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  • Worksheet 2

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Other reconciliation items

    Worksheet 2 caters for those items that reconcile T Total profit or loss item 6 with T Taxable income or loss item 7, other than those items specifically included in item 7. It does not contain an exhaustive list of reconciliation items. All references to accounts below are taken to mean the company’s profit and loss account.

    Additions to T Total profit or loss item 6 not covered by:

    • A Net capital gain
    • U Non-deductible exempt income expenditure
    • J Franking credits
    • C Australian franking credits from a New Zealand company
    • E TOFA income from financial arrangements not included in item 6
    • D Accounting expenditure in item 6 subject to R&D tax incentive

    in item 7 are specified under B Other assessable income and W Non-deductible expenses.

    Use worksheet 2 to help calculate the total for income-related add-back items at B Other assessable income item 7 and the total for expense-related add-back items at W Non-deductible expenses item 7.

    Subtractions from T Total profit or loss item 6 not covered by:

    • C Section 46FA deductions for flow-on dividends to V Exempt income
    • R Tax losses deducted
    • S Tax losses transferred in (from or to a foreign bank branch or a PE of a foreign financial entity)

    in item 7 are specified under Q Other income not included in assessable income and X Other deductible expenses. Use worksheet 2 to help calculate the total for income-related subtraction items at Q and the total for expense-related subtraction items at X.

    In some cases, a reconciliation adjustment at item 7 adds back or subtracts the whole of an amount shown at item 6 and a separate label at item 7 shows the amount for income tax purposes; for example, for companies not using the small business entity depreciation rules, depreciation as per the accounts is shown at item 6 and added back in full at W Non-deductible expenses item 7. The deduction for the decline in value of depreciating assets is listed at F Deduction for decline in value of depreciating assets item 7.

    Worksheet 2:

    B Other assessable income
    (assessable income not shown in accounts)

    Adjustments to income derived:

    increase in interest

    increase in dividends

    increase in partnership distribution

    increase in trust distribution

    year-end sales cut-off adjustment

     

    $___________

    $___________

    $___________

    $___________

    $___________

    Assessable balancing adjustment amounts on depreciating assets,
    uplifted by the relevant portion

    $___________

    R&D feedstock adjustments

    $___________

    Attributed foreign income not included in accounts

    $___________

    Bad debts recovered not included in accounts

    $___________

    Benefits or prizes from investment-related lotteries not included in accounts

    $___________

    Foreign exchange taxable gains

    $___________

    Grants received not included in accounts

    $___________

    Gross taxable foreign source income

    $___________

    Other assessable income not included in accounts
    (former STS taxpayers should see Former STS taxpayers)

    $___________

    Total

    $___________

    W Non-deductible expenses

    Amortisation as per accounts
    (including goodwill)

    $___________

    Borrowing costs

    $___________

    Capital items written off as repairs

    $___________

    Depreciation expenses, X item 6,
    (see note 5 and note 4)

    $___________

    Expenses to the extent to which they are not deductible:

    entertainment

    legal expenses and consultants’ fees

    subscriptions and donations

    bad debts

    part of prepaid expenses not deductible this year
    (see note 1(a))

    travel by spouse (of the same or opposite sex)

     

    $___________

    $___________

    $___________

    $___________

    $___________

    $___________

    Expenses incurred in deriving non-assessable non-exempt

    $___________

    Certain expenses relating to PSI that are not deductible
    (see note 4)

    $___________

    Extraordinary loss per accounts

    $___________

    Finance lease interest

    $___________

    Foreign exchange accounting losses

    $___________

    Foreign tax paid or deemed paid

    $___________

    Debt deductions denied by thin capitalisation
    (see appendix 3)

    $___________

    Loss on sale of depreciating assets included in accounts
    (exclude R&D assets see note 3)

    $___________

    Loss on sale of other assets included in accounts

    $___________

    Luxury car lease payments
    (see luxury car leases)

    $___________

    Net adjustment to expenses claimed: decrease in consumable stores
    (see note 2)

    $___________

    Net increase in provisions

    $___________

    Net increase in trading stock valuation for tax purposes

    $___________

    Non-share dividends

    $___________

    Offshore banking unit losses
    (18.5/28.5 of eligible deductions for small businesses eligible for the 28.5% company tax rate, otherwise 20/30 of eligible deductions)

    $___________

    Other capital items included in accounts

    $___________

    Penalties and fines

    $___________

    Superannuation charged in accounts

    $___________

    Trust losses deducted from accounting income

    $___________

    Unrealised losses on revaluation of assets to fair value

    $___________

    Total

    $___________

    Q Other income not included in assessable income
    (income shown in the accounts that is not assessable)

    Adjustments to income derived:

    decrease in interest

    decrease in dividends

    decrease in trust distribution

    year-end sales cut-off adjustment

     

    $___________

    $___________

    $___________

    $___________

    extraordinary profits per accounts

    $___________

    foreign exchange accounting profits

    $___________

    Foreign source income in the accounts that is not assessable income

    $___________

    Grants receivable

    $___________

    PSI included in the assessable income of an individual
    (attributed amount)

    $___________

    Profit on sale of depreciating assets included in accounts

    $___________

    Profit on sale of other assets included in accounts
    (including assets used for R&D)

    $___________

    Unrealised gains on revaluation of assets to fair value

    $___________

    Other income amounts in the accounts that are not assessable income

    $___________

    Total

    $___________

    X Other deductible expenses
    (deductible amounts not shown as expenses in the accounts)

    Allowable superannuation fund payments

    $___________

    Capital expenditure for the establishment of trees in carbon sink forests

    $___________

    Deductible balancing adjustment amounts on depreciating assets
    (see appendix 6)

    (for R&D assets that are excluded, see note 3)

    $___________

    Deduction for certain capital expenditure incurred to terminate a lease or licence
    (see note 6)

    $___________

    Foreign exchange taxable losses
    (see Foreign exchange gains and losses)

    $___________

    Interest charge

    $___________

    Hire-purchase agreements: interest component
    (see Hire-purchase agreements)

    $___________

    Luxury car leases: accrual amount
    (see Luxury car leases)

    $___________

    Mains electricity connection to land used in carrying on a business
    (see Electricity connections and telephone lines)

    $___________

    Net adjustment to expenses claimed: increase in consumable stores
    (see note 2)

    $___________

    Net decrease in provisions

    $___________

    Net decrease in trading stock valuation for tax purposes

    $___________

    Part of prepaid expenses deductible this year, but not included at any other label
    (see note 1(b))

    $___________

    Tax deductible borrowing costs

    $___________

    Telephone line connection to land used for primary production
    (see Electricity connections and telephone lines)

    $___________

    Other deductible items

    $___________

    Total

    $___________

    Note 1(a)

    Insert the difference between the total amount of prepaid expenses incurred in the 2015–16 income year and the amount the company is entitled to claim as a deduction in this year. See Deductions for prepaid expenses 2016 for a detailed explanation of how to calculate the company’s deduction for the 2015–16 income year.

    Note 1(b)

    Insert the amount of prepaid expenditure that the company was not entitled to deduct in previous years, and which it is now entitled to deduct in the 2015–16 income year. See Deductions for prepaid expenses 2016 for a detailed explanation of how the deduction for later years is calculated.

    Note 2

    Insert the difference between the value of consumable stores on hand at the end of the previous income year and the value of consumable stores on hand at the end of the current income year. The balance of these items determines whether they are add-backs or subtractions.

    Note 3

    W and X on worksheet 2 do not include any amounts for R&D assets subject to the R&D tax incentive.

    Generally, labels at item 7 require a split between amounts subject to the R&D tax incentive and other amounts; for example, book depreciation shown at X Depreciation expenses item 6 includes amounts for assets used in R&D activities.

    However, amounts subject to the R&D tax incentive are added back at D Accounting expenditure in item 6 subject to R&D tax incentive item 7 and not at W Non-deductible expenses item 7, and the amount for decline in value of assets used in R&D activities is claimed as part of calculating an R&D tax offset in item 21.

    Similarly, disposal losses included at S All other expenses item 6 includes losses for assets used in R&D activities, but amounts subject to the R&D tax incentive are added back at D Accounting expenditure in item 6 subject to R&D tax concession item 7.

    Any deductible balancing adjustment amount for assets used wholly in R&D activities is included as part of calculating an R&D tax offset at item 21. Any deductible balancing adjustment amount where the assets have been used in R&D and non-R&D activities is included at X Other deductible expenses item 7.

    Additionally, disposal profits included at R Other gross income item 6 that are subject to the R&D tax incentive are uplifted by the relevant portion and included at B Other assessable income item 7, but balancing profits for all assets are subtracted at Q Other income not included in assessable income item 7.

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    Note 4

    If the company receives an individual’s PSI other than in the course of conducting a personal services business, and does not promptly pay it to the individual as salary or wages:

    • the net amount of PSI is attributed to the individual and is not assessable to the company
    • certain related expenses are not deductible.

    Expenses specifically denied include rent, mortgage interest, rates and land tax for the residence of individuals (or their associates; for example, spouse) whose efforts or skills mainly generate the PSI for the company, the costs of a second private use car and payments of salary or wages and superannuation for associates to the extent such payments relate to non-principal work.

    The company is not entitled to a deduction for any net PSI loss that is attributed to the individual.

    Note 5

    Only include depreciation expenses at W Non-deductible expenses item 7 if the company is not using the small business entity depreciation rules. However, do not include any pool deductions shown at Expenses, X Depreciation expenses item 6.

    Note 6

    Section 25-110 of the ITAA 1997 provides a five-year straight-line write-off for certain capital expenditure incurred in terminating an operating 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 the details under Change 3 in Blackhole expenditure: business related expenses.

    If you have included an amount of capital expenditure incurred to terminate a lease or licence at any expense label in item 6, include the amount at W Non-deductible expenses item 7.

    Last modified: 02 Oct 2019QC 48080