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Expenses

Last updated 24 October 2011

Total business income

Completing this item

Step 1 Add up the primary production amounts shown at C, E, G, and I item P8 on your schedule. Write the total at TOTAL BUSINESS INCOME in the Primary production column. Remember that A and N will be blank.

Step 2 If you made a loss, print L in the box at the right of the amount at TOTAL BUSINESS INCOME in the Primary production column.

Step 3 Add up the non-primary production amounts shown at D, B, F, O, H and J item P8. Write the total at TOTAL BUSINESS INCOME in the Non-primary production column.

Step 4 If you made a loss, print L in the box at the right of the amount at TOTAL BUSINESS INCOME in the Non-primary production column.

Step 5 Add up the amounts at TOTAL BUSINESS INCOME in the Primary production and Non-primary production columns and write the total in the adjacent Totals box. If you made a loss, print L in the box at the right of this amount.

Danger

Stop

Do not include the following expense items on your schedule:

  • non-business interest and dividend income expenses - claim deductible expenses at item D7 and D8 on your tax return
  • farm management deposits - take them into account as required at item 17 on your tax return (supplementary section)
  • non-business rental expenses - claim deductible expenses at item 21 on your tax return (supplementary section)
  • expenses and losses relating to foreign source income - take them into account as required at item 20 or, in the case of certain debt deductions, claim them at item D16 on your tax return (supplementary section)
  • expenses relating to your personal services income shown at item P1 on your schedule
  • low-value pool deduction where the pool contains assets used for work-related, self-education or rental purposes - read question D6 in TaxPack 2010.
End of danger

You need to complete all items that relate to your business or businesses. You can deduct business expenses if the expenses were necessary to carry on your business for the purpose of earning assessable income.

If you are a primary producer you will need a primary production worksheet to help you work out some of the amounts in this section. This worksheet is included in the publication Information for primary producers 2010. Complete the worksheet before proceeding.

Goods and services tax

If you are registered or required to be registered for GST, exclude from the deductions any input tax credit entitlements that arise in relation to outgoings. If you pay GST by instalments and incurred a penalty for underestimating a varied GST instalment, you can claim a deduction for the penalty at item D10 on your tax return. Do not show the penalty on your Business and professional items schedule for individuals 2010. For more information, see TaxPack 2010.

Records you need to keep

You must keep your business expenses records for five years after you prepared or obtained them, or five years after you completed the transactions or acts to which they relate.

Prepayments of $1,000 or more

If you made a prepayment of $1,000 or more for something to be done (in whole or in part) in a future income year, the timing of your deduction may be affected by the rules relating to prepayments. Generally, you will need to apportion your deduction for prepaid business expenditure over the service period or 10 years, whichever is less. There is an exception for small business entities if the 12-month rule applies.

For more information, see the publication Deductions for prepaid expenses 2010 (NAT 4170).

Where expenses shown at item P8 include prepaid expenses that differ from the amounts allowable as deductions in the 2009-10 income year, make an expense reconciliation adjustment at H in the reconciliation items section of item P8.

Thin capitalisation

The thin capitalisation provisions apply to entities (including individuals) to reduce certain deductions (called 'debt deductions') for costs incurred in obtaining and servicing debt finance where the debt applicable to Australian operations exceeds the limits set out in Division 820 of the ITAA 1997.

Do the thin capitalisation provisions apply to you?

The thin capitalisation rules may apply to you if:

  • you are an Australian resident and you, or any of your associate entities, are an Australian controller of a foreign entity or carry on business overseas at or through a permanent establishment, or
  • you are a foreign resident and you carry on business in Australia at or through a permanent establishment or otherwise have Australian income-producing assets.

The thin capitalisation rules will not apply to you if:

  • your debt deductions (combined with the debt deductions of your associate entities) do not exceed $250,000 in the income year, or
  • you are an Australian resident and the combined value of your associates' and your Australian assets is not less than 90% of the value of your associates' and your total assets.

If the thin capitalisation rules apply to you, you must complete the Thin capitalisation schedule 2010 (NAT 6458). The amount of any debt deductions you can claim may be reduced by these rules. For more information, see the Guide A: Guide to thin capitalisation (NAT 4461).

Complete the thin capitalisation schedule and post it to:

Australian Taxation Office
PO Box 1365
Albury NSW 2640

Opening stock

Did you have trading stock on hand at the start of the year?

No

Go to Purchases and other costs.

Yes

Read on.

You need to know

The opening value of an item of stock must equal its closing value in the previous year. The total value of all stock on hand at the start of the year is equal to the amount shown as closing stock on your 2009 schedule.

If you are a primary producer, you must add the value of your opening stock from your livestock account at PP4 on your primary production worksheet to the value of your opening stock from your produce account at PP9 on your primary production worksheet. The total of these amounts is the total value of your primary production opening stock.

Do not include any amounts representing opening stock of a business which commenced operations during the year. Include the purchase costs of these items in the relevant Purchases and other costs box.

Completing this item

Step 1 Write the total value of your primary production opening stock at Opening stock in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write the total value of your non-primary production opening stock at Opening stock in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production opening stock values and write the total at K.

Purchases and other costs

Did you have purchases and other costs?

No

Go to Closing stock.

Yes

Read on.

You need to know

This represents the direct cost of materials used for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. It includes inwards freight. It also includes the cost of stock acquired when starting or acquiring a business during the year. It may also include some costs for labour and services provided under contract if these are recorded in the cost of sales account in your business books of account. If so, do not also include this amount as Contractor, sub-contractor and commission expenses.

If you are a primary producer, you must include the value of your purchases from your livestock account at PP5 on your primary production worksheet.

Completing this item

Step 1 Work out the value of your primary production purchases and other costs directly related to trading stock. If you have more than one business, add up all your primary production purchases and costs.

Step 2 Write the total value of your primary production purchases and other costs directly related to trading stock at Purchases and other costs in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 3 Work out the value of your non-primary production purchases and other costs directly related to trading stock. If you have more than one business, add up all your non-primary production purchases and other costs.

Step 4 Write the total value of your non-primary production purchases and other costs directly related to trading stock at Purchases and other costs in the Non-primary production column. Do not show cents.

Step 5 Add up your primary production and non-primary production purchases and other costs directly related to trading stock and write the total at L.

Attention

Former STS taxpayers

If you are eligible and are continuing to use the STS accounting method, only show at L purchases and other costs that you have paid (see Former STS taxpayers).

End of attention

Closing stock

Did you have trading stock on hand at the end of the year?

No

Go to Cost of sales.

Yes

Read on.

If you are a small business entity and are choosing to use the simplified trading stock rules, read on. Otherwise, go to Other businesses.

Small business entities

You need to know

You need to account for changes in the value of your trading stock only if there is a difference of more than $5,000 between the value of all your stock on hand at the start of the income year and a reasonable estimate of the value of all your stock on hand at the end of the income year.

The value of your stock on hand at the start of the income year is the same value as the closing value shown on your schedule in the previous year. This may not necessarily reflect the actual value of your stock if you did not account for the change in value of your stock in the previous year. For more information on a reasonable estimate of the value of stock, visit our website or phone the Business Infoline.

You can still choose to conduct a stocktake and account for changes in the value of trading stock, if you wish.

Is the difference between the value of your opening stock and a reasonable estimate of your closing stock more than $5,000?

Yes

You must account for changes in the value of your trading stock. Go to step 2.

No

If you choose not to account for changes in the value of your trading stock, go to step 1. Otherwise, go to step 2.

Completing this item

Step 1 If the difference referred to above is $5,000 or less and you choose not to account for this difference, the closing stock values you put in both the Primary production and Non-primary production columns at item P8 on page 3 of your schedule must be the same as the values you put at Opening stock. Do not put your reasonable estimate.

Add up your primary production and non-primary production closing stock values and write the total at M.

Write in the Type box at the right of M the code letter you used last year to value closing stock:

C cost
M
market selling value
R
replacement value.

If this is your first year in business the value of your closing stock will be zero. Print C in the Type box.

Go to Cost of sales.

Step 2 If the difference referred to above is more than $5,000 or you choose to account for the difference in trading stock, the closing stock values must be brought to account under section 70-35 of the ITAA 1997. Read Other businesses below for information on how to complete this item.

You must include in your closing stock value at M item P8 the value of all stock on hand, regardless of whether you have paid for the stock.

Other businesses

You need to know

The amount that is shown at Closing stock is the total of the value of all items of trading stock, with the value of each item calculated for tax purposes in accordance with section 70-45 of the ITAA 1997.

Trading stock is anything you have on hand which you produced, manufactured, acquired or purchased for the purpose of sale, manufacture or exchange. For example, trading stock includes livestock but not working animals (except those used by a primary producer), crops and timber when harvested and wool after it is removed from the sheep.

Manufacturers must include as trading stock partly manufactured goods and materials on hand. However, closing stock excludes any amount that represented closing stock of a business that ceased operations during the year. This amount is included in Other business income at I or J in the Income section of item P8. For more details about what constitutes trading stock, visit our website or phone the Business Infoline.

You can choose one of the following three methods to value your trading stock:

  • cost
  • market selling value
  • replacement value.

You may elect to value an item of trading stock below the lowest value calculated by any of these methods because of obsolescence or other special circumstances. The value you elect must be reasonable. Where you elect to value an item of trading stock below cost, market selling value and replacement value, you must complete item P19 on your schedule.

You may use different methods to calculate each item of trading stock in different years or for different items in the same year. However, the opening value of each item in a particular year must be the same as the closing value for that item in the previous year.

If you are registered for GST, the value of closing stock should not include an amount equal to the input tax credit that would arise if you had acquired the item solely for business purposes at the end of the income year. Input tax credits do not arise for some items of trading stock, such as shares.

If you are a primary producer, you must add the value of your closing stock from your livestock account at PP3 on your primary production worksheet to the value of your closing stock from your produce account at PP8 on your primary production worksheet.

The total of these amounts is the total value of your primary production closing stock.

As the tax values of closing stock on hand are shown at PP3 and at PP8 on your primary production worksheet, you cannot reduce these values by accounting entries. Keep records showing how each item was valued.

Completing this item

Step 1 Work out the value of your primary production closing stock. If you have more than one business, add up all your primary production closing stock values.

Step 2 Write the total value of your primary production closing stock at Closing stock in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 3 Work out the value of your non-primary production closing stock. If you have more than one business, add up all your non-primary production closing stock values.

Step 4 Write the total value of your non-primary production closing stock at Closing stock in the Non-primary production column. Do not show cents.

Step 5 Add up your primary production and non-primary production closing stock values and write the total at M.

Step 6 From the list below, find the letter that matches the method you used to value closing stock. If more than one method was used, select the letter that applies to the largest value:

C cost
M
market selling value
R
replacement value.

Step 7 Print the letter in the Type box at the right of the amount at M.

Cost of sales

Did you have any cost of sales?

No

Go to Foreign resident withholding expenses.

Yes

Read on.

You need to know

Goods taken for your own use should not be accounted for as stock on hand at 30 June 2010. Include at I and J Other business income in the Income section of item P8 on your schedule the value of:

  • livestock killed for rations
  • livestock exchanged for other goods or services, and
  • goods taken for your own use.

Use worksheet 1 to work out your cost of sales.

Worksheet 1: Cost of sales

 

Primary production

Non-primary production

Stock at 1 July 2009

(a)

$

$

Purchases at cost

(b)

$

$

Freight inwards

(c)

$

$

Other - for example, labour and services

(d)

$

$

Add (a), (b), (c) and (d).

(e)

$

$

Stock at 30 June 2010

(f)

$

$

Your cost of sales
Take away (f) from (e).

 

$

$

For further information on stock on hand at 1 July 2009, read Opening stock. For information on stock on hand at 30 June 2010, read Closing stock.

Completing this item

Step 1 Write your total primary production cost of sales at Cost of sales in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 If the cost of sales in the Primary production column - after taking away (f) from (e) - is a negative amount, print L in the box at the right of this amount.

Step 3 Write your total non-primary production cost of sales at Cost of sales in the Non-primary production column. Do not show cents.

Step 4 If the cost of sales in the Non-primary production column - after taking (f) away from (e) - is a negative amount, print L in the box at the right of this amount.

Step 5 Add up your primary production and non-primary production cost of sales and write the total at Cost of sales in the Totals column.

Step 6 If your total cost of sales is a negative amount, print L in the box at the right of this amount.

Foreign resident withholding expenses

Did you have any expenses directly relating to income subject to foreign resident withholding?

No

Go to Contractor, sub-contractor and commission expenses.

Yes

Read on.

Completing this item

Step 1 Write your total non-primary production foreign resident withholding expenses at Foreign resident withholding expenses in the Non-primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Transfer the amount you wrote at step 1 to the adjacent Totals box at U.

Attention

Note

You will not have any primary production expense amounts at this item.

End of attention

Contractor, sub-contractor and commission expenses

Did you have any contractor, sub-contractor or commission expenses in your business?

No

Go to Superannuation expenses.

Yes

Read on.

You need to know

These are expenses for labour and services provided under contract - other than salaries or wages - for example:

  • payments to self-employed people such as consultants and contractors, including payments subject to a PAYG voluntary agreement to withhold and payments made under a labour hire arrangement 
  • commissions paid to people not receiving a retainer 
  • agency fees - for example, advertising 
  • service fees - for example, plant service 
  • management fees, and 
  • consultant fees.

Do not include the following at this item:

  • expenses for external labour which have been included in the business cost of sales account 
  • expenses for accounting or legal services - include these at All other expenses.

Completing this item

Step 1 Write your total primary production contractor, sub-contractor and commission expenses at Contractor, sub-contractor and commission expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production contractor, sub-contractor and commission expenses at Contractor, sub-contractor and commission expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production contractor, sub-contractor and commission expenses and write the total at F.

Superannuation expenses

Did you make any superannuation contributions on behalf of eligible employees or their dependants as a business expense?

No

Go to Bad debts.

Yes

Read on.

You need to know

Show superannuation expenses for the income year. Do not include any amount that was a contribution for yourself. The deduction for your own superannuation contributions must be claimed at item D13 on your tax return (supplementary section). See question D13 in TaxPack 2010 supplement.

Employers are entitled to a deduction for the contributions they made to a complying superannuation, provident, benefit or retirement fund or retirement savings account (RSA) where the contributions are to provide superannuation benefits for employees or to provide benefits to the employee's dependants on the employee's death. Superannuation benefits mean individual personal benefits, pensions or retiring allowances. A deduction is allowable in the income year in which the contributions are made.

Contributions made to a non-complying fund:

  • are not allowable as a deduction, and
  • do not count towards superannuation guarantee obligations.

Under the superannuation guarantee, an employer needs to provide a minimum level of superannuation for employees or pay a superannuation guarantee charge on the superannuation guarantee shortfall. The superannuation guarantee charge is not a superannuation contribution and is not tax deductible. Contributions made by employers to be offset against a superannuation guarantee charge liability are not deductible.

Contributions paid by an employer for employees to a non-complying superannuation fund are fringe benefits (other than where the contributions are made for an exempt visitor) and may be subject to tax under the Fringe Benefits Tax Assessment Act 1986.

There is no limit on the amount of contributions that can be claimed as a deduction by an employer contributing to a complying superannuation fund or RSA for employees under the age of 75 years old. However, the employee may be subject to excess concessional contributions tax on their excess concessional contributions in the income year at the tax rate of 31.5% if their concessional contributions exceed the concessional contributions cap of $25,000. A transitional arrangement allows a higher cap of $50,000 for concessional contributions for the 2009-10 to 2011-12 income years for individuals aged 50 years old or older on the last day of the income year.

If an employee is 75 years old or older, there is a restriction on the deduction that can be claimed for an employer contribution to a complying superannuation fund or RSA. For contributions made after the 28th day of the month following the employee's 75th birthday, the deduction claimable is limited to the amount of the contribution required under an industrial award, determination or notional agreement preserving state awards.

Completing this item

Step 1 Write your total primary production superannuation contributions at Superannuation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production superannuation contributions at Superannuation expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production superannuation contributions and write the total at G.

Bad debts

Did you write off any bad debts in your business?

No

Go to Lease expenses.

Yes

Read on.

You need to know

Include income from the recovery of bad debts in Other business income at I or J in the Income section of item P8.

You are not allowed a deduction for bad debts unless you have previously included the amount in your assessable income or it is for money you lent in the ordinary course of a money-lending business carried on by you.

Before you can claim a bad debt, it must be bad and not merely doubtful. The question of whether a debt is a bad debt will depend on the facts in each case and, where applicable, the action taken for recovery.

Do not include accounting provisions for doubtful debts at I. You show them in the Expenses section at All other expenses, then add them back at H Expense reconciliation adjustments in the Reconciliation items section.

Further Information

For more information, see Taxation Ruling TR 92/18 - Income tax: bad debts.

End of further information

You can also claim a deduction for:

  • partial debt write-offs - where only part of a debt is bad and is written off, you may claim a deduction for the amount written off
  • losses incurred in debt-for-equity swaps for debt written off - where under an arrangement you discharge, release or otherwise extinguish the whole or part of a debt owed to you in return for equity in the debtor. You can claim a deduction for the difference between the amount of the debt and the greater of the market value of the equity at the time of issue or the value of the equity recorded in your books at the time of issue. The market value of the equity is the price quoted on the stock exchange or, if the equity is not listed, the net asset backing of the equity.

Where you are not in the business of lending money, the deduction is limited to the amount of the debt you have included in assessable income.

Records you need to keep

Keep a statement for all debtors whose bad debts you wrote off during the year, showing:

  • their name and address
  • the amount of the debt
  • the reason you regarded the debt as bad
  • the year that you returned the amount as income.

Completing this item

Step 1 Write your total primary production bad debts at Bad debts in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production bad debts at Bad debts in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production bad debts and write the total at I.

Lease expenses

Did you have lease expenses in your business?

No

Go to Rent expenses.

Yes

Read on.

You need to know

This is expenditure incurred on financial leases and on operating leases for assets such as motor vehicles and plant. Do not include the cost of leasing real estate (show this cost at K Rent expenses) or capital expenditure incurred to terminate a lease or licence. However, a five-year straight-line write-off is allowed for certain capital expenditure incurred to terminate a lease or licence if the expenditure is incurred in the course of carrying on a business, or in connection with ceasing to carry on a business. See worksheet 4 and note 3 and the details under Change 3 in the fact sheet Blackhole expenditure: business-related expenses.

In some circumstances, lease expenses may be debt deductions for the purposes of the thin capitalisation rules.

Attention

Note

If you include an amount of lease expense which is not allowable as a deduction, such as amounts disallowed under the thin capitalisation rules, you will need to add back the amount at H Expense reconciliation adjustments in the Reconciliation items section on your schedule.

End of attention

Expenses incurred under a hire-purchase agreement are not lease expenses. Such expenses are dealt with at H Expense reconciliation adjustments in the Reconciliation items on your schedule.

Special rules apply to leased cars if the cost of the car exceeds the car limit that applies for the financial year in which the lease commences. The car limit for 2009-10 is $57,180.

If you lease a car that is subject to the special rules, the reconciliation between the lease expense and the tax treatment is carried out at H Expense reconciliation adjustments in the Reconciliation items section. For more information, see Luxury car leasing.

Records you need to keep

List the assets leased and keep full details of the leasing expenses for each item, including motor vehicles, and details of any private use. Leasing expenses of certain cars fall under the substantiation rules.

Completing this item

Step 1 Write your total primary production lease expenses at Lease expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production lease expenses at Lease expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production lease expenses and write the total at J.

Rent expenses

Did you have rent as a business expense?

No

Go to Interest expenses within Australia.

Yes

Read on.

You need to know

This is expenditure you incurred as a tenant for rental of land and buildings used in the production of income. Include the cost of leasing real estate.

Completing this item

Step 1 Write your total primary production rent expenses at Rent expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production rent expenses at Rent expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production rent expenses and write the total at K.

Interest expenses within Australia

Did you incur interest as a business expense on money borrowed within Australia?

No

Go to Interest expenses overseas.

Yes

Read on.

You need to know

Include interest you incurred on money borrowed within Australia to acquire income-producing assets used in your business, to finance business operations or to meet current business expenses.

Do not include interest incurred in deriving rental income. Claim this at item 21 on your tax return (supplementary section).

Attention

Note

If you include an amount of interest which is not allowable as a deduction, such as amounts denied by the thin capitalisation rules, you will need to add back the amount at H Expense reconciliation adjustments in the Reconciliation items section on your schedule.

End of attention

Completing this item

Step 1 Write your total primary production interest expenses within Australia at Interest expenses within Australia in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production interest expenses within Australia at Interest expenses within Australia in the Non-primary production column, item P8 on your schedule. Do not show cents.

Step 3 Add up your primary production and non-primary production interest expenses within Australia and write the total at Q.

Interest expenses overseas

Did you incur interest as a business expense on money borrowed overseas?

No

Go to Depreciation expenses.

Yes

Read on.

You need to know

Include any interest incurred on money borrowed from overseas sources to acquire income-producing assets used in your business, to finance business operations or to meet current business expenses.

Do not include interest incurred in deriving rental income. Claim this at item 21 on your tax return (supplementary section).

Generally, you are required to withhold an amount of withholding tax from interest paid or payable to non-residents and from interest derived by a resident through an overseas branch. You must send these amounts to us. You cannot deduct an interest expense if you were required to withhold tax on that interest and you failed to do so.

If you paid or credited any interest or amounts in the nature of interest to a non-resident of Australia or to a resident's overseas branch, you will need to provide additional information. Print SCHEDULE OF ADDITIONAL INFORMATION - ITEM 15 on the top of a separate piece of paper. Show the name and address of each recipient, total amounts paid or credited to each non-resident or overseas branch of a resident and the amount of tax withheld. If no tax was withheld, state the reason for this. Include your name, address and TFN. Print X in the YES box at Taxpayer's declaration question 2a on your tax return. Sign and attach the schedule to page 3 of your tax return.

Further Information

For more information on the tax treatment of interest paid to non-residents, phone the Business Infoline.

End of further information
Attention

Note

If you include an amount of interest which is not allowable as a deduction, such as amounts denied by the thin capitalisation rules, you will need to add back the amount at H Expense reconciliation adjustments in the Reconciliation items section on your schedule.

End of attention

Completing this item

Step 1 Write your total primary production overseas interest expenses at Interest expenses overseas in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production overseas interest expenses at Interest expenses overseas in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production overseas interest expenses and write the total at R.

Depreciation expenses

Did you have depreciation as a business expense?

No

Go to Motor vehicle expenses.

Yes

If you are a small business entity and are choosing to use the simplified depreciation rules, read on. Otherwise, go to Other businesses.

Danger

Former small business taxpayers

If you are not a small business entity in the income year, but in a prior year you allocated assets to a general small business pool or long-life small business pool (or the law allocated the assets to such a pool), do not include the pool deductions at this item. Show such deductions at item D16 on your tax return (supplementary section).

End of danger

Small business entities

You need to know

You show at M Depreciation expenses item P8 the total depreciation deductions being claimed under the small business entity capital allowances (depreciation) rules and for the business use of other assets under the uniform capital allowance (UCA) rules. This includes your deduction under the small business entity rules for depreciating assets used for work-related or self-education purposes. However this excludes any amount included at part B of item P1.

You do not need to complete a Capital allowances schedule 2010 (NAT 3424).

Small business entities can claim an immediate deduction for most depreciating assets costing less than $1,000 (excluding input tax credit entitlements) and can pool most of their other depreciating assets. There are two small business pools:

  • a general small business pool for depreciating assets with an effective life of less than 25 years
  • a long-life small business pool for depreciating assets with an effective life of 25 years or more.

Some depreciating assets are excluded from these simplified depreciation rules but a deduction may be available under the UCA rules.

If you are a small business entity and are choosing to use these simplified depreciation rules, you must use immediate write-off and pooling as applicable. You cannot choose to use one and not the other.

Attention

Former small business taxpayers

Assets that were previously in a small business pool (a general small business pool or a long-life small business pool) continue to be subject to the pooling rules. The law treats assets previously allocated to an STS pool as having been allocated to a general small business pool or long-life small business pool (whichever is relevant).

End of attention
Further Information

For more information about the small business entity depreciation rules, visit our website or phone the Business Infoline.

End of further information

Calculating your depreciation deductions

If your accounting system or financial statements provide you with the amounts to complete worksheet 2, write these amounts in the worksheet. Otherwise, use calculations 1 to 5 below to calculate your depreciation deductions.

The amounts you write in worksheet 2 must be tax values and not accounting values.

Calculation 1: Low-cost assets

A low-cost asset is an asset:

  • whose cost at the end of the income year in which you started to use it for a taxable purpose, or had it installed ready for such use, was less than $1,000 (excluding input tax credit entitlements), and
  • that qualifies for a deduction under the small business entity depreciation rules.

Work out the taxable purpose proportion of each depreciating low-cost asset you acquired in 2009-10 and used, or held ready for use, for the purpose of producing assessable income. You calculate the deduction for each eligible asset as follows:

asset's adjustable value  X  taxable purpose proportion

Add up these results and write the total at (a) in worksheet 2.

Do not include depreciating assets which cost less than $1,000 (excluding input tax credit entitlements) that you acquired before commencing to use these simplified depreciation rules. You allocate these assets to the general small business pool (see calculation 2).

Attention

Note

The adjustable value of a depreciating low-cost asset, at the time you first used it (or held it ready for use) for a taxable purpose, will be its cost, unless you previously used or held the asset solely for private purposes. For example, for a tool set bought on 1 December at a cost of $800 (excluding input tax credit entitlements) and used for producing assessable income from that date at an estimated 70% of the time, the immediate deduction would be $800 x 70% = $560.

End of attention
Attention

Definitions

Adjustable value of a depreciating asset is its cost (excluding input tax credit entitlements) less its decline in value since you first used it or installed it ready for use for any purpose, including a private purpose.

Assessable balancing adjustment amount arises where the termination value of the depreciating asset is more than the adjustable value.

Cost addition amounts include the cost of capital improvements to assets and costs reasonably attributable to disposing of or permanently ceasing to use an asset (this may include advertising and commission costs or the costs of demolishing the asset).

Decline in value (previously 'depreciation') is the value that an asset loses over its effective life.

Deductible balancing adjustment amount arises where the termination value of the depreciating asset is less than the adjustable value.

Depreciating asset is an asset with a limited effective life which declines in value over that life.

Taxable purpose includes the purpose of producing assessable income.

Taxable purpose proportion is the extent to which you use the asset for a taxable purpose, such as for the purpose of producing assessable income.

Termination value includes money received from the sale of an asset or insurance money received as the result of the loss or destruction of an asset. Exclude the GST component where the amount received is for a taxable supply.

End of attention

Calculation 2: Small business pool deductions

To calculate your deductions for both the general and long-life small business pools you must first calculate the opening pool balance of each pool.

If 2009-10 was the first income year for which you were a small business entity, your opening pool balance of a general or long-life pool is the sum of the taxable purpose proportions of the adjustable values of the depreciating assets that were used, or held for use, just before the start of the 2009-10 income year, and that were not excluded from the simplified depreciation rules.

Allocate each depreciating asset you hold at the start of the income year to the appropriate pool according to the asset's effective life. Include only the taxable purpose proportion of the adjustable value of each depreciating asset. For example, for an asset with an adjustable value of $10,000 that is used only 50% for an income-producing purpose, you will add only $5,000 to the pool.

You can choose not to allocate an asset to your long-life small business pool if you first used it, or installed it ready for use, for a taxable purpose before 1 July 2001.

For an income year that is not the first income year for which you were a small business entity, the opening pool balance of each small business pool is the closing pool balance for the previous income year, except where you make an adjustment to reflect the changed business use of a pooled asset.

Calculate your deduction for each small business pool as follows.

General small business pool deduction:

opening pool balance ($) x 30%

Long life small business pool deduction:

opening pool balance ($) x 5%

Where necessary, make a reasonable apportionment for each small business pool deduction between primary production and non-primary production activities.

Write the result of your general small business pool deduction at (b) in worksheet 2.

Write the result of your long-life small business pool deduction at (c) in worksheet 2.

If either pool balance is below $1,000 (after taking into account additions and disposals but before working out the deductions in calculations 2 and 3), you instead work out the deduction for the pool using calculation 5(b).

Calculation 3: Depreciating assets first used for a taxable purpose during 2009-10 and cost addition amounts for assets already allocated to a pool

You calculate your deduction at half the relevant pool rate for:

  • depreciating assets that you first used or installed ready for use for a taxable purpose during the year, and
  • cost addition amounts for assets already allocated to a small business pool.

(This calculation does not apply to any asset allocated to an opening pool balance in calculation 2.)

Calculate your deduction as follows:

  • the taxable purpose proportion of the adjustable value of each depreciating asset first used for a taxable purpose this year multiplied by 15% (general pool assets) or 2.5% (long-life pool assets), plus
  • the taxable purpose proportion of the cost addition amounts multiplied by 15% (general pool assets) or 2.5% (long-life pool assets).

Write the total deduction for general pool assets at (d) and the total deduction for long-life pool assets at (e) in worksheet 2.

Calculation 4: Other depreciating assets

Work out your deduction for the decline in value of all your other depreciating assets that are not included in calculations 1 to 3.

Further Information

See Guide to depreciating assets 2010 (NAT 1996) for information on how to calculate the decline in value of these assets. To find out how to get this publication, see the inside back cover.

End of further information

Write your total deduction for other depreciating assets at (f) in worksheet 2.

Do not include at (f) in the worksheet depreciating assets which qualify for a deduction under Subdivision 40-F or 40-G of the ITAA 1997 as water facilities or landcare operations in your primary production business and for which you have chosen to claim a deduction under those Subdivisions and not these small business entity depreciation rules. Show these deductions at W Landcare operations and business deduction for decline in value of water facility item P8 Reconciliation items.

Calculation 5: Disposal of depreciating assets

(a) Low-cost assets

If you have disposed of a low-cost asset for which you have claimed an immediate deduction in calculation 1 this year or in a prior year, include the taxable purpose proportion of the termination value in the Reconciliation items section of item P8. For example, for a low-cost asset used only 50% for an income-producing purpose which was sold for $200 (excluding GST), only $100 will be assessable and included as a reconciliation adjustment.

(b) Assets allocated to small business pools

Where you dispose of depreciating assets that have been allocated to either the general or long-life pools, you deduct the taxable purpose proportion of the termination value from the closing pool balance. For example, for a pooled depreciating asset used only 50% for an income-producing purpose which was sold for $3,000 (excluding GST), only $1,500 will be deducted from the closing pool balance. If the balance of a pool is below $1,000 but greater than zero (after taking into account any additions and disposals but before calculating the deductions in calculations 2 and 3) you can claim an immediate deduction for this amount. Write this deduction against the appropriate pool at (b) or (c) in worksheet 2.

If the closing pool balance is less than zero, you include the amount below zero in your assessable income in the Reconciliation items section of item P8. For more information see Closing pool balance.

If expenses are incurred in disposing of a depreciating asset, these expenses may be taken into account in calculation 3.

(c) Other depreciating assets

Further Information

See Guide to depreciating assets 2010 for information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets.

End of further information

Balancing adjustment amounts are included in the Reconciliation items section of item P8. See What are income reconciliation adjustments? and What are expense reconciliation adjustments?

Closing pool balance

The closing balance of each small business pool for an income year is:

  • the opening pool balance (see calculation 2), plus
  • the taxable purpose proportion of the adjustable value of assets that were first used, or installed ready for use, for a taxable purpose during the year (see calculation 3), plus
  • the taxable purpose proportion of any cost addition amounts for assets in the pool during the year (see calculation 3), less
  • the taxable purpose proportion of the termination value of any pooled assets disposed of during the year [see calculation 5(b)], less
  • the small business pool deduction (see calculation 2), less
  • the deduction for assets first used by you during the year (see calculation 3), less
  • the deduction for any cost addition amounts for pooled assets during the year (see calculation 3).

If your closing pool balance is less than zero, see calculation 5(b).

The closing pool balance for this year becomes the opening pool balance for the 20010-11 income year except where you made an adjustment to reflect the changed business use of a pooled asset.

You will need your opening pool balance to work out the pool deduction next year. Do not write your closing pool balance on your tax return (supplementary section).

Worksheet 2: Depreciation deductions for small business entities

 

Primary production
($)

Non-primary production
($)

 

Total ($)

Low-cost assets

   

(a)

 

General pool

   

(b)

 

Long-life pool

   

(c)

 

General pool (1/2 rate)

   

(d)

 

Long-life pool (1/2 rate)

   

(e)

 

Other assets

   

(f)

 

Depreciation expenses: add (a), (b), (c), (d), (e) and (f).

   

(g)

 

Completing this item

Step 1 Write your total primary production depreciation deductions at Depreciation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production depreciation deductions at Depreciation expenses in the Non-primary production column. Do not show cents.

Attention

Note

Do not show any amount included at part B of item P1.

End of attention

Step 3 Transfer the amount at (g) in worksheet 2 to M Depreciation expenses item P8. Do not show cents.

Step 4 Transfer the amount at (a) in worksheet 2 to A item P10 Small business entity depreciating assets on page 4 of your schedule. Do not show cents.

Step 5 Add up the amounts at (b) and (d) in worksheet 4 and write the total at B item P10. Do not show cents.

Step 6 Add up the amounts at (c) and (e) in worksheet 4 and write the total at C item P10. Do not show cents.

Step 7 Go to Motor vehicle expenses.

Attention

Five-year restriction

If you are a small business entity and have chosen to use these simplified depreciation rules but then, in a later year, choose to stop using this concession, you cannot choose to use the simplified depreciation rules again until at least five years after the income year in which you chose to stop using the rules.

End of attention

Other businesses

You need to know

You show at M Depreciation expenses item P8 the depreciation claimed in your books of account other than for those assets allocated in a prior year to a general pool or a long-life pool. For assets allocated to such a pool, include here the amount of the pool deduction to be claimed for tax purposes. For further information, see small business entity capital allowances (depreciation) deductions.

The depreciation amount shown at M item P8 should not include profit or loss on the sale of depreciating assets. You should include profits on the sale of depreciating assets in Other business income at I or J in the Income section of item P8 on your schedule. You should include losses on the sale of depreciating assets at P All other expenses in the Expenses section.

Accounting or book depreciation may differ from the deduction for the decline in value of depreciating assets.

You carry out the reconciliation between accounting depreciation and the deduction for decline in value at H Expense reconciliation adjustments in the Reconciliation items section of item P8.

Further Information

You can use the decline in value calculator to calculate the decline in value of these assets or see Guide to depreciating assets 2010 for more information on how to calculate decline in value.

End of further information
Attention

Is expenditure revenue or capital in nature?

Law Administration Practice Statement PS LA 2003/8 - Taxation treatment of expenditure on low cost items for taxpayers carrying on a business provides guidance on two straightforward methods which can be used by taxpayers carrying on a business to help determine whether expenditure incurred to acquire certain low-cost items is to be treated as revenue expenditure or capital expenditure.

Subject to certain qualifications, the two methods cover expenditure below a threshold and the use of statistical sampling to estimate total revenue expenditure on low-cost items. The threshold rule allows an immediate deduction for qualifying low-cost business items costing $100 or less. The sampling rule allows taxpayers with a low-value pool to use statistical sampling to determine the proportion of the total purchases on qualifying low-cost business items that are revenue expenditure.

We will accept a deduction for expenditure incurred on low-cost assets calculated in accordance with this Practice Statement.

End of attention

Completing this item

Step 1 Write your total primary production depreciation expenses at Depreciation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production depreciation expenses at Depreciation expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production depreciation expenses and write the total at M Depreciation expenses.

Motor vehicle expenses

Did you have motor vehicle expenses in your business?

No

Go to Repairs and maintenance.

Yes

Read on.

You need to know

Special substantiation and calculation rules for car expenses apply to an individual. Under these rules, motor vehicle expenses can be claimed using one of the four methods where the expense is for a motor car, station wagon, panel van, utility truck or other road vehicle designed to carry a load less than one tonne or fewer than nine passengers. For an explanation of these methods, see question D1 in TaxPack 2010 (NAT 0976).

Do not include depreciation, finance leasing charges or interest paid. You should include these at M Depreciation expenses, J Lease expenses, Q Interest expenses within Australia or R Interest expenses overseas item P8 on your schedule.

Completing this item

Step 1 Write your total primary production motor vehicle expenses at Motor vehicle expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production motor vehicle expenses at Motor vehicle expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production motor vehicle expenses and write the total at N item P8 on your schedule.

Step 4 If you worked out the amount you are claiming for motor vehicle expenses using one of the four methods described in question D1 in TaxPack 2010, find the code letter that identifies the method you used and print it in the Type box at the right of the amount at N.

S - if you used the 'cents per kilometre' method
T
- if you used the '12% of original value' method
O
- if you used the 'one-third of actual expenses' method
B
- if you used the 'logbook' method.

Print the code letter N in the Type box if the amount shown at N relates to a:

  • motorcycle
  • taxi taken on hire
  • road vehicle designed to carry a load of one tonne or more, or nine or more passengers
  • any other motor vehicle expenses covered by question D2 in TaxPack 2010.

If you have more than one code, print the code that applies to the largest claim.

Repairs and maintenance

Did you have repairs and maintenance as a business expense?

No

Go to All other expenses.

Yes

Read on.

You need to know

This is expenditure shown in your accounts for repairs and maintenance of premises, plant, machinery, implements, utensils, rolling stock or articles associated with the production of income. Any non-deductible expenditure, such as items of a capital nature or amounts relating to private use of an item, included at this item, should also be included at H Expense reconciliation adjustments in the Reconciliation items section item P8 on your schedule. The following information on deductions for repairs will assist you to work out whether you need to make an expense reconciliation adjustment.

Repairs

You may deduct the cost of repairs - not being expenditure of a capital nature - to premises and depreciating assets such as plant, machinery or equipment used solely for producing assessable income, or in carrying on a business for that purpose.

Expenditure on repairs to property used partially for business or income-producing purposes - for example, where the property is also used for private purposes or in the production of exempt income - is deductible only to the extent that is reasonable, taking account of such use.

Where items are newly acquired, including by way of a legacy or gift, the cost of repairs to defects in existence at the time of acquisition is generally of a capital nature.

Expenditure incurred in making alterations, additions or improvements is of a capital nature and is not deductible.

Further Information

For further information on deductions for repairs, see Taxation Ruling TR 97/23 - Income tax: deductions for repairs.

End of further information

Records you need to keep

To support your claim for the cost of repairs, you must keep full details, including source documents, of the nature and cost of repairs to each item.

Completing this item

Step 1 Write your total primary production repairs and maintenance expenses at Repairs and maintenance in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production repairs and maintenance expenses at Repairs and maintenance in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production repairs and maintenance expenses and write the total at O.

All other expenses

Did you have any other business expenses?

No

Go to Total expenses.

Yes

Read on.

You need to know

This is the total of all other expenses which you incurred in deriving your profit or loss and which you have not already shown elsewhere at item P8. Other expenses include wages, accounting and professional fees, advertising, office supplies, foreign exchange (forex) losses and any loss on the sale of a depreciating asset as shown in your accounts.

Further Information

For more information about forex losses, visit our website or see question D16 in TaxPack 2010 supplement.

End of further information

You should also include capital and other non-deductible items (including debt deductions denied by thin capitalisation rules shown at H Expense reconciliation adjustments in the Reconciliation items section of item P8 on your schedule. See Income and expense reconciliation adjustments for more information.

Home office expenses

If part of your home was specifically set aside as your place of business and used solely for the purpose of conducting your business affairs and you had no other place from where they were mainly carried on, the following expenses are partly deductible:

  • occupancy expenses - including rent, mortgage interest, rates, and house and contents insurance
  • running expenses - including electricity, cleaning, depreciation, leasing charges and repairs to furniture and furnishings in the office.

In most cases, you can apportion expenses on a floor area basis and, if the area of your home was a place of business for only part of the year, on a time basis.

Where you used part of your home as a home office but it did not qualify as a place of business, only the additional running expenses you incurred may be deductible.

Records you need to keep

You should keep records to show how you have calculated your home office expenses. We may ask you for these at a later date.

Completing this item

Step 1 Write your total 'other' primary production expenses at All other expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total 'other' non-primary production expenses at All other expenses in the Non-primary production column.

Step 3 Add up your 'other' primary production and 'other' non-primary production expenses and write the total at P item P8 on your schedule.

Total expenses

Completing this item

Step 1 Add up all the expenses you have written in the Primary production column, from Cost of sales down to and including All other expenses. Write the total at S item P8 on page 3 of your schedule. Do not show cents.

Step 2 If your total of primary production expenses is a negative amount, print L in the box at the right of the amount at S.

Step 3 Add up all the expenses you have written in the Non-primary production column, from Cost of sales down to and including All other expenses. Write the total at T. Do not show cents.

Step 4 If your total of non-primary production expenses is a negative amount, print L in the box at the right of the amount at T.

Step 5 Add up your primary production and non-primary production expenses. Write the total at TOTAL EXPENSES in the Totals column.

Step 6 If your total expenses is a negative amount, print L in the box at the right of this amount.

Reconciliation items

Consider the following items to see whether you qualify for a deduction.

Any adjustments to your income and expense amounts are dealt with at Income and expense reconciliation adjustments.

Deduction for environmental protection expenses

Did you have a business expense for environmental protection activities?

No

Go to Section 40-880 deduction.

Yes

Read on.

You need to know

Show here the amount of allowable expenditure on environmental protection activities (EPA).

You can deduct expenditure to the extent that you incur it for the sole or dominant purpose of carrying on EPA. EPA are activities undertaken to prevent, fight or remedy pollution, or to treat, clean up, remove or store waste from your earning activity. Your earning activity is one you carried on, carry on or propose to carry on for the purpose of:

  • producing assessable income (other than a net capital gain)
  • exploration or prospecting, or
  • mining site rehabilitation.

You may also claim a deduction for cleaning up a site on which a predecessor carried on substantially the same business activity.

The deduction is not available for:

  • EPA bonds and security deposits
  • expenditure for acquiring land
  • expenditure for constructing or altering buildings, structures or structural improvements, or
  • expenditure to the extent that you can deduct an amount for it under another provision.

Accordingly, expenditure which forms part of the cost of a depreciating asset is not deductible as expenditure on EPA if a deduction is available for the decline in value of the asset. See Guide to depreciating assets 2010 for information on the deduction for decline in value.

Expenditure incurred on or after 19 August 1992 on certain earthworks constructed as a result of carrying out EPA can be written off at the rate of 2.5% per annum under the provisions for capital works expenditure.

Expenditure on an environmental assessment of a project is not deductible as expenditure on EPA. If it is capital expenditure directly connected with a project, it could be a project amount for which a deduction would be available over the project life - see Business deduction for project pool. An example would be a study to determine the quantity and type of pollutants which will be produced from a process used in a proposed business.

If the deduction arises from a non-arm's length transaction and the expenditure is more than the market value of what it was for, the amount of the expenditure is instead taken to be that market value.

Any recoupment of the expenditure would be assessable income.

Completing this item

Step 1 Write your total primary production EPA expenses at Deduction for environmental protection expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production EPA expenses at Deduction for environmental protection expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production EPA expenses and write the total at V.

Section 40-880 deduction

Can you deduct business-related costs under section 40-880?

No

Go to Business deduction for project pool .

Yes

Read on.

You need to know

Section 40-880 provides a five-year write-off for certain capital expenditure incurred by you in relation to a past, present or prospective business if the expenditure is not already taken into account or not denied a deduction by another provision.

You can claim a deduction for capital expenditure:

  • in relation to your business
  • in relation to a business that used to be carried on - such as capital expenses incurred in order to cease the business
  • in relation to a business proposed to be carried on - such as the costs of feasibility studies, market research or setting up the business entity
  • as a shareholder, beneficiary or partner to liquidate or deregister a company or to wind up a trust or partnership - the company, trust or partnership must have carried on a business.

If you incur expenditure in relation to your existing business, a business that you used to carry on or a business that you propose to carry on, the expenditure is deductible to the extent the business is, was or is proposed to be carried on for a taxable purpose.

You cannot deduct expenditure in relation to an existing business that is carried on by another entity. However, you can deduct expenditure you incur in relation to a business that used to, or is proposed to, be carried on by another entity. The expenditure is only deductible to the extent that:

  • the business was, or is proposed to be, carried on for a taxable purpose, and
  • the expenditure is in connection with the business that was or is proposed to be carried on and with your deriving assessable income from the business.

Generally, you can deduct 20% of the expenditure in the year you incur it and in each of the following four years. However, for some pre- and post-business expenditure you may have to defer your claim for a deduction because the non-commercial rules apply.

For example, if you were carrying on a business during the year but your relevant capital expenditure relates to a new business that did not commence before 30 June 2010, you generally cannot claim a deduction for the expenses incurred until the business activity commences. If you incur such expenditure in these circumstances, you should not claim the deductible amount (20%) but note it in your business or taxation records and claim all the amounts deferred for this item in the year the business commences.

Attention

Note

The deduction cannot be claimed for capital expenditure to the extent to which it:

  • can be deducted under another provision
  • forms part of the cost of a depreciating asset you hold, used to hold or will hold
  • forms part of the cost of land
  • relates to a lease or other legal or equitable right
  • would be taken into account in working out an assessable profit or deductible loss
  • could be taken into account in working out a capital gain or a capital loss
  • would be specifically not deductible under the income tax laws if the expenditure was not capital expenditure
  • is specifically not deductible under the income tax laws for a reason other than the expenditure is capital expenditure
  • is of a private or domestic nature
  • is incurred in relation to gaining or producing exempt income or non-assessable non-exempt income
  • is excluded from the cost or cost base of an asset because, under special rules in the UCA or capital gains tax regimes respectively, the cost or cost base of the asset was taken to be the market value
  • is a return of or on capital or is a return of a non-assessable amount (for example, repayments of loan principal).
End of attention

Claim the amount deductible under section 40-880 here if you carried on a business as an individual at any time during the year.

If you have incurred relevant capital expenses that relate to a business that ceased in a previous income year and you carried on the business as a sole trader or through a partnership, claim the expenses here. If you carried on the business through a company or trust, you claim the amount deductible (20%) at item D16 on your tax return (supplementary section).

You must show any recoupment of the expenditure as assessable income, either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8 on your schedule.

Completing this item

Step 1 Write your deduction for primary production business-related costs at Section 40-880 deduction in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your deduction for non-primary production business-related costs at Section 40-880 deduction in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production deductions for business-related costs and write the total at A.

Business deduction for project pool

Did you have capital expenditure directly connected with a business project?

No

Go to Small business and general business tax break.

Yes

Read on.

You need to know

Certain capital expenditure you incurred after 30 June 2001 which is directly connected with a project you carry on or propose to carry on for a taxable purpose can be allocated to a project pool and written off over the life of the project. Each project has a separate project pool. The project must be of sufficient substance and be sufficiently identified that it can be shown that the capital expenditure said to be a 'project amount' is directly connected with the project.

You are carrying on a project if it involves a continuity of activity and active participation. Merely holding a passive investment such as a rental property would not be regarded as carrying on a project.

Such capital expenditure, known as a project amount, is expenditure incurred on:

  • creating or upgrading community infrastructure for a community associated with the project - this expenditure must be paid (not just incurred) to be a project amount
  • site preparation for depreciating assets (other than to drain swamp or low-lying land or to clear land for horticultural plants and grapevines)
  • feasibility studies for the project
  • environmental assessments for the project
  • obtaining information associated with the project
  • seeking to obtain a right to intellectual property, or
  • ornamental trees or shrubs.

Project amounts also include mining capital expenditure and expenditure on certain facilities used to transport minerals or quarry materials. For more information on these project amounts, see Guide to depreciating assets 2010.

The expenditure must not be otherwise deductible or form part of the cost of a depreciating asset. If the expenditure incurred arises from a non-arm's length dealing and is more than the market value of what it was for, the amount of the expenditure is taken to be that market value.

Project amounts are allocated to a 'project pool'. Your deduction for project amounts allocated to a project pool is spread over the 'project life'. The project life is the period from the date on which the project starts to operate until the date on which it stops operating. The period must be limited by something inherent in the project. If there is no limited project life, no deduction is available under these rules.

A deduction is available from the income year in which you started to operate a project to gain or produce assessable income. The deduction is worked out on the value of the project pool at the end of the income year at the rate of 150%. For pools containing only project amounts incurred on or after 10 May 2006 for projects starting on or after that day, the rate is 200%. Your deductions are capped at 150% if on or after 10 May 2006 you abandon, sell or otherwise dispose of an existing project and then restart it after that date in circumstances where it would be reasonable to conclude that this was done for the main purpose of ensuring that deductions would be calculated using the higher rate.

Use worksheet 3A or worksheet3B to work out your deduction. For projects which started to operate on or after 10 May 2006 the calculation is as follows:

Worksheet 3A: Project pool deduction for projects which started on or after 10 May 2006

Value of project pool at 30 June 2010. This is the closing pool value for the 2008-09 income year (if any) plus the sum of the project amounts you allocated to the pool in 2009-10.

(a)

$

Your estimate of the life of the project (in years)

(b)

Years

Divide (a) by (b).

(c)

$

Multiply (c) by 200% - this is your 2009-10 deduction for project pool.

(d)

$

Note: Your deduction at (d) must not be more than the amount at (a).
If a project operated in 2009-10 for purposes other than earning assessable business income, you must reduce your deduction at (d) by a reasonable amount for the extent to which the project operated for such other purposes.

Worksheet 3B: Project pool deduction for projects which started before 10 May 2006

Value of project pool at 30 June 2010. This is the closing pool value for the 2008-09 income year (if any) plus the sum of the project amounts you allocated to the pool in 2009-10.

(a)

$

Your estimate of the life of the project (in years)

(b)

Years

Divide (a) by (b).

(c)

$

Multiply (c) by 150% - this is your 2009-10 deduction for project pool.

(d)

$

Note: Your deduction at (d) must not be more than the amount at (a).
If a project operated in 2009-10 for purposes other than earning assessable business income, you must reduce your deduction at (d) by a reasonable amount for the extent to which the project operated for such other purposes.

The pool value can be subject to adjustments. An adjustment could happen under specific rules that apply to transactions conducted in foreign currency (the foreign exchange or forex rules). If during the income year you met an obligation to pay foreign currency incurred as a project amount which you allocated to a project pool, you might have derived a gain or incurred a loss under these rules.

Attention

Closing pool value for 2009-10

This is (a) minus (d) in worksheet 3A and worksheet 3B. You will need the closing pool value for 2009-10 to work out your deduction for the project pool next year.

End of attention

Any recoupment of the expenditure must be shown as assessable income either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section on your schedule.

Where a project was abandoned, sold or otherwise disposed of in 2009-10

In this case - whether or not the project had begun to operate - you can claim a deduction for the 2008-09 closing pool value (if any) plus any project amounts allocated to the pool in the 2009-10 year. You must show any proceeds from the abandonment, sale or disposal of the project as assessable income either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of your schedule.

Completing this item

Step 1 Write your total primary production project pool business deduction at Business deduction for project pool in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total non-primary production project pool business deduction at Business deduction for project pool in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production project pool business deductions and write the total at L.

Small business and general business tax break

Can you claim the small business and general business tax break?

No

Go to Landcare operations and business deduction for decline in value of water facility.

Yes

Read on.

You need to know

The small business and general business tax break, in the form of an investment allowance, is available for expenditure on eligible new tangible depreciating assets.

The tax break provides the following deductions for:

  • small business entities
    • an additional tax deduction of 50% of the cost of eligible new tangible depreciating assets is available where the business
      • committed to investing in the asset between 13 December 2008 and 31 December 2009 inclusive, and
      • first uses the asset, or installs it ready for use, or in the case of new investment in an existing asset brings the asset to its modified or improved state, on or before 31 December 2010
       
     
  • other business entities
    • an additional tax deduction of 30% of the cost of eligible new tangible depreciating assets is available where the business
      • committed to investing in the asset between 13 December 2008 and 30 June 2009 inclusive, and
      • first used the asset, or installed it ready for use, or in the case of new investment in an existing asset brought the asset to its modified or improved state, on or before 30 June 2010
       
    • an additional tax deduction of 10% of the cost of eligible new tangible depreciating assets is available where the business
      • committed to investing in the asset between 13 December 2008 and 30 June 2009 inclusive, and
      • first uses the asset, or installs it ready for use, or in the case of new investment in an existing asset brings the asset to its modified or improved state, between 1 July 2010 and 31 December 2010 inclusive
       
    • an additional tax deduction of 10% of the cost of eligible new tangible depreciating assets is available where the business
      • committed to investing in the asset between 1 July 2009 and 31 December 2009 inclusive, and
      • first uses the asset, or installs it ready for use, or in the case of new investment in an existing asset brings the asset to its modified or improved state, on or before 31 December 2010.
       
     

Generally, a business 'commits' to investing when:

  • it enters into a contract under which the asset is held
  • it starts to construct the asset, or
  • it starts to hold the asset in some other way.

The tax break will apply to eligible new tangible depreciating assets for which a deduction is available under Subdivision 40-B of the ITAA 1997 and certain new investments in existing assets.

Cars will not be disqualified from the tax break merely because you use the 12% method.

Land and trading stock are excluded from the definition of depreciating assets and will not qualify for the deduction.

The cost of an eligible new tangible asset includes amounts included in the first element of cost (worked out under Subdivision 40-C of the ITAA 1997), and amounts included in the second element of cost under paragraph 40-190(2)(a) of the ITAA 1997. New expenditure on existing assets may also qualify.

It must be reasonable to conclude that the assets will be used principally in Australia for the principal purpose of carrying on a business.

Small business entities will be able to claim the deduction for eligible assets costing $1,000 or more. For other businesses, a minimum expenditure threshold of $10,000 applies.

In order to meet the relevant threshold, you can aggregate your investment in a set of assets, or in a group of assets where the assets in the group are identical or substantially identical.

Where assets are held jointly, you can take into account the other business interests in the asset when determining whether the investment threshold test is satisfied. However, you will only be able to claim the tax break on your interest in the asset.

Where you have met the investment threshold for an asset, you can claim additional investment in the assets as part of the tax break.

The tax break is on top of the usual capital allowance deduction you are able to claim for the asset.

Provided all of the eligibility criteria are satisfied, you can claim the deduction in the income year in which the asset was first used, or installed ready for use.

For further information, read Investment allowance: small business and general business tax break.

Completing this item

Step 1 Write your deduction for the tax break for your primary production business at Small business and general business tax break in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your deduction for the tax break for your non-primary production business at Small business and general business tax break in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production deductions for the small business and general business tax break and write the total at F.

Landcare operations and business deduction for decline in value of water facility

Did you have landcare operations and/or water conservation/conveying expenses?

No

Go to Income and expense reconciliation adjustments.

Yes

Read on.

You need to know

Landcare operations expenses

You can claim a deduction for capital expenditure you incur on a landcare operation for land in Australia in the year it is incurred.

If you can deduct expenditure under both the water facilities and landcare operation rules, you can only deduct the expenditure as expenditure on a water facility - see Water conservation and conveyance facilities. If you can deduct expenditure under both the carbon sink forests and landcare operation rules, you can only deduct the expenditure as expenditure on carbon sink forests.

Unless you are a rural land irrigation water provider, the deduction is available to the extent you use the land for either:

  • a primary production business, or
  • in the case of rural land, a business for the purpose of producing assessable income from the use of that land, except a business of mining or quarrying.

You may claim the deduction even if you are only a lessee of the land.

Rural land irrigation water providers can claim a deduction for certain expenditure they incur. A rural land irrigation water provider is an entity whose business is primarily and principally supplying water to entities for use in primary production businesses on land in Australia or businesses (except mining or quarrying businesses) using rural land in Australia. The supply of water by using a motor vehicle is excluded.

If you are a rural land irrigation water provider, you can claim a deduction for capital expenditure you incurred on a landcare operation for land used by other entities that you supply with water if the land is:

  • land in Australia that those entities use at the time for primary production businesses, or
  • rural land in Australia that those entities use at the time for carrying on businesses for a taxable purpose, except a business of mining or quarrying.

If you are a rural land irrigation water provider your deduction is reduced by a reasonable amount to reflect an entity's use of the land for other than a taxable purpose in an income year after you incurred the expenditure.

A landcare operation is one of the following:

  1. erecting fences to separate different land classes in accordance with an approved land management plan
  2. erecting fences primarily and principally to keep animals out of areas affected by land degradation in order to prevent or limit further damage and assist in reclaiming the areas
  3. constructing a levee or similar improvements
  4. constructing drainage works - other than the draining of swamps or low-lying land - primarily and principally to control salinity or assist in drainage control
  5. an operation primarily and principally for eradicating or exterminating animal pests from the land
  6. an operation primarily and principally for eradicating, exterminating or destroying plant growth detrimental to the land
  7. an operation primarily and principally for preventing or combating land degradation other than by the use of fences, or
  8. an extension, alteration or addition to any of the assets described in 1 to 4 above or an extension of an operation described in 5 to 7 above.

A landcare operation also includes:

  • a repair of a capital nature to an asset described in 1 to 4 above
  • constructing a structural improvement that is reasonably incidental to levees (or similar improvements) or drainage works deductible as capital expenditure on a landcare operation
  • a repair of a capital nature, or an alteration, addition or extension to a structural improvement that is reasonably incidental to levees (or similar improvements) or drainage works deductible under a landcare operation.

An example of a structural improvement that may be reasonably incidental to drainage works is a fence constructed to prevent livestock entering a drain that was constructed to control salinity.

No deduction is available if the capital expenditure is on plant unless it is on certain fences, dams or other structural improvements. Where a levee is constructed primarily and principally for water conservation, it would be a water facility and no deduction would be allowable under these rules. Its decline in value would need to be worked out under the rules for water facilities. See Water conservation and conveyance facilities.

If the expenditure incurred arose from a non-arm's length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

These deductions are not available to a partnership. Expenses for landcare operations incurred by a partnership are allocated to each partner, who can then claim the relevant deduction for their share of the expenditure.

You may need to show any recoupment of the expenditure as assessable income either at Other business income in the Income section of item P8 on your schedule or as part of your Incomereconciliation adjustments in the Reconciliation items section of item P8. For further information, see Guide to depreciating assets 2010 or phone the Business Infoline.

Water conservation and conveyance facilities

You can claim a deduction for the decline in value of a water facility. A water facility includes plant or a structural improvement, or an alteration, addition or extension to plant or a structural improvement, that is primarily or principally for the purpose of conserving or conveying water. The expenditure must be incurred primarily and principally for conserving or conveying water for use in a primary production business on land in Australia.

'Water facility' includes dams, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills. Water facility also includes certain other expenditure incurred on or after 1 July 2004 for:

  • a repair of a capital nature to plant or a structural improvement that is primarily or principally for the purpose of conserving or conveying water - for example, if you purchase a pump that needs substantial work done to it before it can be used in your business, the cost of repairing the pump may be treated as a water facility
  • a structural improvement, or an alteration, addition or extension to a structural improvement that is reasonably incidental to conserving or conveying water
  • a repair of a capital nature to a structural improvement that is reasonably incidental to conserving or conveying water.

Examples of structural improvements that are reasonably incidental to conserving or conveying water include a bridge over an irrigation channel, a culvert (a length of pipe or multiple pipes that are laid under a road to allow the flow of water in a channel to pass under the road), or a fence preventing livestock entering an irrigation channel.

A deduction for the decline in value of a water facility can be claimed in equal instalments over three years.

Unless you are an irrigation water provider, the expenditure must be incurred primarily and principally for conserving or conveying water for use in a primary production business you conduct on land in Australia. You may claim the deduction even when you do not own the land. Therefore, if you are a lessee carrying on a business of primary production on the land, you can still claim the deduction. Your deduction is reduced where the facility is not wholly used for either:

  • carrying on a primary production business on land in Australia, or
  • a taxable purpose - for example, producing assessable income.

Irrigation water providers are entitled to a deduction for water facilities expenditure incurred on or after 1 July 2004. An irrigation water provider is an entity whose business is primarily and principally the supply of water to entities for use in primary production businesses on land in Australia. The supply of water by using a motor vehicle is excluded.

If you are an irrigation water provider, you must incur the expenditure primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia (being entities supplied with water by you). The deduction is reduced if the facility is not used wholly for a taxable purpose. Any recoupment of the expenditure may be assessable income. For more information, phone the Business Infoline

If the expenditure incurred arose from a non-arm's length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

These deductions are not available to a partnership. Costs incurred by a partnership for facilities to conserve or convey water are allocated to each partner who can then claim the relevant deduction for their share of the expenditure. You may need to show any recoupment of the expenditure as assessable income either at Other business income in the Income section of item P8 on your schedule or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8. For further information, see Guide to depreciating assets 2010 or phone the Business Infoline.

Attention

Small business entities

The amount you show at W must not include any amount relating to a depreciating asset used in your primary production business if you have chosen to claim a deduction for it under the small business entity depreciation rules.

End of attention

Completing this item

Step 1 Write your total deductions for primary production landcare operations expenses and for water facilities at Landcare operations and business deduction for decline in value of water facility in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

Step 2 Write your total deduction for non-primary production landcare operations expenses and water facilities at Landcare operations and business deduction for decline in value of water facility in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production deductions for landcare operations and water facilities and write the total at W.

Income and expense reconciliation adjustments

Do you need to make any income or expense reconciliation adjustments?

No

Go to Net income or loss from business this year.

Yes

Read on.

You need to know

You may need to make income reconciliation adjustments or expense reconciliation adjustments. These adjustments reconcile your business operating profit or loss with your business taxable income.

Do not complete any income reconciliation adjustments or expense reconciliation adjustments if all the amounts you have written at C Gross payments where Australian business number not quoted to W Landcare operations and business deduction for decline in value of water facility item P8 on your schedule, are assessable income or allowable tax deductions for income tax purposes.

If you have included amounts such as exempt income or non-deductible expenses or have not included amounts which are assessable income or expenditure that is deductible, you must work out your reconciliation adjustments.

Worksheet 4 will assist you with your calculations.

What are income reconciliation adjustments?

Income reconciliation adjustments include:

  • income add backs - income not shown in the accounts which is assessable income for tax purposes, such as
    • assessable balancing adjustment amounts on disposal of depreciating assets, and
    • other assessable income not included in the profit and loss statement
     
  • income subtractions - income shown in the accounts which is not assessable income, such as
    • profit on sale of depreciating assets, and
    • other income that is not assessable for income tax purposes - for example, gross exempt income.
     

Your income reconciliation adjustment is:

your total income add backs minus your total income subtractions

Use worksheet 4 to work out your income reconciliation adjustments for your primary and non-primary production businesses. The amount you write at X Income reconciliation adjustments item P8 on your schedule is the total of your primary production and non-primary production income adjustments.

If the amount is negative, print L in the box at the right of the amount.

What are expense reconciliation adjustments?

Expense reconciliation adjustments include:

  • expense add backs - expenses shown in the accounts which are not tax deductible, including timing deductions, such as
    • prepaid expenses not deductible in this year
    • depreciation
    • loss on sale of a depreciating asset, and
    • other items not allowable as a deduction - for example, capital expenditure, additions to provisions and reserves, income tax expense, expenses relating to exempt income, debt deductions denied by the thin capitalisation rules, other non-deductible expenses (for more information, see thin capitalisation and PSI deductions)
     
  • expense subtractions - items not shown as expenses which are deductible for tax purposes, such as
    • prepaid expenses deductible this year but not included elsewhere
    • deduction for decline in value of depreciating assets
    • deductible balancing adjustment amounts on disposal of depreciating assets, and
    • other items deductible for tax purposes.
     

Your expense reconciliation adjustment is:

your total expense add backs minus your total expense subtractions

Use worksheet 4 to work out your expense reconciliation adjustments for your primary and non-primary production businesses. The amount you write at H Expense reconciliation adjustments item P8 on your schedule is the total of your primary production and non-primary production expense adjustments.

If the amount is negative, print L in the box at the right of the amount.

Specific reconciliation adjustments

There are examples of specific reconciliation adjustments that may apply to you.

If you were previously in the STS read Former STS taxpayers below first. Otherwise, read the examples.

Former STS taxpayers

Make adjustments in this section of item P8 on your schedule if you:

  • are eligible and have chosen to continue using the STS accounting method and the amounts you have shown at the Income and Expense sections of item P8 are not based on the STS accounting method, or
  • are changing from using the STS accounting method.

These adjustments are explained in more detail below.

Worksheet 4 will assist you with your calculations.

Income derived but not received as at 30 June 2010 and expenses incurred but not paid

If you are eligible and have chosen to continue using the STS accounting method and have included at item P8 amounts of ordinary income that have been derived but not received in 2009-10, the amounts not received are not assessable this year - for example, trade debtors.

These amounts form part of your income reconciliation adjustments at X item P8. Include these amounts at (f) on worksheet 4.

If you are eligible and have chosen to continue using the STS accounting method and have included at item P8 amounts for general deductions, repairs and tax-related expenses that have been incurred but not paid in 2009-10, the amounts not paid are not deductible this year - for example, trade creditors.

These amounts form part of your expense reconciliation adjustments at H item P8. Include these amounts at (n) on worksheet 4.

Adjustment when changing from the STS accounting method

If you have discontinued using the STS accounting method read on.

If you have not included any amount at Income at item P8, amounts of ordinary income that were derived but not received while using the STS accounting method are assessable this year.

Include these amounts at (b) on worksheet 4.

If you have not included any amount at Expenses at item P8, amounts of general deductions, repairs or tax-related expenses that were incurred but not paid while using the STS accounting method are deductible this year.

Include these amounts (other than tax-related expenses) at (t) on worksheet 4. Write your deduction for tax-related expenses at item D10 on your tax return.

Depreciating assets deducted under the simplified depreciation rules

Disposal of depreciating assets

If you disposed of any depreciating assets during the income year, the following amounts (if any) form part of your Income reconciliation adjustments at X item P8:

  • the taxable purpose proportion of the termination value of low-cost assets that have been disposed of, for which an immediate deduction has been claimed
  • if the closing pool balance of a small business pool is less than zero, the amount below zero, and
  • assessable balancing adjustment amounts on the disposal of depreciating assets not allocated to small business pools.

See Definitions for an explanation of these terms.

Include the amounts at (b) on worksheet 4.

Any deductible balancing adjustment amounts on the disposal of depreciating assets that you have not allocated to small business pools form part of your Expense reconciliation adjustments at H item P8. Include these amounts at (q) on worksheet 4.

Further Information

For more information on assessable balancing adjustment amounts and deductible balancing adjustment amounts, see Guide to depreciating assets 2010.

End of further information

Examples of reconciliation adjustments.

Prepaid expenses

Special rules may affect the timing of deductions for prepaid expenditure. Under these rules you may need to apportion certain prepaid expenses over more than one income year. You must make an expense reconciliation adjustment to add back that part of the expense that is not deductible in the year it is incurred. Show the adjustment at (k) on worksheet 4.

If you had a prepaid expense in a prior year which is to be apportioned over the service period and you are entitled to a deduction for part of the expense this year but have not included it elsewhere, show the adjustment as an expense subtraction at (s) on worksheet 4.

Further Information

For more information about the prepayment rules, see Deductions for prepaid expenses 2010.

End of further information

Deduction for decline in value

A deduction for a decline in value of a depreciating asset calculated under income tax law may differ from the accounting or book calculation of depreciation. Different rules regarding such things as effective life, the calculation of balancing adjustment amounts and the treatment of debt forgiveness amounts can produce a discrepancy between the two calculations.

Under income tax law you can deduct an amount equal to the decline in value of a depreciating asset in the 2009-10 income year if you held the depreciating asset for any time during the year and used it (or installed it ready for use) for a taxable purpose, such as for producing assessable income.

The deduction is reduced to the extent you do not use the asset for a taxable purpose.

Further Information

To help you calculate your deduction for decline in value, see Guide to depreciating assets 2010, which also provides explanations of relevant terms. The publication also explains the option to allocate to a low-value pool depreciating assets that cost less than $1,000 (excluding input tax credit entitlements) and depreciating assets that have an opening adjustable value of less than $1,000.

End of further information

If you choose to use the low-value pool method to calculate the decline in value of low-cost or low-value depreciating assets and the pool contains assets used for work-related, self-education or rental purposes, read question D6 in TaxPack 2010. Do not include the deduction at item P8 on your schedule. If none of the depreciating assets in the pool is used for any of those purposes, include the amount of your low-value pool deduction at (r) on worksheet 4. Where necessary, make a reasonable apportionment between primary production and non-primary production activities.

You should also include the deduction for decline in value of depreciating assets not allocated to a pool at (r) on worksheet 4.

You should also add back the depreciation charged in your accounts and shown at M Depreciation expenses in the Expenses section of item P8 as an expense reconciliation adjustment. Include the amount at (h) on worksheet 4. The amount at (h) should not include any small business pool deductions which you have claimed at M.

Luxury car leasing

A leased car, either new or second-hand, is a luxury car if its cost exceeds the car limit that applies for the income year in which the lease commences. The car limit for 2009-10 is $57,180.

A luxury car lease entered into after 7.30pm (by legal time in the ACT) on 20 August 1996 (other than genuine short-term hire arrangements) is treated as a notional sale-and-loan transaction.

The cost or value of the car specified in the lease (or the market value if the parties were not dealing at arm's length in connection with the lease) is taken to be the cost of the car for the lessee and the amount loaned by the lessor to the lessee to buy the car.

In relation to the notional loan, the actual lease payments are divided into notional principal and finance charge components. That part of the finance charge component for the notional loan applicable for the particular period (the accrual amount) is deductible to the lessee, subject to any reduction required under the thin capitalisation rules.

The amount forms part of your expense reconciliation adjustments at H item P8 on your schedule. Include the amount at (p) on worksheet 4.

In relation to the notional sale, the lessee is treated as the holder of the luxury car and may be entitled to claim a deduction for the decline in value of the car. If the lessee is a small business entity using the simplified depreciation rules for the income year in which the lease is entered into, the lessee allocates the car to their general small business pool.

For the purpose of calculating the deduction, the cost of the car is limited to the car limit for the income year in which the lease is granted.

Further Information

For more information on deductions for the decline in value of leased luxury cars, see Guide to depreciating assets 2010.

End of further information

In summary, the lessee is entitled to deductions equal to:

  • the accrual amount, and
  • the decline in value of the luxury car, based on the applicable car limit, unless the car is allocated to the general small business pool.

You reduce both deductions to reflect any use of the car for a non-taxable purpose.

Where you allocated the car to the general small business pool with the cost based on the applicable car limit, see page xx to calculate the deduction under the simplified depreciation rules.

If you have included the lease expense at J Lease expenses in the Expenses section of item P8 in your schedule, the amount should also form part of your expense reconciliation adjustments at H item P8. Include the amount at (i) on worksheet 4. Include the deduction for the accrual amount at (p).

If the lease terminates or is not extended or renewed and the lessee does not actually acquire the car from the lessor, the lessee is treated under the rules as disposing of the car by way of sale to the lessor. This constitutes a balancing adjustment event. If the car is not subject to the simplified depreciation rules, any assessable or deductible balancing adjustment amount for the lessee must be determined. If the car has been allocated to the lessee's general small business pool, see calculation 5 for small business entities.

Hire-purchase agreements

Hire-purchase and instalment sale agreements of goods are treated as a sale of the property by the financier (or hire-purchase company) to the hirer (or instalment purchaser).

The sale is treated as being financed by a loan from the financier to the hirer at a sale price of either their agreed cost or value or the property's arm's length value.

The periodic hire-purchase (or instalment) payments are treated as payments of principal and interest under the notional loan. The interest component is deductible to the hirer, subject to any reduction required under the thin capitalisation rules. This amount forms part of the expense reconciliation adjustments at H item P8 on your schedule. Include the amount at (t) on worksheet 4.

In relation to the notional sale, the hirer of a depreciating asset is treated as the holder of the asset and either allocates the asset to the appropriate small business pool if they are a small business entity using the simplified depreciation rules for the income year, or may be entitled to claim a deduction for the decline in value of the depreciating asset. The cost of the asset for this purpose is taken to be the agreed cost or value, or the arm's length value if the dealing is not at arm's length.

If you have included hire-purchase charges as an expense at item P8 on your schedule, the amount should also form part of your expense reconciliation adjustments at H item P8. Include the amount at (n) on worksheet 4.

Termination of a limited recourse debt

Excessive deductions for capital allowances are included in assessable income under the limited recourse debt rules contained in Division 243 of the ITAA 1997. This will occur where:

  • expenditure on property has been financed or re-financed wholly or partly by the limited recourse debt
  • the limited recourse debt is terminated after 27 February 1998 but has not been paid in full by the debtor, and
  • because the debt has not been paid in full, the capital allowance deductions allowed for the expenditure exceed the deductions that would be allowable if the unpaid amount of the debt was not counted as capital expenditure of the debtor. Special rules apply in working out whether the debt has been fully paid.

A limited recourse debt is a debt where the rights of the creditor as against the debtor, in the event of default in payment of the debt or of interest, are limited wholly or predominantly to the property which has been financed by the debt or is security for the debt, or rights in relation to such property. A debt is also a limited recourse debt if, notwithstanding that there may be no specific conditions to that effect, it is reasonable to conclude that the creditor's rights as against the debtor's are capable of being so limited.

A limited recourse debt includes a notional loan under a hire-purchase or instalment sale agreement of goods to which Division 240 of the ITAA 1997 applies. See section 243-20.

The amount that is included within assessable income as a result of these provisions forms part of your income reconciliation adjustments at X item P8 on your schedule. Include the amount at (b) on worksheet 4.

Worksheet 4: Reconciliation statement

Reconcile your primary production and non-primary production items separately.

Income reconciliation adjustments

Primary production

Non-primary production

Additions

Assessable balancing adjustment amounts on disposal of depreciating assets

(a)

$

$

Assessable business income not included in the profit and loss statement

(b)

$

$

Subtotal: add (a) and (b).

(c)

$

$

Subtractions

Net exempt income - gross exempt income less expenses relating to that exempt income

(d)

$

$

Profit on sale of depreciating assets included in accounts

(e)

$

$

Other non-assessable income included in the profit and loss statement

(f)

$

$

Subtotal: add (d), (e) and (f).

(g)

$

$

Income reconciliation adjustments: Take (g) away from (c).

$

$

Expense reconciliation adjustments

Primary production

Non-primary production

Additions

Depreciation charged in accounts

(h)

$

$

Lease payments for luxury cars

(i)

$

$

Loss on sale of depreciating assets included in accounts

(j)

$

$

Part of prepaid expenses not deductible this year

(k)

$

$

Items not allowable as deductions:

capital expenditure

(l)

$

$

additions to provisions and reserves

(m)

$

$

other non-deductible items, including income tax

(n)

$

$

Subtotal: add (h), (i), (j), (k), (l), (m) and (n).

(o)

$

$

Subtractions

Accrual amount deduction for lessee of luxury cars

(p)

$

$

Deductible balancing adjustment amounts on disposal of depreciating assets

(q)

$

$

Deduction for decline in value of depreciating assets

(r)

$

$

Part of prepaid expenses deductible this year but not included elsewhere

(s)

$

$

Other items deductible for tax purposes not included in the profit and loss statement

(t)

$

$

Subtotal: add (p), (q), (r), (s) and (t).

(u)

$

$

Expense reconciliation adjustments: take (u) away from (o).

$

$

Note 1 Include amounts at (h) only if you are not using the simplified depreciation rules. However, exclude any pool deductions which you have included at M item P8 which relate to a continuing former STS pool.

Note 2 See Guide to depreciating assets 2010 for an explanation of depreciating assets.

Note 3 If you have included an amount of capital expenditure incurred to terminate a lease or licence at J Lease expenses item P8, make a reconciliation adjustment at H Expense reconciliation adjustments by including the amount of capital expenditure as an expense add back and taking away that part of the expense which is allowed as a tax deduction.

Completing this item

Step 1 Complete worksheet 4 using the explanations provided. This will give you your total income and expense reconciliation amounts (primary and non-primary production) that you need for your schedule.

Step 2 Transfer the totals in the yellow rows on the worksheet to the appropriate boxes on page 3 of your schedule. Do not show cents.

Step 3 If any of the reconciliation adjustment amounts is negative, print L in the box at the right of the amount.

Step 4 Add up your primary production and non-primary production income reconciliation adjustments and write the total at X.

Step 5 Add up your primary production and non-primary production expense reconciliation adjustments and write the total at H.

Step 6 If the total income reconciliation adjustment amount is negative, print L in the box at the right of the amount at X. If the total expense reconciliation adjustment amount is negative, print L in the box at the right of H.

Attention

Note

Do not include in the amount at (t) on worksheet 4:

  • environmental protection expenditure
  • section 40-880 deductions
  • business deductions for project pools
  • small business and general business tax break
  • deductions for landcare operations and water facilities.

Reconciliation adjustments for these amounts are shown separately at V, A, L, F and W on your schedule.

End of attention

Worksheet 5: Working out your net income or loss from primary production business this year

Write your primary production total business income shown in the Primary production column at TOTAL BUSINESS INCOME item P8.

$

 

(a)

Write your primary production total business expenses shown at S item P8.

$

 

(b)

Add up the amounts of any deductions for primary production environmental protection expenses, section 40-880 expenditure, project pool, small business and general business tax break and landcare operations and water facilities and write the total at (c).

$

 

(c)

Add the amount at (b) to the amount at (c).

$

 

(d)

Take the amount at (d) away from the amount at (a).

$

 

(e)

Write your primary production income reconciliation adjustment (if any).

$

 

(f)

Write your primary production expense reconciliation adjustment (if any).

$

 

(g)

Your net income or loss from your primary production business - add (e), (f) and (g).

$

 

(h)

Attention

Note

If the amount at (d) is more than the amount at (a), the amount at (e) is a loss. If it is, or if you have a negative amount at (f) or (g), the examples below will help you to work out your loss from primary production business.

End of attention

Worksheet 6: Working out your net income or loss from non-primary production business this year

Write your non-primary production total business income shown in the Non-primary production column at TOTAL BUSINESS INCOME item P8.

$

 

(i)

Write your non-primary production total business expenses shown at T item P8.

$

 

(j)

Add up the amounts of any deductions for non-primary production environmental protection expenses, section 40-880 expenditure, project pool, small business and general business tax break landcare operations and write the total at (k).

$

 

(k)

Add the amount at (j) to the amount at (k).

$

 

(l)

Take away the amount at (l) from the amount at (i).

$

 

(m)

Write your non-primary production income reconciliation adjustment (if any).

$

 

(n)

Write your non-primary production expense reconciliation adjustment (if any).

$

 

(o)

Your net income or loss from your non-primary production business - add (m), (n) and (o).

$

 

(p)

Attention

Note

If the amount at (l) is more than the amount at (i), the amount at (m) is a loss. If it is, or if you have a negative amount at (n) or (o), the examples below will help you to work out your loss from non-primary production business.

End of attention

Examples

If the amount at (e) is a $5,000 loss, the amount at (f) is $12,000 income, and the amount at (g) is a $1,000 loss, the net income from the primary production business at (h) is $6,000.

If the amount at (e) is $5,000 profit, the amount at (f) is $2,000 income and the amount at (g) is an $8,000 loss, the loss from the primary production business at (h) is $1,000.

If the amount at (m) is a $5,000 loss, the amount at (n) is a $4,000 loss and the amount at (o) is a $1,000 loss, the loss from the non-primary production business at (p) is $10,000.

Net income or loss from business this year

Use worksheet 5 and worksheet 6 to work out your net income or loss from your primary and non-primary production businesses this year, not including any non-commercial business losses deferred from a prior year.

Completing this item

Step 1 Transfer the amount at (h) on worksheet 5 to B item P8 on page 3 of your schedule. Do not show cents. If the amount is a loss, print L in the box at the right of this amount.

Step 2 Transfer the amount at (p) on worksheet 6 to C item P8 on page 3 of your schedule. Do not show cents. If the amount is a loss, print L in the box at the right of this amount.

Step 3 Add B and C and write the total in the adjacent Totals column. The amount shown should not include any non-commercial business losses deferred from a prior year (which are shown at D or E - see Deferred non-commercial business losses from a prior year).

If you made a loss from your business, print L in the box at the right of this amount.

If the amount at B or C includes details from more than one business activity, and any one of these activities resulted in a net loss, you also need to complete items P3 and P9 on your schedule.

Deferred non-commercial business losses from a prior year

Do you have any deferred non-commercial business losses from a prior year?

No

Go to Net income or loss from business.

Yes

Read on.

You need to know

A deferred non-commercial business loss is a loss you incurred in a prior year which you were unable to claim against other income.

Attention

Note

The non-commercial business loss may be reduced if you:

  • earned net exempt income in this income year, or
  • became bankrupt or were released from any debts by the operation of an Act relating to bankruptcy.

For more information, phone the Business Infoline .

End of attention

Completing this item

Step 1 At D item P8 on page 3 of your schedule write the amount of any primary production losses you deferred in a prior year from activities that are the same or similar to your current year activity. Do not show cents.

Step 2 At E write the amount of any non-primary production losses you deferred in a prior year from activities that are the same or similar to your current year activity. Do not show cents.

Step 3 Add up your primary and non-primary production deferred non-commercial business losses. Write the total at Deferred non-commercial business losses from a prior year in the Totals column.

Net income or loss from business

This amount takes into account losses deferred from a prior year.

Completing this item

Step 1 If you have net income from primary production business this year at B, take away from it the amount of your deferred non-commercial primary production business losses from a prior year shown at D. Write the answer at Y Net income or loss from business item P8 on page 3 of your schedule.

If the amount at Y is negative, print L in the box at the right of the amount.

If you have a loss from primary production business this year at B, add it to the amount of your deferred non-commercial primary production business losses from a prior year shown at D. Write the total at Y Net income or loss from business item P8 on your schedule and print L in the box at the right of the amount.

Attention

Note

If you have printed L in the box at the right of the amount at Y, you also need to complete items P3 and P9 on your schedule.

End of attention

Step 2 If you have net income from non-primary production business this year at C, take away from it the amount of your deferred non-commercial non-primary production business losses from a prior year shown at E. Write the answer at Z Net income or loss from business item P8 on page 3 of your schedule.

If the amount at Z is negative, print L in the box at the right of the amount.

If you have a loss from non-primary production business this year at C, add it to the amount of your deferred non-commercial non-primary production business losses from a prior year shown at E. Write the total at Z Net income or loss from business item P8 on your schedule and print L in the box at the right of the amount.

Attention

Note

If you have printed L in the box at the right of the amount at Z, you also need to complete items P3 and P9 on your schedule.

End of attention

Step 3 Add up the amounts shown at Y and Z.

Write the answer at Net income or loss from business in the Totals column. If the total is negative, print L in the box at the right of the amount.

Step 4 Transfer the amounts at Y and Z on your schedule to B and C (respectively) item 15 on your tax return (supplementary section).

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