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Ruling
Subject: Income - timing of receipt
Question
Should the income earned for the period XX May 2010 to YY June 2010 but paid on 1 July 2010 be included in your assessable income for the year ended 30 June 2010?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commences on:
1 July 2009
Relevant facts and circumstances
You earned four weeks worth of salary during the year ended 30 June 2010.
Due to your employer's payroll cycle, you did not receive payment for this period until 1 July 2011.
As a result of being paid on 1 July 2011, the four weeks of salary was included in your payment summary for the year ended 30 June 2011.
You believe the income should be assessable in the year ended 30 June 2010.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5.
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Taxation Ruling TR 98/1 sets out the Commissioner's policy on the derivation of income. Paragraph 42 of TR 98/1 states that income from employment would normally be assessable on a receipts basis. Salary, wages or other employment remuneration are assessable on receipt even though they relate to a past or future income period.
As outlined in paragraph 8 of TR 98/1, the receipts method is sometimes called the cash received basis or the cash basis. Under the receipts method, income is derived when it is received, either actually or constructively, under subsection 6-5(4) of the ITAA 1997.
In your case, you received gross wages on 1 July 2010 for a previous pay period. This amount must be included in the year of receipt, even though it relates to a past income period. Therefore, the income must be recorded in your income tax return for the year ended 30 June 2011 and not the year ended 30 June 2010.