For businesses accounting for income on the cash basis, delaying the receipt of income from May or June to July results in tax savings for two reasons:
The income is included in the next financial year, not this financial year. The tax savings arise as the tax liability on the income will be paid next financial year, not this financial year.
The expenses incurred to generate the delayed income can be claimed this year as a deduction as they have been incurred (even though they may not be paid for until next year).
The easiest way to delay income is to not invoice May and June’s sales or fees until after the 30th of June. This ensures May and June’s income will be received in July or August (therefore included as income in the following year).
Delaying the realisation of assets (and any assessable capital gains) until after the year end results in the income being taxed in the following financial year. To achieve this objective the sale contract must not be signed until after the end of the financial year (as it is the contract execution date that determines the disposal for CGT purposes).
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Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.