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