Your money | Finance, Economic & Trading

Dont get caught out things every small business needs to know about tax time

IF YOU’RE a small-business owner then the lead-up to the end of the financial year is probably one of the only times when you wish you weren’t your own boss. It can be stressful, confusing and very time consuming.

The small business sector has also become the darling of the Federal Governments economic stimulus plan particularly now that the mining boom is running out of puff. In fact there were so many sweeteners in the recent budget that small business owners must be feeling like that kid at school who shoots to popularity for scoring the winning goal in the rugby final.

But there are some things you need to think about when making these sweet deals work for you and your business. KPMG tax expert Simon Le Maistre said that one of the main things to be aware of is that tax rates are coming down. Currently the tax rate is at 30 per cent and next year the government is set to cut it to 28 and a half per cent.

Mr Le Maistre said reaping the benefits of this is really a matter of timing and if you understand how to use it to your advantage then it can result in significant tax relief.

Firstly he said spend and spend now. The reason? To make sure you get the 30 per cent deduction this year. If youre looking to spend that money you ideally want to do it this year when you can get the full deduction for something under $20,000 and youll reduce your tax this year when youre paying 30 per cent.

He also said the much hyped $20,000 tax deduction is not really about that number, much more significant is its tax effect and for a company this is around a $6,000 immediate tax benefit.

If youre a restaurant and youre going to go out and buy 20 tables, if each of those tables is worth $5,000 that could be a $100,000 deduction which could give you a tax benefit of $30,000. So it could amount to a very significant deduction this year

Another thing Mr Le Maistre suggests is deferring income. He said because next year tax will drop to 28 and a half per cent, any dollar you push to next year you will be paying less tax on.

If youre looking to issue invoices in the next couple of weeks maybe issue them on the 1st of July or if someone wants to pay you in advance maybe get them to pay you on the 1st of July so you pay less tax and youll also give yourself a years grace before you need to pay the tax on it.

The other issues small businesses need to ask themselves as the end of the financial year approaches is what decisions should they be making and what actions should they be taking before year end. Mr Le Maistre means things like writing off your bad debts and making sure your superannuation payments are paid and received by the super fund.

Small business should also be thinking about and discussing prepayments of services like rent and training courses. You should be making sure you do that stock take before year end and think about what in your stock is obsolete and what you should be getting extra deductions on, he said.

Mr Le Maistre said, One of the ways that small businesses can get caught out is if youre a company and you have any loans from the company then you need to be careful to deal with it before year end or it could be treated as an unfranked dividend which is essentially a source of income that will be taxed.

If that happens your company could almost have a tax rate of 60 per cent or higher because you get taxed as a company and you get taxed as an unfranked dividend as an individual.

There are things we can do to play around the edges, but where we see things going wrong is where people miss these details and its not something as a business person that you think about but it what the tax office is looking at.

Sellers made profits of 1 million or more in popular sydney suburbs

TYPICAL home prices have skyrocketed by more than $400,000 in Sydney’s most popular suburbs over the past year, with some sellers offloading their homes for up to $1.37 million more than they paid for them in 2015.

The biggest price jump was in southern waterside enclave Kyle Bay, where the median house price increased by $620,000, or 42.4 per cent, to hit $2.1 million.

The average house in the area had been about $1.47 million at the start of 2015, Core Logic data showed.

In the Cronulla area, further south, Burraneers median house price went up by $507,000, while north shore suburbs Artarmon, Neutral Bay and Castle Cove had median increases of $450,000 to $460,000.

Such increases outperformed already strong price growth across the Sydney housing market as a whole: the median price of city homes shot up 15.5 per cent last year, an increase of about $10,000 a month.

Core Logic analyst Cameron Kusher said recent price increases were a concern, considering prices have been growing strongly since 2012.

The research groups latest Housing Affordability Report showed Sydney dwelling prices were 8.3 times higher than annual household incomes and households were dedicating an average of 44.5 per cent of their income to service a mortgage.

Regulators may need to consider adjusting interest rates or taking other measures to bring house prices back within reach of middle-income buyers, Mr Kusher said.

Property experts claim prices were largely pushed up as a result of fierce rivalry between buyers for a limited supply of homes.

Homeowners became increasingly reluctant to list their properties for sale, fearing theyd struggle to find another home to move into at an affordable price.

With only a small choice of homes available, committed buyers bid high for the homes they liked, netting sellers staggering sales results.

In Lindfield, where a median priced house is now $472,000 pricier than it was last year, the sellers of a six-bedroom house on Highfield Rd offloaded their home for $1.37 million more than they paid for it only a year before.

The home had sold in 2015 for $2.55 million, but changed hands in the second half of 2016 for $3.92 million.

Selling agent Jessica Cao of Richardson and Wrench-Lindfield said the home was not renovated and the only change was that it sold with approval from council to have the 1500sq m block subdivided.

Number 1 Farnell St, a five-bedroom home in Hunters Hill, sold in December for $2.95 million, $1.05 million higher than the 2014 price of $1.9 million.

Another home at Matthew Flinders Way in Burraneer sold for $675,000 above its 2015 purchase price after only a minor renovation, according to agent David Highland.

The Highland Property Agents CEO said Burraneer recorded a 30 per cent annual drop in the number of properties advertised for sale, a remarkable feat considering there was already an unusually low level of stock available in 2015.

Sellers in this kind of market were at a huge advantage, Mr Highland said.

LJ Hooker national research manager Mathew Tiller said many of the buyers pushing up prices were investors or existing homeowners who benefited from the boom in prices.

People who had owned their homes for some time would have seen their equity grow considerably, Mr Tiller said.

They had an advantage if they wanted to downsize to something smaller because they could offer much more than what other buyers could afford.


Kyle Bay +$625,000 (current median: $2.1m)

Burraneer +$507,500 ($2.4m)

Hunters Hill +$500,000 ($2.65m)

Clovelly +$480,000 ($2.59m)

Lindfield +$472,000 ($2.5m)