Substituted Accounting Period

Whether a non-profit club which operates and is audited on a calender year basis is entitled to adopt a substituted accounting period.

The organisation is not entitled to adopt a substituted accounting period as it has no substantial business need to adopt such an accounting period.

A non-profit club operates on a calender year basis and is audited on a calender year basis. For convenience, the club wishes to adopt a substituted accounting period as the need to prepare income returns on a financial year basis imposes further costs on the organisation which has limited resources. The organisation commences to lodge income tax returns on a calender year basis without previously having requested approval to adopt a substituted accounting period prior to lodging the returns.

Section 17 of the Income Tax Assessment Act 1936 requires income tax be paid for financial years which commence on 1 July and for each succeeding financial year. Section 18 of the Income Tax Assessment Act 1936 allows the Commissioner to grant leave to adopt an accounting period being the 12 months ending on some date other than 30 June.

Taxation Ruling IT 2360 discusses the circumstances and considerations that will be taken into account by the Commissioner in deciding whether to grant leave to an organisation to adopt a substituted accounting period. The Ruling states that: • a change in accounting period will only be approved where there is a substantial business need for making the change; • convenience of the taxpayer is not sufficient reason for changing accounting period; • in the normal course of events it would be expected that an application would be made in the first year in which the reasons for seeking leave manifest themselves; and • the lodgement of a return for a period ending on some date other than 30 June is not acceptable as an application for leave under subsection 18(1) of the Income Tax Assessment Act 1936.

The club has no substantial business need to adopt a substituted accounting period. No factors which could be considered peculiar to the particular business or class of business makes a 30 June year wholly inappropriate or impractical as a measure for determining the club's taxable income (Taxation Ruling IT 2360).