In a note to media and accounting professionals, the tax office noted that there are some types of incoming money which are not considered income, and therefore do not contribute to income tax assessment.
“If you are carrying on a business, most income you receive is assessable for tax purposes. This includes all your gross earnings, or proceeds from the ordinary course of your business, including net capital gains and foreign income,” the ATO website states.
“Other amounts, that may not be part of the everyday running of your business like amounts owed to you, and the changes in value of trading stock, may need to be considered when calculating assessable income.”
According to the ATO, the must-haves on your tax returns are:
- All gross income
- Foreign income
- Personal services income (PSI)
- Income derived from crowdfunding: the amount that needs to be declared will depend on individual circumstances and the nature of the fundraising arrangement.
- Income from the share economy (e.g. being an Uber driver)
- Cash income
- Payments outside normal business activities
- Certain government payments, including fuel tax credits, excise refunds for alcohol manufacturers, subsidies and grants
- All commissions, investment earnings and compensation payments
- Tips and gratuities
- Recovered bad debts where a tax deduction has already been provided
While that may seem like any and every source of funds coming into the business, there are a number of exclusions which are not required to be reported to the ATO.
Chief among these is GST monies collected by the business, which is dealt with separately through quarterly BAS statements. Another exclusion is money you as the business owner have contributed to the business.
Other factors that are not considered personal income are:
- Earnings from a hobby
- Prizes and awards (where they are not related to the business)
- Gambling winnings (unless your business operates within the betting and gaming industry)
- Money that has been borrowed
The ATO also noted that different accounting methods can alter what needs to be included as assessable income, and how much.
On a cash basis, declarations are made for payments received that financial year — regardless of when the work was actually carried out.
Meanwhile, the accruals basis includes income due even when payment has not been received in the current financial year.
More information is available on the ATO website, while bookkeepers and accountants can provide advice specific to your own business and personal circumstances.