Income tax entry question

SimonYan
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Income tax entry question

Hi

I have a small company which is not GST registered. The company started in 2017 FY and made a loss. In 2018 FY, it made a gain and needed to pay the ATO 6.5K. I paid this amount not until July 2019. 

 

My comany hired a tax accountant for the first 2 years and I decided to take over  this year.  I found in the Profit and Loss statement provided by my previous accountant, there is no income tax expense showed for 2018 FY. 

 

My question is if I am using cash basis to record my business activities, do I still need to enter income tax payable at the end of each financial year?  or I can simply debit income tax expenses and credit cash in bank whenever I pay to the ATO?

 

If accural basis for income tax is necessary, I will go back and  add an entry for income tax on 30/06/2018. But I can't see income tax payable or income tax expense account in my myob essential. So I guess I just add two new accounts? Correct my if I am wrong? 

 

Not sure if I have made myself clear, thank you in advance. 

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SimonYan
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Re: Income tax entry question

The company started in 2017.   sorry typo

MYOB Moderator Melisa_D
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Re: Income tax entry question

Hi @SimonYan

 

Thank you for your post, I hope you're finding helpful information on the Community Forum. 

 

In regards to your query, I would highly recommend speaking to an accountant or financial advisor about this as this is something we cannot advise on. One of our MYOB partner users may be able to assist. 

 

Feel free to come back to the Community Forum if you have anymore questions, we are more than happy to assist.

Cheers,
Melisa

MYOB Community Support

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Ultimate Partner DuncanS
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Re: Income tax entry question

@SimonYan @Melisa_D 

 

My understanding is that a Company can use the Cash Basis for GST but not Income Tax.

Some Accountants prepare a Cash based Tax Return but I believe this is incorrect.

 

Whether Cash or Non-Cash, the Tax Expense is entered by Journal at 30 June.

You are indicating the Tax Accountant did not do this.

 

A Tax Liability is reflected by a Current Liability titled Income Tax Payable.

 

You should obtain the 2018 Financials and Tax Return and agree with MYOB.

 

I do encourage my clients to lodge their 2019 Tax Returns ASAP as any liability for a Company is not due to 15 May.

 

Once the Tax Return has been lodged and agreed to MYOB, the year can be closed/rolled.

It is easier and safer to use a MYOB if the current year in MYOB is not the last FY.

 

Duncan

Duncan Smith
Business Advice + Tax
Helping business owners build a better business since 1998
E expressgst@optusnet.com.au T 02 9904 3672 7 days
SimonYan
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Re: Income tax entry question

Thank you for you reply. This confirmed my understanding. 

 

 

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