Expenses related to earning both assessable income and non-assessable income need to be apportioned by using a practical and suitable method.
Expenses that may require apportionment include:
- bank charges
- audit fees and general accounting fees
- subscription fees to professional associations
- bad debts that relate to member and non-member revenue
- the decline in value on depreciating assets that are used to earn revenue from members and non-members
- directors' fees
- honoraria paid to volunteers who help the organisation with activities that relate to members and non-members
- employees' salary and wages where trading activities are for members and non-members
- costs of drinks sold at the bar to members and non-members
- costs of meals and beverages sold to members and non-members
- running costs of facilities used by members and non-members
- costs of dinners, parties, dances or social functions arranged by the organisation where members and non-members pay to attend
- expenses relating to a talk, workshop or presentation arranged by the organisation where members and non-members pay to attend
- costs of a raffle sold to members and non-members
- expenses related to gaming income derived by an organisation from members and non-members where it owns or leases, and operates the gaming machines.
Accounting fees may include the following:
- costs of managing tax affairs
- audit of account fees
- general accounting fees (for example, costs of keeping the accounts up-to-date).
Where the fees are for preparing and lodging income tax returns and activity statements, these costs are specified under income tax law as fully deductible.
However, fees for auditing accounts and general accounting are subject to the principle of mutuality and need to be apportioned where the accounts cover both mutual and non-mutual transactions.
Audit of accounts fees
NFP organisations may be required by their governing documents to audit their accounts. Also, state, territory and federal laws may require companies to undergo statutory audits.
Although constitutional and legislative requirements impose an obligation to have an audit performed for a particular year, audit fees are deductible both:
- in the income year in which they are incurred
- to the extent they relate to the organisation's assessable income.
An organisation incurs audit fees when it is definitely committed to the liability, even if the fees are unpaid at the time. The commitment to the liability depends on the audit contract between the organisation and the auditor.
The following contractual arrangements indicate when the audit fees are incurred:
- full payment due on completion of the audit – fees are incurred when the audit is completed
- part payment due on early termination of the audit – fees are incurred for work performed when the termination occurs
- progressive payments due as particular work is performed in specified periods (for example, three months) – fees are incurred when bills are presented for work performed in these periods
- payment due for work done in an agreed period or on completion of a milestone in the audit – fees are incurred after the agreed period or at the time the auditor tells the organisation the milestone has been completed
- full payment due once the auditor expresses an opinion on the organisation's financial statements – fees are incurred when the auditor expresses the opinion
- full payment due on entering the audit contract but instalment payments accepted by the auditor – fees are incurred when the contract is entered into
- instalment payments due during the audit – fees are incurred when the instalments are due
- full payment due on commencement of the audit – see Prepaid expenses for an explanation of when fees are deductible.
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