What assessable income should I report?
In a rapidly evolving economy, it is easy to get confused about what to report as small business income. As a small business owner busy with the day-to-day running of your business, this uncertainty can cause immense stress. Nonetheless, it is important to accurately report income to ensure that you are meeting your tax obligations and maximising your tax offsets and expense claims. A small business tax accountant can provide you with the expertise needed to accurately report assessable income, but having a broad knowledge of what constitutes income can be helpful.
Broadly, small business income can come from the day-to-day activities of the business:
- Electronic and cash payments for goods and services, including online sales
- Payments made with coupons and vouchers
- Tips and gratuities (cash or electronic)
- Barter transactions (i.e. receiving something other than money in exchange for goods and services)
- Foreign income if you are an Australian resident
- Some income from the ride-sourcing and sharing economy (depending on circumstance)
Income can also come from other activities that are not part of the day-to-day activities of the business:
- Prizes and awards received by your business
- Income from investments (e.g. dividends, franking credits) and business bank account interest
- Business-related capital gains (e.g. from disposal of an asset via sale, gift, transfer, destruction)
- Sale of non-trading stock assets (e.g. buildings, land, equipment, furniture)
- Business-related compensation payments and insurance claims, such as workers compensation, or payments for trading stock losses, business interruptions or contract cancellations
- Rental income from property owned by your business
- Assessable government payments (e.g. credits, grants, rebates, subsidies)
- Bad debt recoveries for which you have received a tax deduction
- Some or all income from crowd funding (depending on the circumstance)
- Isolated transactions intended to make a profit
What assessable income should I exclude?
Some payments don’t need to be included as assessable income:
- Collected Goods and Services Tax (GST)
- Income earned through a hobby
- Gifts or inheritance
- Prizes and awards not related to your business
- Borrowed money or money you contributed as a business owner
- Some disaster recovery grants
- If your business is operated as a company or trust, sale of your business shares or interest in the trust should be reported as personal assessable income
- When more than 50% of the amount received by the business for a contract was for your labour, skills or expertise, this personal services income (PSI) should be reported in your personal tax return.
It is not always clear when income should be reported as part of a business or personal tax return. Unfortunately, the consequences of reporting incorrectly can be costly, not only to your business, but to you personally. Therefore, it is important to engage the services of a small business tax agent to help you with your tax returns.
FC Accounting offers a personalised and expert service to ensure the financial security of your small business. We are dedicated to supporting businesses on the North Shore and beyond with accounting packages, business advice, and specialised accounting, taxation and bookkeeping services.
Contact FC Accounting today to discuss your small business tax needs!