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Accrued Expenses

Accrued expenses are expenses that have been incurred, but not yet paid. They are recognised for accounting purposes in the financial statements before being paid.

For tax purposes a small business entity (SBE) taxpayer can generally claim a deduction at June 30th for expenses that have been incurred, but not paid (or even invoiced).

In TR 97/7 the ATO advises that a SBE business taxpayer will incur an expense where:

• The taxpayer has a presently existing liability to pay a sum. This applies even if the amount of the liability cannot be precisely ascertained, provided it is capable of reasonable estimation.

• The taxpayer is completely subjected to the loss or outgoing.

The following are possible accrued expenses for SBE businesses:

• Interest – owing at 30th June.

• Telephone, legal, accounting, etc. – that have been invoiced but not paid at 30th June.

• Commissions – owing to sales-people, but not paid.

• Directors’ fees – if authorised by shareholder resolution prior to 30th June (See Tax Strategy 120).

• Staff bonuses – where the liability exists.

• Salary and wages – accrued up to 30th June but not paid until July.