When you can claim a tax deduction depends on how you report your income to the Australian Taxation Office (ATO) as in, do you report your income on the cash basis or the accrual basis?

This should not be confused with how you report your Goods and Services Tax (GST) – her we are discussing your income as reported on your income tax return.

Most individuals and sole traders will report their income on the cash basis, which means they are taxed on all amounts of income actually received, and they receive a tax deduction for the amount of eligible expenditure they have actually paid.

Other business structures may report their income on either the cash basis or the accrual basis, depending on their circumstances…and this should be checked with your accountant or by reviewing you latest tax return.

If you report your income on the accruals basis, to be eligible for a tax deduction you don’t need to have paid the amount, but you must have incurred the expense and have an obligation to pay.

For example:

If you receive your telephone bill on 20th June and it is due for payment on 10th July:

Under the cash basis you would need to pay the amount due before 30th June to be eligible for a tax deduction in this financial year.

Under the accruals basis, you will be eligible for a tax deduction this financial year even if you do not pay the bill until the due date.

So make sure you take a look at how you report your income to the ATO…

Regards

As the end of the financial year approaches, the focus of many businesses and individuals turns to their taxable income…and how they can reduce it.

Of course there are two ways to reduce taxable income, either by reducing receipts/income or increasing expenses/deductions

Most of us are quite fond of receipts and income, so often the path chosen relates to deductions…

But before you rush out and spend a heap of money to get some deductions, I want you to ask yourself two questions:

1. Do you really need the item?

2. Can you afford it?

The basis behind these questions relates to the fact that for every dollar we spend on eligible deductions, we each save our relevant tax rate.  So if you are a company with the tax rate of 30%, for every dollar you spend you save 30 cents in tax, but are still out of pocket 70 cents.  The same goes for individuals, if you are in the middle tax bracket (including Medicare Levy) of 34.5%, for each dollar you spend you save 34.5 cents in tax, but are still out of pocket 65.5 cents.

It’s no secret that times are tough for small businesses, so I urge you to consider your current and foreseeable cash flow needs – it may be that you have a need for that 70 cents or 65.5 cents for something other than what you were going to spend the whole dollar on, and going without the deduction now may benefit you in the future.

Of course if you need the item and you can afford the payment, then please do everything you can to reduce your taxable income – there’s nothing wrong with doing so!

Regards

It seems I am on a roll with health related “Frivolous Fridays”…so here’s another one…and one that has recently become important to me personally.

Next week is Food Allergy Week.  Food allergies are becoming more prevalent in our society and Australia has one of the highest food allergy rates in the world!

It is not uncommon for babies to be born with food allergies, but I have recently learned that allergies can develop in adults – and it is extremely unpleasant…

As a first aid trainer I am fully aware of how serious allergic reactions can be – and while many can be life threatening, it is also important to be aware that not all allergies cause an anaphylactic reaction.

I am currently undergoing tests for food related allergies (in fact, if anyone knows of a fabulous allergy specialist for adults…please forward their details to me) – and for the past three weeks I have been attempting to live free of wheat, nuts and corn…this is not as easy as it might seem!

So next week, I hope you will all consider your friends and family who may be living with a food allergy.  There are plenty of ways you can raise awareness and be involved – just check out the website for more information!

Regards

In light of my trip to Melbourne this week as part of my Continuing Professional Education – I thought I’d revisit the concept of claiming travel expenses.

We previously discussed some requirements here, but let’s look at the nitty gritty today!

What exactly can you claim?

Below is a snippet of information from the Australian Taxation Office (ATO):

“You may be able to claim travel expenses you incurred for meals, accommodation and incidentals while away overnight for work – for example, going to an interstate work conference.

However, generally, if your travel did not involve an overnight stay, you can’t claim for meals even if you received a travel allowance.

Other travel expenses you may be able to claim include:

• the costs you actually incur (such as fuel costs) when using a borrowed car or a vehicle other than a car for work purposes
• air, bus, train, tram and taxi fares
• car-hire fees.

You may have to show that you have reduced your claim to exclude any private portion of your trip.”

Remember that claiming expenses for work related travel is different to claiming car or motor vehicle expenses – and you need to be careful not to double up in this area!  If you are unsure, please discuss with your accountant!

Regards