Substituted Accounting Periods (SAP): A Complete Guide

Monday, 6 Jan 2020

Taxes are always confusing, and when entrepreneurs have to calculate their income in a given timeframe, they find themselves in a fix. A qualified and experienced bookkeeper in Melbourne allows taxpayers to make some sense out of the complicated process. If you too are bewildered about the substituted accounting period or SAP, then here is a detailed guide for you.  

As we all know the standard annual accounting period for entities in Australia begins from 1st July and ends on 30th June. As per the Income Tax Assessment Act 1936 (ITAA 1936), the accounting period should ideally cover a period of twelve months ending on the 30th of June.

However, small business owners in Melbourne or any other part of the country can opt for an alternative accounting period if the standard date does not allow them to calculate the taxable income by the deadline. Thus the new accounting period is known as Substituted Accounting Period (SAP), which encompasses late or early balancing.

If the SAP ends between 1st July and 30th November, then it is late balancing. If it ends between 1st December and 31st May, then it is considered an early balancing. Your bookkeeper can assist you in managing a SAP as the lodgement date depends on the type of your entity and last date of the new accounting period. Here is what you need to know about SAP as a taxpayer in Melbourne.

How To Apply For SAP?

The taxpayer needs to fill an application form for adopting a SAP or if he wants to get back to the normal accounting period from a SAP. The form can be downloaded from the ATO website.

You can also submit a written request for the same with the help of your bookkeeper. The taxpayer must read the Law Administration Practice Statement to understand the details related to the Commissioner’s discretion in granting leave to adopt a SAP in Melbourne.

Requirements For SAP

The lodgement relaxation is not applicable if the SAP entity is not a full self-assessment taxpayer. The requirements to be fulfilled by a taxpayer who has been allowed to adopt a SAP are as follows:

  • Individuals, partnerships and trusts – These entities need to make the payment on the last day of the fourth month after the end of the accounting period. They can make lodgement deferral requests with the help of agents after discussing the accounting time with their bookkeepers.
  • Companies and super funds (excluding not full self-assessment taxpayers (NFSA)) – The due date for lodgement for them is the fifteenth day of the seventh month after the end of the accounting period. These entities need to utilise the ATO assessed deferral request form for deferral.
  • Companies and superannuation funds (excluding NFSA) – Their due date for payment is the first day of the sixth month after the end of the accounting period.

Lodgement Deferrals

If the taxpayer or his/her registered tax agent or BAS agent is not able to lodge by the due date, they can ask for a lodgement deferral by submitting a request online to the ATO.

It helps in extending the due date for the submission of a document without having to incur the failure to lodge on time penalty. The approved agent assessed deferral requests also enjoy a payment deferral.

However, this payment extension is not applicable to FBT returns and individuals and trusts in Melbourne. Your bookkeeper can enlighten you about the deferrals. As an entrepreneur, you must be aware of the taxpayer’s covenant so that you know about your rights and obligations as well as the duties of ATO.      

Early December Balancing Company and Super Fund Client Concessions

The early December balancing SAP clients can lodge online to get lodgement concessions available to 31st July. The full-assessment company or super fund which is an early December balancer has to lodge its tax return by the fifteenth day of the seventh month after the conclusion of their income year. Their due date is 15th of July.

The lodgement concession is available to 31st July if the tax return of the clients in Melbourne is submitted online on or before 31st July with the help of a bookkeeper. The concession was granted after understanding the challenges of tax practitioners in gaining access to tax time software and lodging the return by 15th of July. It is applicable to those entities which create their own software.

The important thing to consider here is that this concession is only for lodgement. The due date of payment, if required, remains the first day of the sixth month after the completion of the income year, which is the 1st of June.

The ATO does not penalise the early December SAP clients for failure to lodge if their tax return is submitted by 31st July. You can discuss the matter with your bookkeeping company in Melbourne, which will make you aware of all such significant details. 

Which Tax Return Form To Use?

With the accounting period changing, it can become confusing to pick the right tax return form. Your bookkeeper can help you in this regard or simply remember that tax returns for SAP clients should be made on the tax return form for the year in exchange of which the accounting period has been adopted.

So if you are preparing an early balancing 2020 tax return, it should be done on the 2020 tax return form. Your bookkeeper will inform you about the changes in taxes after understanding the budget which should be kept in mind while lodging.  

At times, the ATO may fail to provide the tax time stationery by the due date. In such circumstances, the taxpayer must lodge return utilising the 2019 form. However, this means that the process will get changed a bit. In this scenario, the taxpayer in Melbourne will not be able to submit the return online.

When filling the form, the taxpayer must mention the year of income which has been replaced by SAP on the first page of the tax return form. If this criterion is not met, the ATO can reject the lodged tax return. Also, when the 2020 form is released by the taxation office, the taxpayer must take the assistance of the bookkeeper to provide the information requested under new labels in the latest form.                 

Conclusion

Small business owners in Melbourne have a lot on their plate and the lodgement due date can make them anxious. So it is recommended to get the best advice from your bookkeeper and adhere to the guidelines of SAP to keep things under control and organised. 

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