The Australian Financial Year: A Beginner's Guide
If you're just getting started in the world of small business, it can be overwhelming to learn all the different tax and financial admin concepts. One of the first concepts you'll need to get familiar with is the Australian financial year (FY), which is the twelve-month period used by the ATO for accounting purposes. In this blog, we'll explain why knowing the correct dates is essential and how it can affect your tax reporting.
What is the Australian financial year?
The Australian financial year is an annual period used for tax, budgeting, and financial reporting purposes. It begins on 1 July and ends on 30 June each calendar year. This period was established by law in Australia back in 1851 to simplify taxation and financial reporting. Even though it differs from the calendar year (which runs from 1 January through 31 December), it is crucial to staying compliant with ATO reporting in Australia.
How does the financial year impact taxation?
The ATO uses financial years to track business performance and monitor progress throughout the year. This helps them calculate taxes, analyse trends and make investment decisions ahead of time. Taxes are due at the end of each financial year, so businesses need to understand when this period starts and ends so they can prepare accordingly. For example, if your business is profitable, you may reduce your tax bill just before the financial year ends by purchasing some new equipment. So, knowing where your business stands during the financial year allows you to implement these strategies.
How is the financial year written?
In most reports or documents, the financial year will be written FYXX. The XX represents the period the financial year ends. FY 2022 represents the time period between 1 July 2021 and 30 June 2022. There are many variations to how the financial year can be written. Here are some common examples for the financial year 2022:
- FY 2022
- FY 22
- FY 21/22
- FY 2021/2022
Why is the financial year important?
Knowing when the Australian financial year begins and ends will help you stay informed about changes that may affect your small business down the line. Additionally, being aware of this timeline makes it easier to compare your business finances across multiple years because you know precisely when each financial period starts and ends.
Financial Year FAQs
What is the financial year in Australia?
The financial year in Australia starts on 1 July and ends on 30 June of the following year.
Why is the financial year important for businesses?
The financial year is important for businesses because it is the period in which they must report their financial performance and pay taxes to the government.
Understanding how the Australian financial year works is essential for small business owners to know. From tracking finances over time to setting budgets and preparing for tax time, knowing when this annual period starts (1 July) and ends (30 June) will help you stay compliant and on track. With an understanding of what this period means, you'll be better equipped to make educated decisions about your business moving forward.