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  • #991485
    Rsam2801
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    Hi

    I have just set up an ABN so I can do some contract work. It is very sporadic and may only be one contract a year.

    I have the option of getting paid at the end of June 2015 or I can delay it so I am paid in the 2015/16 FY.

    My question is when people say I have to pay my tax at the end of the financial year, would it be beneficial for me to delay my payment from my contract work until July 2015 then I don’t have to submit my tax until 2016?

    Is this correct?

    Sorry if that sounds like a silly question, just wanting to double check

    Thanks

    Rebecca

    #1181714
    ThexArm
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    Is this the only income you have in this financial year?

    Is this contract work based on your personal skill and experience? Does it pass PSI rules?

    Why would you want to postpone paying tax until next financial year? It doesn’t make sense.

    Based on that you get more specific answer to your question.

    If you are using cash based accounting then you pay tax in the year it was paid to you. Or if you follow accrual based accounting then you pay tax in the year you have invoiced your products/services.

    Sent from my iPhone using Tapatalk

    #1181715
    Rsam2801
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    Is this the only income you have in this financial year?

    For this business but i also have a fulltime job as an employee where i earn $100k

    Is this contract work based on your personal skill and experience? Does it pass PSI rules?

    yes it is an auditing contract based on my skills

    Why would you want to postpone paying tax until next financial year? It doesn’t make sense.

    i would like to postpone it so i have use of that money rather than paying it immediately in tax

    #1181716
    ThexArm
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    If your customer is ok for you to invoice him in Jul then that would be ideal for you. But, it doesn’t seem legit.

    I would think your customer might want to claim the expense in this year itself as the expense relates to this financial year.

    Totally different topic, one of the main responsibilities of an auditor is to keep their independence. If there are favors involved in your dealing then that dealing breaches the independence view of the auditor.

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    #1181717
    Rsam2801
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    Thanks for your help.

    It is in the contract that we get paid one month after the report is submitted which is one month after the job is completed so that takes it to the end of June anyway.

    There are certainly no favours being asked, but thank you for raising your thoughts and offering your advice.

    It has helped a lot

    Thanks

    #1181718
    bb1
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    ThexArm, post: 212000 wrote:
    Why would you want to postpone paying tax until next financial year? It doesn’t make sense.

    Besides the reason given by the CO A person may already know that their taxable income for the following year will be lower, and thus the tax payable on this extra income may be lower as a consequence.

    You often hear advise from accountants to delay you income, but bring forward you expenses.

    #1181719
    ThexArm
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    Thanks Bert, So what do you in such situations? Service now and invoice later? or Invoice now and service later?

    It may not be a problem in small businesses but in larger organisations there are serious implications if revenue recognition principles are not followed.

    #1181720
    bb1
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    ThexArm, post: 212021 wrote:
    Thanks Bert, So what do you in such situations? Service now and invoice later? or Invoice now and service later?

    .

    I invoice the same day I have done the job, Accept where the contract specifies end of month invoicing or other specifics.

    ThexArm, post: 212021 wrote:
    It may not be a problem in small businesses but in larger organisations there are serious implications if revenue recognition principles are not followed.

    This is a small business forum,

    #1181721
    My Guy
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    Rsam2801, post: 211999 wrote:
    Hi

    I have just set up an ABN so I can do some contract work. It is very sporadic and may only be one contract a year.

    I have the option of getting paid at the end of June 2015 or I can delay it so I am paid in the 2015/16 FY.

    My question is when people say I have to pay my tax at the end of the financial year, would it be beneficial for me to delay my payment from my contract work until July 2015 then I don’t have to submit my tax until 2016?

    Is this correct?

    Sorry if that sounds like a silly question, just wanting to double check

    Thanks

    Rebecca

    There is only one answer here.

    Speak to your personal accountant and ask him.

    He will need to work out what your return is this year and what your potential is next year and then tell you whats the better option.

    #1181722
    SmallBusiness Accountant
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    Hi Rebecca,

    If I can just add my two cents, assuming your 2015/16 year income will be the same as your 2014/15 income, if you are able to delay the actual invoicing until 1 July 2015, this would be the most beneficial for you from a cash flow point of view.

    If you have a 31 October lodgement date, if you delay invoicing into the new financial year, you effectively wont have to pay tax on that income until 31 October 2016. Meanwhile the money can be used for other business activities.

    The other benefit is, if you are in a tax payable position, the ATO may ask you to begin paying Quarterly PAYG Income Tax Instalments. Basically, instead of the ATO receiving a lump sum for tax when you lodge your tax return, they will ask you to start paying Quarterly Tax Instalments so your tax is paid in advance. These PAYG Tax Instalments once paid, are then used to offset your tax payable at the end of the year. Again by delaying your invoicing, you wont be required to begin paying these instalments until 28th of January 2017, which will be for the December 2016 Quarter. Bearing this in mind, you effectively delay two lots of tax (2015/16 tax bill & Quarterly PAYG Instalments) for at least one year.

    Unfortunately, only businesses including sole traders who previously accounted for income on a cash basis under the STS Accounting Method can continue to do so. As you have only setup your ABN recently, you’ll have to account for income when it is invoiced. So if you can delay invoicing until 1 July 2015, then it will be included in your 2015/16 taxable income.

    You can account for GST on a cash basis, however Income tax must be on accrual.

    Hope this helps

    Cheers

    #1181723
    Rsam2801
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    Thanks so much for your advice, you can see why I was asking the question about delaying paying tax.

    So just to clarify, if I invoice before July 1 2015 I have to declare it in the financial year it was invoiced regardless of when it is paid? Is that what you are saying?

    Thanks again I for your help, it has helped a lot

    Rebecca

    #1181724
    SmallBusiness Accountant
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    Hi Rebecca,

    I was mistaken in what I previously wrote. There is an ATO ruling TR 98/1 which says that you can account for income on a cash basis (receipts method). It is possible to do this for “business income where the income is derived from the provision of knowledge or the exercise of skill possessed by the taxpayer in the provision of services”. In your case this would apply as I understand you are being paid for auditing work.

    So to be clear, so long as the income is received after 1 July 2015, you can delay the tax. If necessary you can invoice before 30 June and be paid after.

    The STS Accounting Method that I previously mentioned was more aimed at business who sell products or those who conduct business of a larger scale with employees and don’t rely solely on one individuals personal exertion and knowledge.

    However, in small businesses cashflow is king. Without it, businesses can find it difficult to grow. The tax money is better off being in your hands for the extra year rather than the tax office

    Sorry for the confusion

    Cheers

    #1181725
    Rsam2801
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    Thanks so much! That’s the news I wanted to hear.

    Thanks for taking time to help me put, it is much appreciated

    Thanks

    Rebecca

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