In the world of business finance, two terms dominate the discussion around profitability: Accounting Revenue and Assessable Income. While they are often similar, the differences in their timing and treatment are fundamental to financial reporting and, more critically, to determining your final tax liability in Australia.

This article explores how modern accounting standards (specifically AASB 15) define revenue, and how that definition interacts, and often clashes, with the rules set by the Australian Taxation Office (ATO) for assessable income.

Part 1: The Accounting Treatment (AASB 15)

In financial reporting, revenue recognition is governed by the Australian Accounting Standards Board (AASB) standard AASB 15 Revenue from Contracts with Customers. This standard establishes a single, comprehensive framework for how and when revenue is recognised.

The core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services.

AASB 15 dictates a five-step model for revenue recognition:

1. Identify the contract(s) with a customer.
2. Identify the performance obligations in the contract (the promises to the customer).
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations.
5. Recognise revenue when (or as) the entity satisfies a performance obligation.

AASB 15 Examples:

Part 2: The Tax Treatment (Assessable Income)

While AASB 15 focuses on presenting a true and fair view of a company’s financial performance, the ATO is concerned with when income is legally considered “derived” for tax purposes. This often results in a timing difference between the two systems, creating what is known as a temporary difference.

Assessable income includes all income derived from ordinary concepts (e.g., sales, fees, interest) and all statutory income specifically made assessable by the tax act (e.g., Capital Gains).

Tax Timing Rules for Revenue

The key difference often hinges on whether the taxpayer uses the Cash Basis or the Accruals Basis for tax purposes, though most businesses are required to use accruals.

Key Differences & Why They Matter (Example)

This timing difference is why professional tax and accounting advice is essential. While your financial statements reflect the economic reality (revenue over time), your tax return must adhere strictly to the derivation rules defined by the tax legislation.

Would you like to explore how these timing differences affect your company’s deferred tax calculations under AASB 112 Income Taxes?