Read a recent article written by a practitioner in Tax Institute journal....It discussed the issue of a small services business changing from the cash basis of accounting to the accrual basis of accounting.
First this discussion is NOT about GST registration. Its about accounting for income.
Second this discussion is likely to be a legal and a tax adviser thread. Others may find it of interest of course.
That article referred to the issue that at time of converting from cash to accruals the debtors have to be recognised. OK. But the interesting bit was the recogniftion of receivables isnt credited to income. Its not income. Its just ignored. "A windfall" / "income swallow" were the terms used. Even says "ability to avoid paying income tax". Thats a big claim. I will admit the author had same concern as me.
It seems ATO doesnt actually agree with the view anywhere but it has issued ID 2014/1 which From 1 July 2012 adopts the view that amounts received after debts are paid which weren't income are a capital gain and to be included in assessable income as the anti-avoidance overlap provisions in s118-20 wont operate.
The ID also ignored the accrual recognition of expenses at that same time. I would think it improbable to include an income adjustment yet ignore an expenses adjustment for payables. Yet s118-20 wouldnt concern itself with that event so how is the capital gain calculated ? Could a net capital gain arise from the P&L impact as a single CGT asset ?
Any thoughts ??
First this discussion is NOT about GST registration. Its about accounting for income.
Second this discussion is likely to be a legal and a tax adviser thread. Others may find it of interest of course.
That article referred to the issue that at time of converting from cash to accruals the debtors have to be recognised. OK. But the interesting bit was the recogniftion of receivables isnt credited to income. Its not income. Its just ignored. "A windfall" / "income swallow" were the terms used. Even says "ability to avoid paying income tax". Thats a big claim. I will admit the author had same concern as me.
It seems ATO doesnt actually agree with the view anywhere but it has issued ID 2014/1 which From 1 July 2012 adopts the view that amounts received after debts are paid which weren't income are a capital gain and to be included in assessable income as the anti-avoidance overlap provisions in s118-20 wont operate.
The ID also ignored the accrual recognition of expenses at that same time. I would think it improbable to include an income adjustment yet ignore an expenses adjustment for payables. Yet s118-20 wouldnt concern itself with that event so how is the capital gain calculated ? Could a net capital gain arise from the P&L impact as a single CGT asset ?
Any thoughts ??
