Business’s Assessable Income
When you calculate your business’s assessable income, you need to include:
- All gross income received from your everyday business activities, such as:
- Foreign income
- Income received from sales
- Sales made over the internet
- All other business income which is not part of your everyday business activities, such as:
- Capital gains
- Cash prices for your business
- Changes in the value of trading stock
- Isolated transactions likely to make a profit.
Gross income does not include goods and services tax (GST).
If you run a business and receive income from wages and salary as someone else’s employee, this will not be included as business income in your tax return. It is included as salary and wages income. Depending on your business structure and income, other tax registrations and obligations will be determined. If you are unsure how this information applies, you can ask a registered tax accountant in Melbourne.
Cash and Cash Equivalent Income
You are required to declare cash payments received for goods or services as assessable income. This includes:
- All your cash earnings
- Dividends and bank interest
- Income your business deposited into a mortgage or personal credit card
- Income your business earned through gift cards, vouchers, or coupons.
- Tips or gratuities and subscription payments and fees your business earned.
Crypto Assets
Your business income may have to include the market value of the crypto assets:
- You dispose of, or receive through airdrops, in the ordinary course of your business.
- You obtained for goods or services you offer as part of your business.
Commissions, Gratuities, Investment Earnings, and Compensation Payments
You are required to include the following amounts as assessable income:
- Commissions
- Investment earnings
- Gratuities
- Tips
- Compensation payments
You have to include these payments even if they are received in the form of services, goods, assets, or other benefits rather than cash.
What to Exclude from Your Business’s Assessable Income?
Non-assessable income
If an amount you receive is not treated as assessable income, you are not required to include it in your tax return. Here are a few examples of payments that are not treated as assessable income:
- Gambling and betting wins (unless you run a gambling or betting business)
- Earnings from a hobby
- Inheritance or gifts
- GST you have collected
- Non-assessable non-exempt government grants
- Prizes and awards not related to your business
- Money you have borrowed
- Money you contribute as the business owner.
Non-assessable non-exempt government grants
Some business support grants are non-assessable, non-exempt (NANE) income. If you receive non-assessable, non-exempt income, you don’t need to include it in your tax return, and you don’t pay tax on it. Here’s what’s included in NANE grants:
- COVID-19 business support payments
- Natural disaster grants
- Water infrastructure improvement payments
COVID-19 business support payments
You are not required to pay tax on some COVID-19 payments received from the government to support businesses. Eligible payments will be NANE income for tax purposes if you meet the requirements.
Natural disaster grants
If your company has been impacted by a natural disaster, you may get government support grants to help you recover. These payments are treated as assessable income unless they are made non-taxable by the parliament.
Water infrastructure improvement payments
You can choose to treat payments obtained for sustainable rural water use and infrastructure programs as NANE income or ordinary income.
Accounting Methods for Business Income
These accounting methods are different from GST accounting methods.
Cash basis: If you account for your assessable income on a cash basis, you:
- Need to include payments received during the financial year, even if the work was completed in a different financial year.
- You are not required to include amounts where the work was completed, but you didn’t receive the payment during the financial year.
Accruals basis: If you account for your assessable income on an accruals basis, you have to include all income earned for work done during the financial year. This is done even if you hadn’t received payment during the financial year.
Reaching out to a trusted accounting firm Port Melbourne will be a good decision to ensure that you are choosing the right accounting method for business income.
Conclusion
Now, you know what payment or amount is treated as assessable income and what doesn’t count as assessable income. If you are still not sure, you can reach out to Reliable Melbourne Accountants.