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  • Worksheet 2 – other reconciliation items

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

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    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)

    Description

    Amount

    Adjustments to income derived: increase in interest

    $

    Adjustments to income derived: increase in dividends

    $

    Adjustments to income derived: increase in partnership distribution

    $

    Adjustments to income derived: increase in trust distribution

    $

    Adjustments to income derived: 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

    Description

    Amount

    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)

    $

    Entertainment expenses - to the extent to which they are not deductible

    $

    Legal expenses and consultants’ fees - to the extent to which they are not deductible

    $

    Subscriptions and donations - to the extent to which they are not deductible

    $

    Bad debts - to the extent to which they are not deductible

    $

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

    $

    Travel expenses by spouse (of any sex)

    $

    Expenses incurred in deriving non-assessable non-exempt income

    $

    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 (17.5 ÷ 27.5 of eligible deductions if 27.5% company tax rate, otherwise 20 ÷ 30 of eligible deductions if 30% company tax rate)

    $

    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)

    Description

    Amount

    Adjustments to income derived: decrease in interest

    $

    Adjustments to income derived: decrease in dividends

    $

    Adjustments to income derived: decrease in trust distribution

    $

    Adjustments to income derived: 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

    Description

    Amount

    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 GST – Hire purchase and leasing)

    $

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

    $

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

    $

    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 and phone connections)

    $

    Other deductible items

    $

    Total

    $

    Note 1(a)

    Insert the difference between the total amount of prepaid expenses incurred in 2017–18 and the amount the company is entitled to claim as a deduction in this year. See Deductions for prepaid expenses 2019 for a detailed explanation of how to calculate the company’s deduction for 2017–18.

    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 2018–19. See Deductions for prepaid expenses 2019 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 incentive at 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 Other capital expenses (including capital works deductions).

    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.

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    Last modified: 18 May 2020QC 58629