Concepts
Income year
The income year is the period for which income tax is worked out, which for most Australian taxpayers is the 12 months from 1 July to 30 June.
Income year is the term the tax legislation uses for the period in which you calculate your assessable income and deductions, and for which a tax return is prepared. For the overwhelming majority of individuals and businesses, the income year is the same as the financial year, running from 1 July to 30 June. The terms are often used interchangeably in everyday conversation, although the legislative term is income year.
The reason the distinction exists is that some taxpayers have a different accounting period. A company or other entity can apply to the ATO to use a substituted accounting period, for example one ending on 31 December or 31 March. This is often because of seasonal business cycles, or because the entity is part of an overseas group with a different balance date. In those cases, the income year follows the approved period rather than 30 June.
Your income year matters because many tax rules operate on it. Income is assessed for the year in which it is derived, deductions are claimed for the year in which they are incurred, depreciation is worked out year by year, and tax losses are carried forward from one income year to the next. The way you account for income, using a cash or accruals approach, affects which year particular amounts fall into.
There is also a distinct concept for a business's first and last years. A business that starts mid-year, or a company that is incorporated partway through, may have a part-year to report. Likewise, a taxpayer who becomes or ceases to be an Australian resident can have part-year effects on how income is assessed. These are areas where professional help is valuable, because the rules are detailed.
In GST, you also need to keep the concept separate from tax periods. A BAS covers a month or a quarter, and an annual GST return covers a year chosen by the entity. The income year is relevant to income tax return preparation and to the way you account for income and expenses. Registered businesses usually record their income year figures excluding GST, because GST is handled separately through the BAS.
A common misunderstanding is assuming everyone's income year is the same, or that the income year automatically aligns with the calendar year. It is also easy to confuse income year with the year in which a return is lodged. A 2025-26 income year return is generally lodged after the year ends. This is general information only, so confirm which income year applies to you with the ATO or a registered tax professional.
Worked example
A seasonal tourism company with an approved substituted accounting period ends its income year on 31 March. For the year to 31 March 2026 it earns $480,000 in GST-exclusive sales and incurs $390,000 of GST-exclusive expenses, giving a profit of $90,000. That profit is reported for that income year, while its GST is still reported through its normal BAS periods.
Practical tips
- Check whether you or your entity has a substituted accounting period, since it changes the date your income tax year ends.
- Remember the income year is separate from BAS periods. GST is reported by tax period, not income year.
- Keep clear records of when income was derived and expenses incurred so they land in the correct year.