reach the relevant turnover thresholds. If you are involved in ride-sourcing activities then you will normally need to register for GST regardless of the income you generate. Depending on the nature of your income, there may also be opportunities to make additional superannuation contributions, which could provide longer-term financial benefits. Looking beyond tax time Treating your sharing economy activities in a business-like manner can provide benefits beyond simply meeting your tax obligations. Good record-keeping and proactive tax planning may help you better understand the profitability of your activities, improve cash flow management and make it easier to access finance if the activity continues to grow. If you've earned income through an online platform during the year, now is a good time to review your records and ensure you're well prepared before lodging your tax return. A conversation with your accountant may help identify deductions you are entitled to claim, confirm that your reporting is accurate and avoid unnecessary surprises at tax time. The sharing economy can provide valuable opportunities to earn additional income. With some forward planning and good record-keeping, managing the tax implications should become a straightforward part of making the most of those opportunities. For more information, visit the ATO's guidance on sharing economy income and tax or speak with us about your individual circumstances.

High Court Brings Greater Clarity on Trust Distributions

By Clarke McEwan • August 10, 2026

The High Court has recently handed down an important decision that will impact many private business groups using discretionary trusts and corporate beneficiaries. In Commissioner of Taxation v Bendel [2026] HCA 18 (10 June 2026), the Court rejected the ATO’s long-standing view that an unpaid distribution (also known as an unpaid present entitlement or UPE) owed by a trust to a corporate beneficiary will automatically constitute a loan for the purpose of the integrity rules in Division 7A. The rules in Division 7A are aimed at situations where private companies provide benefits to shareholders or their associates in the form of payments, loans or forgiven debts. When these rules are triggered the tax rules apply as if the company had paid an unfranked dividend to the recipient of the benefit. Why this matters Many private business groups use discretionary trusts as part of their structure. It is common for a trust to distribute at least some income to a corporate beneficiary so that this income can be taxed at the corporate tax rate (currently 25% or 30%), while the cash remains within the trust to fund working capital, future investment or business growth. Until now, the ATO's view was that these unpaid distributions would typically be treated as loans under Division 7A. This often meant businesses needed to put complying loan agreements in place, charge benchmark rates of interest and make annual repayments to avoid the risk of deemed unfranked dividends being recognised for tax purposes. For many groups, this created an additional administration burden, reduced cash flow flexibility and increased compliance costs. The High Court has now clarified that an unpaid distribution will not necessarily amount to a Division 7A loan simply because the corporate beneficiary has not demanded payment. While every arrangement will depend on its particular facts, the decision is likely to provide greater certainty for many business groups that have historically retained funds within their trusts. What happens with existing loan arrangements? The ATO has since released a Decision Impact Statement (26 June 2026), confirming that it will generally administer the law in accordance with the Court's decision, while also highlighting that other integrity provisions may still need to be considered. One of the key things that the ATO has clarified is that where formal written loan agreements have been put in place in response to the ATO’s previous views in this area, these can’t simply be unwound just because of the High Court decision. That is, the trust still needs to make minimum loan repayments each year until the loan period ends or the loan is completely repaid to prevent a deemed unfranked dividend from being recognised under the tax rules. Other tax rules still matter Although the decision represents a significant development, it should not be viewed as removing all Division 7A or tax related concerns. The ATO has made it clear that other provisions within Division 7A can still apply in certain situations. For example, if a trustee appoints income to a corporate beneficiary and this is left unpaid, but the trustee subsequently lends money to a shareholder of the company (or an associate of a shareholder), then this can potentially still trigger a deemed unfranked dividend for tax purposes unless appropriate steps are taken. Other integrity rules also need to be considered when trust distributions are left unpaid. For example, the rules in section 100A can potentially trigger adverse tax outcomes in situations where a trustee appoints income to a beneficiary but the real benefit of the funds is enjoyed by another party. These provisions remain highly fact-dependent, making it important to review arrangements carefully rather than assuming the Bendel decision resolves every issue. Looking ahead The decision provides a timely opportunity for private groups to review their trust structures, distribution resolutions and patterns, accounting records and the way unpaid entitlements have been managed over time. However, we also need to keep an eye on the Government's proposed trust tax reforms. The Government announced in the recent Federal Budget that it will be introducing a 30% minimum tax rate for discretionary trusts from 1 July 2028. The Government has also indicated that income distributed by discretionary trusts to corporate beneficiaries will generally be subject to double taxation because companies won’t receive a credit for the tax that is paid at the trust level on its income.This is likely to significantly reshape tax planning strategies over the coming years. A recent consultation paper released by Treasury in connection with the proposed 30% minimum tax rate also suggests that the Government might modify the tax rules to ensure that Division 7A can apply to unpaid distributions. This isn’t law yet, so we will need to monitor developments because this could mean that tax planning strategies need to be revisited before we reach 1 July 2028. Please let us know if you would like to discuss how the Bendel decision and proposed 30% minimum tax on discretionary trust income will impact on your group.

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By Clarke McEwan • July 23, 2026

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