HI All,
As we know the Financial year is ending in June in AUS, I work as a sole trader in IT company as a software engineer and I send my client every last day of the month and I get the amount in my bank account in next 10 days.
If I send the invoice in this month and get the amount in July in my account, Will it be taxable in this Financial year or next year?
My employer says that it is the time you raise the invoice, choose that financial year.
Please suggest.
Thanks !!
I get the amount in my bank account
The question is the method of accounting you use, not the method of receiving payment.
The accounting method you use to manage your business accounts will determine when amounts will be shown when reporting income or expenses for a specific period (for example month, quarter or year).
I have started 3 months back as a sole trader. I have ABN but not paying GST as my annual income is less than 75k.
What other information is needed?
@nikkis0413: You get to choose which method. - The simplest method is Cash accounting.
So income gets recorded when you receive it and payments made when actually made.
So June work, will get taxed in Y2020 financial year.
(Your employer may use the accrual method so their payment to you would actually be recorded in their Y2019 financial year.)
@Baysew: @baysew
So if I ask my employer to pay me this month, it will be taxed this year.
It should be fine. Right?
@nikkis0413: Yes. It is taxed whichever year the money arrives in your bank account.
Pick one method of accounting tax and stick with it. Either
I would suggest option 2
I send my client every last day of the month and I get the amount in my bank account in next 10 days.
So that would mean you receive the money in the next financial year.
@Baysew: I can send my employer the invoice say 5 days before the end of June and tell him to process it in June. Hope I am clear !!
@nikkis0413: Perhaps your employer is flexible, and happy to do you a special favour by processing this earlier. Which is great.
But if it is not something they are keen to do, there is not a great advantage in making this a FY2019 item (other than enjoying your payment earlier, of course). From the tax standpoint, getting it in the beginning of July could mean a longer period before you have to pay the tax on it.
@bluesky: Just occurred to me, unless you are expecting higher income next financial year (hence higher tax bracket), and taking advantage of lower tax bracket this year - then it makes sense.
That was so difficult to read …. None the less if you need 'Expert' tax advise, pay an expert. Given the number of variables at play there is no clear cut answer that a forum will answer 100% accurately.
Agree, get expert tax 'advise'.
Well played to you sir
As always use websites like ozbargain with a grain of salt.. stuff like recommendations for an appliance vs should I sue or tax this or tax that etc may need a YMMV banner under it .
Got your point !! Will take care from now
Yeah after reading all your responses to peoples advice, get an accountant - It seems this is over your head. Pay the $150 - and claim it back.
As a small IT business, if you want to keep things simple, just use the Cash basis of accounting. So all revenues/expenses are based on the date of receipt/payment. If you receive the payment in July, it is treated as next year's revenue.
Cash basis is easy to understand, and you don't have to deal with payment/receipt categories, such as prepayments or receivables.
Large businesses must use non cash accounting.
Do you use Cash or Accruals accounting?