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Accounting methods for business income

The amounts you include as your assessable income in any income year depend on whether you account for your income on a cash basis or accruals basis. Don’t confuse these two accounting methods with the two types of GST accounting methods (cash and non-cash).

You need to account for all transactions within an income year using the same method.


Cash basis

If you account for your assessable income on a cash basis you:


  • include payments you received during the income year, even if the work was done in another income year
  • don’t include amounts where the work was done, but you did not receive payment during the income year.

When you complete your tax return, you may have to reconcile any unpresented cheques to remove them from your income or deductions if you had previously included these amounts.


Accruals basis

If you account for your assessable income on an accruals basis, you include all income earned for work done during the income year, even if you hadn’t received payment by the end of the income year.


Example: Cash versus accruals basis

John manages his own business as a plumber. He completed a contract in May 2019 worth $10,000 (that is, in the 2018–19 tax year). His client paid the invoice on 10 July 2019 (that is, in the 2019–20 income year).


If he uses the:


  • Cash basis method, he includes the $10,000 (less any GST) in his assessable income for 2019–20 because he received payment in that income year
  • Accruals basis method, he includes the $10,000 (less any GST) in his assessable income for the 2018–19 year because he did the work in that income year.

Contact Expert Tax on 0449 952 855 or 1300 869 829 for assistance on tax related matters.






Here are some of the most common MYTHS relating to tax deductions –


Myth: I can claim home to work travel because I need to get to work to earn my income.


Fact: For most of us, home to work travel is a private expense.


Myth: Everyone can automatically claim $150 for clothing and laundry, 5,000km under the cents per kilometer method for car expenses, or $300 for work-related expenses, even if they didn’t spend the money.


Fact: There is no such thing as an “automatic” or “standard deduction”. Substantiation exceptions provide relief from the need to keep receipts in certain circumstances. While you don’t need receipts for claims under $300 for work-related expenses, $150 for laundry expenses (note: this is for laundry expenses only and does not include clothing expenses) or if you are claiming 5,000km or less for car expenses under the cents per kilometer method, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim.


Myth: I can claim all my travel expenses if I add a conference or a few days’ work to my holiday.


Fact: If you decide to add a conference or some work to your holiday, or a holiday to your work trip, you must apportion the travel expenses between the private and work-related components, and only claim the work-related component.


Myth: I don’t need a receipt; I can just use my bank or credit card statement.


Fact: To claim a tax deduction you need to be able to show that you spent the money, what you spent it on, who the supplier was, and when you paid. Bank or credit card statements alone don’t have this information. The only time you don’t need these details is if substantiation exceptions apply.


Myth: I’ve got a capped phone and internet plan, so I can claim both business and private phone calls and internet usage.


Fact: Unless you only use your phone and internet for work, you have to apportion the cost between work-related and private usage and only claim the work-related portion of your expenses.


Myth: I can claim makeup that contains sunscreen if I work outside.


Fact: We all like to look good, but cosmetics are usually a private expense and the addition of sun protection does not make it deductible. It may however be deductible if the primary purpose of the product is protection from sun damage (that is, it has a high SPF rating), and that the cosmetic component is incidental, and you need to work outdoors in the sun.


Myth: I can claim my work clothes because my boss told me to wear a certain colour.


Fact: Unless your clothing is a uniform that is unique and distinct to your employer, or protective or occupation-specific clothing you are required to wear to earn your income, you won’t be able to claim it. Plain clothes, like black pants, are not deductible even if your employer told you to wear them.


Still any doubts? Contact Expert Tax on 0449 952 855 or 1300 869 829 for further assistance.





ATO expects many laundry claims will be disallowed this tax time


ATO has flagged that it will be checking returns for taxpayers who take advantage of the exemption from keeping receipts when spending less than $150 on laundry expenses. The ATO believes that too many people are claiming this without incurring the expense.

ATO viewed IT as “unlikely” that so many working taxpayers would be required to wear uniforms, protective clothing or occupation-specific clothing to earn assessable income.

Your workplace may expect you to wear clothing items like suits or black pants. But an official ‘dress code’ doesn’t qualify as a uniform and you can’t make a claim for normal clothing, even if your employer requires you to wear it, or you only wear it to work.”


Claiming laundry expense


If you are claiming $150 or less for clothing and laundry (and less than $300 for work-related expenses in total), then:


  1. Make sure your claim is for eligible clothing (occupation-specific, protective or uniform). Remember you cannot claim for plain or conventional clothing, even if your employer requires you to wear it, and even if you only wear these at work.
  2. Calculate claim for washing, drying and ironing at:
    • $1 per load if the load is made up only of work-related clothing
    • 50c per load if they include other laundry items
  3. The ATO, especially this tax time, may ask for some sort of substantiation to demonstrate how often they wore their eligible clothing (for example, evidence that a taxpayer worked three shifts a week for 48 weeks in a year).


Case studies where clothing claims were knocked back


A retail assistant working in a fashion store claimed more than $700 for store brand clothing she had purchased and was expected to wear to work. As the clothing was conventional, she was not able to claim a deduction, and her claim was disallowed.


A stockbroker claimed the cost of purchasing suits, which he regarded as his ‘work uniform’. While many workplaces have a written or unwritten dress code, his suits are considered conventional or everyday clothing and his claim was refused.


Conventional clothing such as black trousers and a white shirt, or a suit, are not sufficiently distinctive or unique to an employer. Clothing in a specific colour or brand isn’t enough to classify clothing as a uniform.


Contact Expert Tax on 0449 952 855 or 1300 8 MY TAX (1300 869 829) for further assistance with tax related matters.



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