Often I have to raise invoice's months in advance before I start a job. What is the tax treatment of this unearned revenue if I am on the accruals basis?
i.e. If I have raised total invoices of $40,000 for the financial year, but have only completed $35,000 worth of work, does the $5,000 difference form part of my taxable income? Or do I only include it in my taxable income once I have completed the work and so called 'earned' the income.
Hi @taxking
I've looked into this further.
Under accruals your income is derived when a recoverable debt is created or you're legally entitled to payment. This is usually when the work has been performed. So in your case you'll report the income in the 2022 FY when you complete it, since creating the invoice doesn't entitle you to receive payment.
Sorry for the confusion we'll update our previous response so it's clearer.
You can read more about determining income in TR 98/1. Accruals is also known as the earnings method.
Hi @taxking,
As you're using the accruals accounting method it'll be based on when the work was completed. You'll account for the income in the 2021-2022 year. (updated by moderator 14/11/2022).
Based on the figures you've provided, you'd report the total of $40,000 in your return.
Your answer is contradicting. First you say it will be based on the issue of the invoice (2021), but then you say I should only account for it in the 2022 FY?
Just to be clear, If I raise an invoice of $5,000 in the 2021 financial year, but I only complete the work in the 2022 financial year, in which year does it form part of my taxable Income?
Accounting methods | Australian Taxation Office (ato.gov.au)
According to this link, the accrual's method includes:
"All income earned for work done during the income year."
Raising an invoice does not mean the work has been done. Since I have not done the work, how can it be included in the 2021 financial year? It should only be included in the next financial year when the work has been completed?
@EthanATO Can you please respond
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