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  • Information statement – items 6 to 25

    These items must be completed by all companies.

    6. Calculation of total profit or loss

    In this section:

    The Income and Expenses amounts to be written at item 6 are accounting system amounts and correspond to the amounts in the company’s financial statements for the income year, except for the depreciation expenses of small business entities using the simplified depreciation rules. These are to be written as tax values at X Depreciation expenses item 6 (see Small business entities).

    If you are lodging a company tax return as a head company for a consolidated or MEC group, the Income and Expenses amounts should reflect only the accounting system amounts for the consolidated or MEC group.

    Gross income for accounting purposes may include all income which may be exempt income, other non-assessable income and foreign source income for tax purposes. Total profit or loss may include extraordinary revenue or expenses, such as net domestic or foreign source gains or losses from events that are outside the ordinary operations of the company.

    Adjustments to the accounting amounts for tax purposes are made at item 7 to determine taxable income or loss. In some cases, it is necessary to make a reconciliation adjustment at item 7 to add back or subtract the whole of an amount shown at item 6 and to include the amount for income tax purposes at a specific label at item 7. For example, where a capital profit for accounting purposes is included at item 6, it should be included in full at Q Other income not included in assessable income item 7. The company’s net capital gain for tax purposes should be written at A Net capital gain item 7.

    If GST is payable for income, exclude the GST from the income derived. Deductions are reduced by the input tax credit entitlement. If the company is not registered nor required to be registered for GST purposes or is not entitled to claim input tax credits, its deductions are not adjusted for GST. The company claims the GST-inclusive amount incurred on outgoings. Special rules apply to GST adjustments.

    If the company is eligible and is continuing to use the simplified tax system (STS) accounting method, see Former STS taxpayers below.

    Former STS taxpayers

    Continued use of the STS accounting method

    Although the STS has now ceased, a transitional provision allows for limited continued use of the STS accounting method.

    A company may continue using the STS accounting method if it:

    • was an STS taxpayer and used the STS accounting method in 2006–07
    • used the STS accounting method in each subsequent year, and
    • is a small business entity for 2020–21.

    If the company meets these three requirements, it can continue using the STS accounting method until it chooses not to, or is no longer a small business entity.

    The STS accounting method does not apply to income or deductions that receive specific treatment in income tax law, for example, net capital gains, dividends, depreciation expenses, bad debts and borrowing expenses.

    In addition, if another provision of the tax law apportions or alters the assessability or deductibility of a particular type of ordinary income or general deduction, the timing rule in that provision overrides the STS accounting method, for example, double wool clips or prepayment of a business expense for a period greater than 12 months. Because of these specific provisions you may need to make adjustments at item 7.

    Amounts the company includes at item 6 should be based on the STS accounting method if that method is reflected in the company’s accounts. If the company is continuing to use the STS accounting method and its accounts do not reflect the STS accounting method rules, you may need to make additional adjustments at item 7.

    If the company has stopped using the STS accounting method, business income and expenses that have not been accounted for (because they have not been received or paid) are accounted for in this income year. You may need to make additional reconciliation adjustments at item 7.

    For more information, see STS accounting method or phone 13 28 66.

    6. Calculation of total profit or loss – Income

    In this section:

    B – Gross payments subject to foreign resident withholding

    A – Gross payments where ABN not quoted

    C – Other sales of goods and services

    D – Gross distribution from partnerships

    E – Gross distribution from trusts

    X – Forestry managed investment scheme income

    Participants in an FMIS – for an initial participant

    Participants in an FMIS – for a subsequent participant

    F – Gross interest

    G – Gross rent and other leasing and hiring income

    H – Total dividends

    I – Fringe benefit employee contributions

    Q – Assessable government industry payments

    J – Unrealised gains on revaluation of assets to fair value

    R – Other gross income

    S –Total income

    B – Gross payments subject to foreign resident withholding

    Only complete B if the company is a foreign resident. An Australian resident should not include an amount, such as, foreign sourced income, at B.

    Foreign resident withholding applies to payments made to foreign residents where the payment is:

    • for promoting or organising casino gaming junket activities
    • for entertainment or sports activities, or
    • under contract for the construction, installation and upgrading of buildings, plant and fixtures, and for associated activities.

    This withholding is not a final tax. A credit can be claimed at H2 Credit for tax withheld – foreign resident withholding in the Calculation statement.

    Write at B the gross payments made to the company that were subject to foreign resident withholding. Gross payments include amounts of tax withheld, or that should have been withheld.

    Do not include at B amounts subject to foreign resident withholding that were distributed to the company from a partnership or trust. Include these at D Gross distribution from partnerships or E Gross distribution from trusts.

    Do not include at this label amounts subject to the foreign resident capital gains withholding.

    Do not include at B amounts that are subject to a final withholding tax, for example, amounts subject to withholding tax under section 128B of the ITAA 1936. Include these amounts at:

    • F Gross interest or H Total dividends or R Other gross income in item 6 Income
    • Q Other income not included in assessable income in the Reconciliation to taxable income or loss at item 7

    A final withholding tax cannot be claimed at H2 Credit for tax withheld – foreign resident withholding in the Calculation statement.

    If an amount is written at B, complete and attach a Non-individual PAYG payment summary schedule 2021. For instructions on completing this schedule, see Non-individual PAYG payment summary schedule.

    Any income included at B that is not assessable in Australia should also be included at V Exempt income item 7.

    A – Gross payments where ABN not quoted

    Write at A the gross payments made to the company that were subject to withholding where an ABN was not quoted. Gross payments include amounts of tax withheld.

    If you write an amount at A:

    • complete a Non-individual PAYG payment summary schedule 2021. For instructions on completing this schedule, see Non-individual PAYG payment summary schedule.
    • ensure that you write the corresponding amount of tax withheld at H3 Credit for tax withheld where ABN is not quoted in the Calculation statement.

    C – Other sales of goods and services

    Write at C the gross sales of:

    • trading stock including wool, produce and livestock, including the assessable value, for income tax purposes, of forced disposal
    • manufactured goods
    • goods taken ex-stock
    • livestock killed for rations or exchanged for other goods or services
    • gross income from sale of goods not treated as trading stock, and
    • gross earnings from services.

    Gross income is to be shown before any legal set off or other netting off between amounts.

    Do not include at C:

    • any payments where tax has been withheld for failure to quote an ABN (include these amounts at A Gross payments where ABN not quoted)
    • any amounts subject to foreign resident withholding (include these amounts at B Gross payments subject to foreign resident withholding)
    • sales of shares and land that are not held as trading stock for income tax purposes.

    D – Gross distribution from partnerships

    Write at D the gross distribution from all partnerships, including any share of franking credits attributable to dividends paid by an Australian company.

    Include any amounts subject to foreign resident withholding in Australia that were distributed to the company from a partnership. Also include the company’s share of credit from foreign resident withholding. A credit can be claimed for the company’s share of credit from foreign resident withholding at H2 Credit for tax withheld – foreign resident withholding in the Calculation statement.

    If the TOFA rules apply to the company, show at D all distributions from partnerships. This includes amounts from financial arrangements subject to the TOFA rules.

    New rules applying to stapled structures took effect from 1 July 2019. This label may now include an amount referable as Non-Concessional MIT income (NCMI) or Excluded from Non-Concessional MIT income.

    For more information about NCMI, see Stapled Structures.

    Do not include at D:

    • distributions from a corporate limited partnership (unless that distribution is attributable to profits made before it became a corporate limited partnership). Include these amounts at H Total dividends item 6
    • any amount referable to Australian franking credits received indirectly from a New Zealand franking company through a partnership. Include these amounts at C Australian franking credits from a New Zealand company item 7.

    Include any adjustment for taxation purposes at B Other assessable income item 7 or X Other deductible expenses item 7.

    Special rules apply if an entity is a partner in a partnership and joins a consolidated or MEC group part way through an income year.

    Also include the company’s share of franking credits included in the gross distribution from the partnership at C Non-refundable non-carry forward tax offsets in the Calculation statement.

    However, the company is not entitled to a franking tax offset if:

    • the relevant interest is not held at risk as required under the holding period and related payments rules
    • there is some other manipulation of the imputation system, or
    • the gross distribution from the partnership is exempt income or non-assessable non-exempt income (other than because of certain provisions mentioned in section 207-110 of the ITAA 1997).

    Do not write the amount of franking credit attached to these distributions at C Non-refundable non-carry forward tax offsets. Instead, the company is entitled to a deduction under section 207-150 or section 207-95 of the ITAA 1997 equal to its share of the franking credit, and this is included at X Other deductible expenses item 7.

    If the amount at D is a loss, print L in the box at the right of the amount.

    To the extent that FTDT has been paid on income received by the company from partnerships, that amount is excluded from the assessable income of the company under section 271-105 of Schedule 2F to the ITAA 1936.

    If the company’s share of partnership income includes an amount received indirectly from a closely held trust on which trustee beneficiary non-disclosure tax (TBNT) has been paid, you do not need to include the amount in the company’s assessable income.

    Any losses or outgoings incurred in deriving an amount that is excluded from assessable income because FTDT or TBNT has been paid are not deductible. The company cannot claim a tax offset for any franking credits attributable to the whole or a part of a dividend that is excluded from assessable income under these provisions.

    Record keeping

    Keep a record of the following:

    • full name of the partnership
    • TFN of the partnership, if known
    • amount of income
    • deductible expenses relating to the amount of income that were not claimed in the Partnership tax return but are claimed on the Company tax return.

    Include expenses incurred by the company as a partner at S All other expenses item 6.

    Add back non-deductible expenses at W Non-deductible expenses item 7.

    E – Gross distribution from trusts

    Write at E the total amount of gross distributions received from trusts, including any share of franking credits attributable to dividends paid by an Australian company as advised by the trustee.

    Include:

    • any amounts subject to foreign resident withholding in Australia that were distributed to the company from a trust
    • the company’s share of credit from foreign resident withholding.

    A credit can be claimed for the company’s share of credit from foreign resident withholding at H2 Credit for tax withheld – foreign resident withholding in the Calculation statement.

    If the TOFA rules apply to the company, show at E all distributions from trusts. This includes amounts from financial arrangements subject to the TOFA rules.

    New rules applying to stapled structures took effect from 1 July 2019. This label may now include an amount referable as NCMI or Excluded from NCMI.

    For more information about NCMI, see Stapled Structures.

    Do not include at E:

    • distributions from a public trading trust or corporate unit trust. Include these amounts at H Total dividends item 6
    • capital gains received from a trust. Include these at A Net capital gain item 7. For information on how to include an amount of a capital gain received from a trust at A (for example, how to gross-up a capital gain from a trust) see the Guide to capital gains tax 2021
    • any amount referable to Australian franking credits received indirectly from a New Zealand franking company through a trust. Include these amounts at C Australian franking credits from a New Zealand company item 7.

    The amount at E cannot be a loss.

    Also write the company’s share of the franking credits included in the gross distribution from the trust at C Non-refundable non-carry forward tax offsets in the Calculation statement. However, the company is not entitled to a franking tax offset if:

    • the relevant interest is not held at risk as required under the holding period and related payments rules, or
    • there is some other manipulation of the imputation system, or
    • if the gross distribution from the trust is exempt income or non-assessable non-exempt income (other than because of certain provisions mentioned in section 207-110 of the ITAA 1997).

    Do not write the amount of franking credit attached to these distributions at C Non-refundable non-carry forward tax offsets.

    Instead, the company is entitled to a deduction under section 207-150 or section 207-95 of the ITAA 1997, and this is included at X Other deductible expenses item 7.

    Include any part of a distribution in the gross amount, for example, a part of a distribution that is not taxable income. Write any adjustment for taxation purposes at item 7. In the example mentioned, include that part of the distribution at Q Other income not included in assessable income item 7, to ensure that the amount is not included in taxable income.

    Special rules apply if an entity is a beneficiary or object of a trust and joins a consolidated or MEC group part way through an income year.

    To the extent that FTDT has been paid on income or capital of a trust to which the company is presently entitled or which has been distributed to the company, that income or capital is excluded from the assessable income of the company under section 271-105 of Schedule 2F to the ITAA 1936.

    If the company’s share of trust income includes an amount received indirectly from a closely held trust on which TBNT has been paid, you do not need to include the amount in the company’s assessable income.

    Any losses or outgoings incurred in deriving an amount that is excluded from assessable income because FTDT or TBNT has been paid are not deductible. The company cannot claim a tax offset for any franking credits attributable to the whole or a part of a dividend that is excluded from assessable income under these provisions.

    In the CODE box, print the code from table 2 that best describes the type of trust for the amount of income written at E. If this amount is from more than one type of trust, print the code that represents the trust for the greatest amount of income. Descriptions of the types of trusts listed in table 2 are in table 3.

    If the type of trust making the distribution is unknown, contact the trustee of that trust.

    Table 2: Trust codes

    Code

    Type

    D

    Deceased estate

    E

    Testamentary trust

    F

    Fixed trust, other than a fixed unit trust or a public unit trust shown at U, P or Q of this table

    H

    Hybrid trust

    S

    Discretionary trust, where the main source of income of the trust is from service and/or management activities

    T

    Discretionary trust, where the main source of income of the trust is from trading activities

    I

    Discretionary trust, where the main source of income of the trust is from investment activities

    M

    Cash management unit trust

    U

    Fixed unit trust, other than a public trust described in P or Q of this table

    P

    Public unit trust (listed), other than a cash management unit trust

    Q

    Public unit trust (unlisted), other than a cash management unit trust

    Table 3: Descriptions of trusts

    Trust type

    Description

    Testamentary trust

    A trust that resulted from a will, codicil, court order, or intestacy

    Fixed trust

    A trust in which persons have fixed entitlements (as defined in section 272-5 of Schedule 2F to the ITAA 1936) to all of the income and capital of the trust at all times during the income year

    Hybrid trust

    A trust that is not a fixed trust but in which persons have fixed entitlements (as defined in section 272-5 of Schedule 2F to the ITAA 1936) to income or capital of the trust during the income year

    Discretionary trust

    A trust that is neither a fixed trust nor a hybrid trust and under which persons benefit from income or capital of the trust upon the exercise of a discretion by persons, usually the trustee

    Fixed unit trust

    A fixed trust in which interest in the income and capital of the trust are represented by units

    Public unit trust

    A fixed unit trust that is a widely held unit trust (as defined in section 272-105 of Schedule 2F to the ITAA 1936) at all times during the income year

    Public unit trust, listed

    A public unit trust in which any of its units were listed for quotation in the official list of a stock exchange in Australia or elsewhere during the income year

    Public unit trust, unlisted

    A public unit trust in which none of its units were listed for quotation in the official list of a stock exchange in Australia or elsewhere during the income year

    Record keeping

    Keep a record of the following:

    • full name of the trust
    • TFN of the trust, if known
    • amount of income
    • deductible expenses relating to the amount of income.

    Include expenses incurred by the company as a beneficiary at Expenses, S All other expenses item 6.

    Add back non-deductible expenses at W Non-deductible expenses item 7.

    X – Forestry managed investment scheme income

    Definitions

    A company is an initial participant in a forestry managed investment scheme (FMIS) if:

    • it obtained its forestry interest in the FMIS from the forestry manager of the scheme, and
    • its payment to obtain the forestry interest in an FMIS results in the establishment of trees.

    A company is a subsequent participant in an FMIS if it acquired its interest through secondary market trading. This means it acquired its interest other than as an initial participant, usually by purchasing that interest from an initial participant.

    The forestry manager of an FMIS is the entity that manages, arranges or promotes the FMIS.

    A forestry interest in an FMIS is a right to benefits produced by the FMIS (whether the right is actual, prospective or contingent, and whether it is enforceable or not).

    The amount of the company’s total forestry scheme deductions is the total of all the amounts that it can deduct or has deducted for each income year that it held its forestry interest. See U Forestry managed investment scheme deduction for more information on amounts that you can deduct.

    The amount of the company’s incidental forestry scheme receipts is the total of all the amounts that it received from the FMIS in each income year that it held its forestry interest, other than amounts received because of a CGT event, that is, a sale or a harvest.

    Write at X the total income from the following activities for each FMIS in which the company holds a forestry interest.

    Do not include capital gains from an FMIS; show these at A Net capital gain item 7. For more information on the CGT treatment of the company’s forestry interests, see the Guide to capital gains tax 2021.

    If the company is a member of a collapsed agribusiness managed investment scheme, then for information on calculating your income and deductions, see Collapse and restructure of agribusiness managed investment schemes – participant information.

    Participants in an FMIS – for an initial participant

    Thinning receipts

    If the company received thinning proceeds from its forestry interest, include the actual amount received at X.

    Sale and harvest receipts – forestry interest no longer held

    If:

    • the company ceased holding its forestry interest as a result of a CGT event (because it sold its interest or it received harvest proceeds), and
    • the company has claimed a deduction, or can claim a deduction, or would be entitled to deduct such amounts but for a CGT event happening within 4 years after the end of the income year in which the company first pays an amount under the FMIS

    include the market value of the forestry interest at the time of the CGT event at X.

    Sale and harvest receipts – forestry interest still held

    If:

    • a CGT event happened and the company still held its forestry interest (because it sold part of its interest or there was a partial harvest), and
    • the company has claimed a deduction, or can claim a deduction, or would be entitled to deduct such amounts but for a CGT event happening within 4 years after the end of the income year in which the company first pays an amount under the FMIS

    include at X the amount by which the market value of the forestry interest was reduced as a result of the CGT event.

    Participants in an FMIS – for a subsequent participant

    Thinning receipts

    If the company received thinning proceeds from its forestry interest, include the actual amount received at X.

    Sale and harvest receipts – forestry interest no longer held

    If:

    • the company ceased holding its forestry interest as a result of a CGT event (because it sold its interest or it received harvest proceeds), and
    • the company has deducted, or can deduct, or could have deducted, an amount if the company had paid the amount under the FMIS in relation to the forestry interest,

    include at X the lesser of the following two amounts:

    • the market value of the forestry interest at the time of the CGT event, or
    • the amount (if any) by which the total forestry scheme deductions exceeded the incidental forestry scheme receipts.
    Sale and harvest receipts – forestry interest still held

    If:

    • a CGT event happened and the company still held its forestry interest (because it only sold part of its interest or there was a partial harvest), and
    • the company can deduct, or has deducted, or could have deducted, an amount if the company had paid the amount under the FMIS in relation to the forestry interest,

    work out the following two amounts:

    • the market value of the forestry interest at the time of the CGT event, and
    • the amount (if any) by which the total forestry scheme deductions exceeded the incidental forestry scheme receipts (net deductions).

    Use the lesser of the two amounts above in the following formula:

    The amount worked out above multiplied by the decrease, if any, in the market value of the forestry interest (as a result of the CGT event) divided by the market value of the forestry interest just before the CGT event.

    Include at X the amount calculated using the formula.

    In a future income year (a year in which the company receives further proceeds from a harvest or the sale of its forestry interest), disregard the amount of the net deductions that has already been included at X.

    To complete this item

    Add up all the amounts you worked out for the company’s FMIS income and write the total at X.

    See examples 7 and 8 for how to calculate the amount you show at X where the company is a subsequent participant that holds the forestry interest on capital account.

    For more information on the CGT treatment of a company’s forestry interest, see the Guide to capital gains tax 2021.

    Example 7 – Sale receipts: forestry interest no longer held

    Cedar Pty Ltd is a subsequent participant in an FMIS. It sold its forestry interest at the market value of $20,000. The sale of the forestry interest is a CGT event. The original cost base was $14,000.

    In the time that the company held the forestry interest, it claimed $4,000 in deductions (its total forestry scheme deductions) for lease fees, annual management fees and the cost of felling that it paid to the forestry manager. In an earlier period, it received $1,500 from thinning proceeds (its incidental forestry scheme receipts).

    Cedar Pty Ltd will need to include $2,500 (that is, $4,000 − $1,500) at X, because this amount is less than the market value of its forestry interest at the time of the CGT event.

    CGT notes:

    • Cedar Pty Ltd will take the amount that it included at X into account when working out the amount to include at A Net capital gain item 7.
    • The capital gain would be $3,500 (capital proceeds of $20,000 less cost base of $16,500 (made up of $14,000 plus $2,500 that was included in assessable income)).
    End of example

     

    Example 8 – Harvest receipts: forestry interest still held

    Oakey Pty Ltd is a subsequent participant in an FMIS. It will receive harvest proceeds over two income years. It received the first harvest payment of $5,000 in 2020–21.

    The market value of its forestry interest is $20,000 just before it received its payment for the first harvest (which is a CGT event). After it received this first harvest payment, the market value of its forestry interest was reduced to $15,000. Its original cost base was $14,000.

    In the time that it has held its interest, Oakey Pty Ltd claimed $4,000 in deductions (its total forestry scheme deductions) for lease fees, annual management fees and the cost of felling that it paid to the forestry manager. In an earlier period, it received $1,500 from thinning proceeds (its incidental forestry scheme receipts).

    Step 1: The market value of the forestry interest (at the time of the CGT event) is $20,000.

    The amount by which the total forestry scheme deductions exceed the incidental forestry scheme receipts is $2,500 (that is, $4,000 − $1,500).

    The amount to use in step 2 is $2,500.

    Step 2: Using the formula above:

    $2,500 multiplied by $5,000 divided by $20,000 equals $625.

    Oakey Pty Ltd disregards $625 when determining the amount to include in step 2 for any future income year when it receives harvest proceeds or sells its forestry interest. This is because the $625 amount is already reflected in its assessable income in the current income year.

    Step 3: Oakey Pty Ltd includes $625 at X.

    CGT notes:

    • Oakey Pty Ltd has disposed of 25% of its forestry interest. Oakey Pty Ltd takes the amount that it included at X into account when working out the amount to include at A Net capital gain item 7.
    • For 2020–21 the capital gain is $875 (capital proceeds of $5,000 less apportioned original cost base of $4,125). The $4,125 is made up of $3,500 (25% of $14,000) plus $625 which is included in assessable income.
    End of example

    F – Gross interest

    Write at F the total interest from all sources, including interest received from or credited by an associate, a shareholder or an associate of a shareholder. The amount at F cannot be a loss.

    If the TOFA rules apply to the company, show at F all interest received or credited to it. This includes interest from financial arrangements subject to the TOFA rules.

    Record keeping

    Keep a record of the following:

    • name and address of the borrower
    • amount received or credited.

    G – Gross rent and other leasing and hiring income

    Write at G the company’s total income from leasing and hiring activities. The amount at G cannot be a loss.

    For more information, see Rental properties guide 2021.

    H – Total dividends

    Write at H the total dividends, including all dividends and non-share dividends franked and unfranked, foreign source dividends (including New Zealand dividends and supplementary dividends, bonus shares), dividend applied under dividend reinvestment plans, deemed dividends, and liquidators’ and other company distributions. The amount at H cannot be a loss.

    For an overview of the debt and equity rules and an explanation of a non-share dividends, see Guide to the debt and equity tests.

    If the TOFA rules apply to the company, show at H all unfranked dividends that were paid or credited to it from all sources. This includes unfranked dividends from financial arrangements subject to the TOFA rules.

    Do not include at H:

    • a dividend received under a demerger unless the head entity of the demerger group has elected under subsection 44(2) of the ITAA 1936 that the dividend be treated as an assessable dividend
    • any franking credits that were attached to dividends received from an Australian company; include these amounts at J Franking credits item 7
    • any Australian franking credits from a New Zealand franking company; include them at C Australian franking credits from a New Zealand company item 7.

    All transactions that occur between members of a consolidated or MEC group, including distributions between group members, are not recognised for income tax purposes. Do not include at H distributions between members of the same consolidated or MEC group.

    To the extent that FTDT has been paid on a dividend (including a non-share dividend) paid or credited to the company by another company that has made an interposed entity election, that amount is excluded from the assessable income of the company under section 271-105 of Schedule 2F to the ITAA 1936.

    Any losses or outgoings incurred in deriving an amount that is excluded from assessable income under section 271-105 of Schedule 2F to the ITAA 1936 are not deductible. The company cannot claim a tax offset for any franking credit attributable to the whole or a portion of a dividend that is excluded from assessable income under section 271-105 of Schedule 2F to the ITAA 1936.

    Record keeping

    Keep a record of the following for dividends and non-share dividends. For more information, see ATO publication ‘distribution statements’.

    • name of the payer
    • date received or credited or applied
    • franked amount
    • unfranked amount
    • the portion of unfranked amount declared to be conduit foreign income (CFI)
    • franking credit allocated
    • franking percentage
    • gross amount
    • type of distribution, for example, foreign source dividend, bonus shares, phasing-out dividend, liquidator’s distribution
    • any withholding tax amount has been deducted

    I – Fringe benefit employee contributions

    Write at I all payments that the company has received from recipients of fringe benefits.

    Employee contributions form part of the employer’s or associate’s assessable income if employees make payments for fringe benefits that they have received.

    If you are the head company of a consolidated or MEC group, include all fringe benefit employee contributions received by you or by an entity that was a subsidiary member of the group when the contribution was received.

    Q – Assessable government industry payments

    Generally, government credits, grants, rebates, benefits, bounties and subsidies are assessable income in the hands of the recipient if they are received in, or for, the carrying on of a business. This generally includes payments of a capital nature. However, payments relating to the commencement or cessation of a business may not be assessable income but may give rise to a capital gain. In certain circumstances a specific grant or payment is considered to be exempt income or non-assessable non-exempt income.

    A number of Commonwealth, State and Territory government grants and payments have been made available to businesses in response to recent natural disasters and COVID-19. Only those grants and payments that are assessable income will need to be included at this item.

    Do not include at this item the following grants and payments:

    • Cash Flow Boost Payments (COVID-19) (non-assessable, non-exempt income)

    If you included the cash flow boost in the gross income for accounting purposes, include it at item 6R Other gross income and at item 7Q Other income not included in assessable income.

    • Commonwealth and State government grants and payments that are tax free.

    For more information, see Government grants and payments during COVID-19  

    Write at Q all assessable government industry payments, including:

    • bounties
    • employee subsidies
    • fuel tax credits
    • industry assistance grants including grants relating to R&D
    • JobMaker Hiring Credits
    • JobKeeper payments (COVID-19)
    • Supporting Apprentices and Trainees wage subsidy (COVID-19)
    • producer rebate (wine equalisation tax)
    • alcohol manufacturer excise refund
    • product stewardship for oil program benefit

    If this amount includes a product stewardship for oil program benefit, print D in the CODE box. For more information on fuel schemes, phone 13 28 66.

    Jobkeeper reporting

    The accounting basis used determines the way you report Jobkeeper payments.

    Accruals accounting basis

    JobKeeper payments are derived when the company provides a completed and valid Business monthly declaration to the ATO. Payments relating to declarations made in 2020–21 are assessable in 2020–21.

    Cash accounting basis

    JobKeeper payments are derived when the company receives those payments. Payments received on or after 1 July 2020 are assessable in 2020–21.

    JobMaker hiring credit reporting

    The accounting basis used determines the way you report JobMaker hiring credit payments.

    Accruals accounting basis

    JobMaker hiring credit payments are derived when the company provides the ATO with a valid claim form after each JobMaker period.

    – JobMaker hiring credit payments relating to valid claim forms made on or before 30 June 2021 are included in your 2020–21 tax return.

    – JobMaker hiring credit payments relating to valid claim forms made on or after 1 July 2021 are included in your 2021–22 income tax return.

    Cash accounting basis

    JobMaker hiring credit payments are derived when the company receives those payments. Payments received on or before 30 June 2021 are assessable in 2020–21.

    See also:

    J – Unrealised gains on revaluation of assets to fair value

    Write at J the amount (if any) of any unrealised gains made on the revaluation of assets and liabilities to fair value that may arise as a result of the adoption of Australian equivalents to the international financial reporting standards.

    • Include any unrealised gain on the revaluation of a financial arrangement to fair value assessable under the TOFA rules.
    • Adjustments for tax purposes are made at item 7.
    • An unrealised gain that is not assessable income is included at Q Other income not included in assessable income item 7.
    • Any net capital gain for taxation purposes is written at A Net capital gain item 7.
    • Any net capital loss is included with any unapplied capital losses carried forward to later income years and is written at V Net capital losses carried forward to later income years item 13.

    R – Other gross income

    Other gross income includes:

    • royalties
    • insurance recoveries
    • bad debt recoveries
    • life insurance premiums
    • non-government subsidies
    • assessable non-government assistance from all sources
    • profit on sale of depreciating assets (including assets used in R&D activities subject to the R&D tax incentive)
    • any assessable gains from the company’s financial arrangements to which the TOFA rules apply, except where they have already been included at item 6
    • any extraordinary revenue (that is, revenue or gains from events outside the ordinary operations of the company and not of a recurring nature, including work-in-progress amounts assessable under section 15-50 of the ITAA 1997). An extraordinary gain that is not assessable income is included at Q Other income not included in assessable income item 7.

    Write at R the total amount of other gross income. Do not show at R amounts you included above at Income, from B to J item 6.

    If the amount at R is a loss, print L in the box at the right of the amount.

    Record keeping

    Keep a record of the following:

    • types of income, for example, sales, commissions
    • amount derived for each type of income.

    If various profit and loss account balances are combined when calculating R, keep a list of the names and amounts of those accounts.

    S –Total income

    Write at S the total of all income items written at B to R item 6. If this amount is a loss, print L in the box at the right of the amount.

    6. Calculation of total profit or loss – Expenses

    In this section:

    Write all expense amounts from the company’s financial statements at B to S, see relevant item.

    Write at B Foreign resident withholding expenses all expenses that directly relate to income subject to foreign resident withholding. Do not include these amounts at other expenses labels.

    Input tax credit entitlements that arise for outgoings are excluded from expenses, see 6 Calculation of total profit or loss.

    Write non-deductible expenses incurred in deriving any exempt income at the appropriate expense labels. Add back these non-deductible expenses at U Non-deductible exempt income expenditure item 7.

    Other expenses, to the extent that they are not deductible in 2020–21, which have been included at A to S item 6, are added back at W Non-deductible expenses item 7. This includes non-deductible expenses incurred in deriving any non-assessable non-exempt income.

    Record prepaid expenses that appear in the company’s financial statements at the relevant expense label. Where the amounts of those expenses differ from the amounts which are deductible for income tax purposes in 2020–21, make adjustments at W or X item 7.

    For a company to claim a deduction for gifts and donations made to an organisation, the organisation must be a deductible gift recipient (DGR). DGRs are endorsed by us or specifically named in the income tax law. All receipts issued for gifts by a DGR must include the name of the fund, authority or institution to which the gift has been made and the DGR’s ABN, and must state that the receipt is for a gift. To check whether an organisation is a DGR, go to abn.business.gov.auExternal Link or phone 1300 130 248.

    The company may elect to spread a deduction for a gift over five income years or less where the gift is money, property gifted to the Cultural Gifts Program, certain heritage property or property valued by us at more than $5,000.

    B – Foreign resident withholding expenses

    Only complete B if the company is a foreign resident. An Australian resident should not include expenses, such as expenses incurred in deriving foreign sourced income, at B.

    Write at B all expenses directly relating to gaining income subject to foreign resident withholding (shown at Income, B Gross payments subject to foreign resident withholding, D Gross distribution from partnerships or E Gross distribution from trusts, item 6).

    Any expenses written at B that directly relate to gaining income that is not assessable in Australia should also be written at U Non-deductible exempt income expenditure item 7.

    Do not include at this label expenses in relation to foreign resident capital gains withholding.

    A – Cost of sales

    Small business entities

    Small business entities only need to account for changes in the value of their trading stock in limited circumstances; see Closing stock. If the company does not need to account for the change in value of closing stock, its closing stock value will equal its opening stock value. If the company needs to account for the change in value of closing stock, or chooses to do so, see Closing stock for information about how to calculate the closing stock value. For more information on calculating cost of sales, see below.

    All companies

    Write at A the cost of anything produced, manufactured, acquired or purchased for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. This includes freight inwards and may include some external labour costs, if these are included in the cost of sales account in the normal accounting procedure of the business.

    If the cost of sales account is in credit at the end of the income year (that is, a negative expense), print L in the box at the right of the amount at A. Do not print brackets around this amount.

    For more information on the circumstances in which packaging items held by a manufacturer, wholesaler or retailer are ‘trading stock’ as defined in section 70-10 of the ITAA 1997, see Taxation Ruling TR 98/7 Income tax: whether packaging items (ie, containers, labels, etc) held by a manufacturer, wholesaler or retailer are trading stock.

    Do not include input tax credit entitlements in cost of sales.

    C – Contractor, sub-contractor and commission expenses

    Write at C the expenditure incurred for labour and services provided under contract other than those in the nature of salaries and wages, for example:

    • payments to self-employed people, such as consultants and contractors, this includes those who operate under a labour-hire arrangement or a voluntary agreement
    • commissions paid to people not receiving a retainer
    • agency fees, for example, advertising
    • service fees, for example, plant service
    • management fees
    • consultants’ fees.

    Do not include the following at C:

    • expenses for external labour that are incorporated into the amount written at A Cost of sales item 6
    • expenses for accounting or legal services. Include them at S All other expenses item 6.
    Record keeping

    Keep a record of the following:

    • name and address of the payee
    • nature of the labour or services provided
    • the amount paid.

    D – Superannuation expenses

    Write at D the superannuation expenses incurred for the income year.

    Employers are entitled to a deduction for contributions made to a complying superannuation, provident, benefit or retirement fund, or retirement savings account (RSA), if the contribution is to provide superannuation benefits for employees or to provide benefits to an employee’s dependants on the employee’s death. Superannuation benefits mean payments for superannuation member benefits or superannuation death benefits.

    Provided certain conditions are met, employers can claim a deduction for superannuation contributions made for a former employee within four months of the employee ceasing employment and at any time after the employee ceases employment for defined benefit interests.

    A deduction is allowable in the income year in which the contributions are made.

    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. However, the employee may be liable to pay additional tax if their concessional contributions exceed their concessional contributions cap. For more information, see Super contributions – too much can mean extra tax.

    If an employee has reached the age of 75 years, 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 greater of the following amounts:

    • the amount of the contribution required under an industrial award, determination or notional agreement preserving state awards; or
    • the amount of the contribution that reduces the employer’s charge percentage under the Superannuation Guarantee (Administration) Act 1992 for the employee.

    The adjustments for taxation purposes are included at W Non-deductible expenses item 7.

    No deduction is allowable if the fund is a non-complying fund.

    In addition, contributions made to a non-complying fund do not count towards superannuation guarantee obligations. The superannuation guarantee charge is payable on the superannuation guarantee shortfall. As such, it is neither a superannuation contribution nor 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 may be fringe benefits and, as such, may be subject to tax under the Fringe Benefits Tax Assessment Act 1986.

    Consolidated or MEC groups

    The head company includes at D the employee superannuation expenses of all the members of the group.

    The head company includes at W Non-deductible expenses item 7 any non-deductible employee superannuation expenses of all the members of the group.

    See also:

    E – Bad debts

    Write at E the bad debts expense incurred for the income year.

    • Include recovery of bad debts at Income, R Other gross income item 6.
    • A deduction for bad debts is not allowable under subsection 25-35(1) of the ITAA 1997 unless the debt that is bad has previously been included in assessable income, or is for money lent in the ordinary course of the business of lending money by a company carrying on that business.
    • Do not include accounting provisions for doubtful debts at E. Include these at Expenses, S All other expenses item 6 and add them back at W Non-deductible expenses item 7.
    • Before a bad debt can be claimed, it must be bad and not merely doubtful. The deduction depends on the facts in each case and, where applicable, the action taken for recovery. For more information, see Taxation Ruling TR 92/18 Income tax: bad debts.

    A deduction can also be claimed for:

    • partial debt write-offs where only part of a debt is bad and is written off
    • losses incurred in debt-equity swaps for debt extinguished after 26 February 1992 if sections 63E to 63F of the ITAA 1936 are satisfied. Under these sections, a deduction may be allowable for the difference between the amount of the debt extinguished and the greater of the market value of the equity or the value at which the equity is recorded in the creditor’s books at the time of issue. Generally, 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.

    A deduction for a bad debt or loss on a debt-equity swap is only allowable if the company claiming the deduction satisfies:

    • a continuity of ownership test (or we consider it unreasonable to have to satisfy the test), see Subdivision 165-C of the ITAA 1997
    • the business continuity test (if the continuity of ownership test is not satisfied or it is not practicable to show that it is). For the operation of the business continuity test, see Subdivision 165-E of the ITAA 1997 and Taxation Ruling TR 1999/9 Income tax: the operation of sections 165-13 and 165-210, paragraph 165-35(b), section 165-126 and section 165-132.

    Where a debt was incurred in an income year prior to that in which it is written off as bad, the company must satisfy the continuity of ownership test at all times from the date on which the debt was incurred through to the end of the income year in which it writes off the debt.

    Where a debt was both incurred and written off as bad in the same income year, the company must satisfy the continuity of ownership test at all times during that income year.

    The continuity of ownership tests applicable to bad debts are subject to:

    • the anti-avoidance provisions in Subdivision 165-D of the ITAA 1997 relating to arrangements designed to affect the beneficial ownership of shares or enjoyment of rights attaching to shares
    • the anti-avoidance provisions in Subdivision 175-C of the ITAA 1997 relating to schemes designed to obtain tax benefits from unused bad debt deductions.

    For widely held companies and eligible Division 166 companies, the continuity of ownership test in Subdivision 165-C may be modified by Subdivision 166-C of the ITAA 1997, which provides a simplified method for determining the company’s ultimate majority ownership.

    If the TOFA rules apply to the company, show at E all of the company’s bad debts. This includes amounts from financial arrangements subject to the TOFA rules.

    Record keeping

    If the company writes off bad debts during the income year, keep a statement for all debt for which a write-off occurred, showing:

    • the debtor's name and address
    • the amount of the debt
    • the reason why the debt is regarded as bad
    • the income year that the amount was returned as income.
    Consolidated and MEC groups

    Special rules apply to determine if the head company of a consolidated or MEC group can deduct a bad debt that for a period has been owed to a member of a consolidated or MEC group and for another period has been owed to an entity that was not a member of that group, see Subdivisions 709-D and 719-I of the ITAA 1997.

    F – Lease expenses within Australia

    Write at F the expenditure incurred through both finance and operating leases on leasing assets, including motor vehicles and depreciating assets such as plant. However, do not include the expenditure at F if it is incurred under a hire-purchase agreement. Such expenses are referred to in Appendix 6.

    Do not include the cost of leasing real estate or the capital expenditure incurred to terminate a lease or licence. However, section 25-110 of the ITAA 1997 provides a five-year straight-line write-off for certain capital expenditure incurred to terminate 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. Include the allowable deduction at X Other deductible expenses item 7. See worksheet 2 and note 6, and Claiming a tax deduction for depreciating assets and other capital expenses.

    I – Lease expenses overseas

    Write at I the lease expenses incurred through both finance and operating leases on leasing depreciating assets, including motor vehicles. However, do not include the expenditure at I if it is incurred under a hire-purchase agreement. Such expenses are referred to in Appendix 6.

    Exclude the cost of leasing real estate, capital expenditure incurred to terminate a lease or licence, and expenditure on items other than depreciating assets leased from non-residents. For more information on capital expenditure incurred to terminate an operating lease or licence, see Lease expenses within Australia.

    Record keeping

    If a deduction is claimed for the cost of leasing depreciating assets, keep a record of the following:

    • a description of the items leased
    • where applicable, the country from which the items were leased
    • full particulars of the lease expenses for each item of property, including motor vehicles, showing        
      • to whom the payments were made
      • where applicable, the country to which the payments were made
      • the terms of the payments, including details of any prepayments or deferred payments
      • if any assignment, defeasance or re-direction to pay the payments was entered into, full particulars of those arrangements, including to whom the payments were made
      • details of any use other than for producing assessable income
      • any documentation on or relating to the lease of the asset.

    In certain cases, an amount of tax (withholding tax) is withheld from amounts paid or payable under equipment leases to non-residents and overseas branches of residents, and must be remitted to the ATO. If you have withheld amounts from payments to non-residents, you may need to lodge by 31 October 2021 a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report. For more information, phone 13 28 66.

    H – Rent expenses

    Write at H the expenditure incurred as a tenant on rental of land and buildings used in the production of income.

    V – Interest expenses within Australia

    Write at V the interest expenses incurred on money borrowed from Australian sources.

    If the TOFA rules apply to the company, show at V all interest incurred on money borrowed from Australian sources. This includes interest on financial arrangements subject to the TOFA rules.

    An amount of interest may not be an allowable deduction, for example, where the thin capitalisation provisions disallow an interest deduction. Include the amount of interest not allowable at W Non-deductible expenses item 7.

    For information on thin capitalisation, see Appendix 3.

    Distributions from a non-share equity interest are not deductible; see the Guide to the debt and equity tests. This provides an overview of the debt and equity rules and explains what a non-share equity interest is.

    J – Interest expenses overseas

    Write at J the interest expenses incurred on money borrowed from overseas sources.

    If an amount is reported at J, complete and attach an International dealings schedule 2021.

    See also:

    • PCG 2017/4 ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions

    If the TOFA rules apply to the company, show at J all interest expenses incurred on money borrowed overseas. This includes interest on financial arrangements subject to the TOFA rules.

    An amount of tax (withholding tax) is generally withheld from interest paid or payable to non-residents and to overseas branches of residents, and must be remitted to the ATO. If you have withheld amounts from payments to non-residents you may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report (NAT 7187) by 31 October 2021. For more information, phone 13 28 66.

    An amount of interest may not be an allowable deduction, for example, where the thin capitalisation provisions disallow an interest deduction. Include the amount of interest not allowable at W Non-deductible expenses item 7.

    For information on thin capitalisation, see Appendix 3.

    Distributions from a non-share equity interest are not deductible. For an overview of the debt and equity rules and an explanation of a non-share equity interest, Guide to the debt and equity tests.

    Record keeping

    If interest is paid to non-residents, keep a record of the following:

    • names and addresses of recipients
    • amount of interest paid or credited
    • documentation that identifies the substance of the financial arrangement and supports the amount of interest expenses claimed, for instance a signed copy of the loan agreement
    • details of tax withheld, where applicable, and the date on which it was remitted to us.

    U – Royalty expenses overseas

    Write at U the royalty expenses incurred during the income year to non-residents. If an amount is reported at U, complete and attach an International dealings schedule 2021.

    An amount of tax (withholding tax) is generally withheld from royalties paid or payable to non-residents and overseas branches of residents, and must be remitted to the ATO. If you have withheld amounts from payments to non-residents, you may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report (NAT 7187) by 31 October 2021. For more information, phone 13 28 66.

    Record keeping

    Keep a record of the following:

    • names and addresses of recipients
    • amounts paid or credited
    • documentation that identifies the nature of the benefit derived, for example, a signed copy of the royalty agreement
    • details of tax withheld, where applicable, and the date on which it was remitted to us.

    W – Royalty expenses within Australia

    Write at W the royalty expenses paid during the income year to Australian residents.

    Record keeping

    Keep a record of the following:

    • names and addresses of recipients
    • amounts paid
    • nature of the benefit derived, for example, a copy of the royalty agreement
    • details of amounts withheld, where applicable, and the date on which they were remitted to us.

    X – Depreciation expenses

    If the company is an eligible small business entity and has chosen to use the simplified depreciation rules, see Small business entities. Otherwise see All other companies below.

    Show the depreciation expenses of small business entities using the simplified depreciation rules as tax values, at X Depreciation expenses item 6 (see Small business entities).

    All other companies

    Show at X the book depreciation expenses for depreciating assets.

    Do not include:

    • profit on sale of depreciating assets, shown at Income, R Other gross income item 6
    • loss on sale of depreciating assets, shown at Expenses, S All other expenses item 6.

    If an amount is written at X, make reconciliation adjustments at item 7 even if the depreciation expense is the same amount as the deduction for decline in value.

    For reconciliation purposes, split the amount written at X into R&D and non-R&D amounts when adding back at item 7. Include non-R&D amounts at W Non-deductible expenses item 7 when adding back.

    Include R&D amounts at D Accounting expenditure in item 6 subject to R&D tax incentive item 7 when adding back.

    Write the deduction for decline in value of most depreciating assets at F Deduction for decline in value of depreciating assets item 7. If a depreciating asset is subject to the R&D tax incentive, this amount will form part of your notional R&D deduction. Eligible companies can claim this notional R&D deduction amount as an R&D tax offset.

    See also:

    Our Practice Statement PS LA 2003/8 Practical approaches to low-cost business expenses provides guidance on the threshold rule and the sampling rule taxpayers can apply to determine if their business expenses on low cost items are to be treated as revenue 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. Under the threshold rule, low-cost items with a typically short life costing $100 or less are assumed to be revenue in nature and are immediately deductible. The sampling rule allows taxpayers with a low-value pool to use statistical sampling to determine the proportion of the total purchases on low-cost tangible assets that are revenue expenditure.

    Small business entities

    In this section:

    Small business concessions: changes to simplified depreciation rules

    Small businesses using the simplified depreciation rules have access to temporary full expensing. You cannot opt out of temporary full expensing for assets that the simplified depreciation rules apply to. For assets purchased from 7:30pm (AEDT) on 6 October 2020 until 30 June 2022, you must write-off the taxable purpose portion of eligible depreciating assets of any value in the income year they are first held and first used, or installed ready for use, for a taxable purpose. These assets are not added to your small business pool.

    Under temporary full expensing you must also claim a deduction for the cost of improvements made from 7.30pm (AEDT) on 6 October 2020 to 30 June 2022 to an asset that you have written off under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction for the taxable purpose portion of the improvement cost and no threshold applies.

    If temporary full expensing does not apply for an asset, where applicable, you must claim an immediate deduction under instant asset write-off for assets you first start to use, or have installed ready for use, for a business purpose from 12 March 2020 to 30 June 2021, if they cost less than $150,000 each, provided the asset is purchased by 31 December 2020.

    Assets you purchased for their threshold amount or more are placed into a small business pool. Some of these assets may have an accelerated rate of depreciation when they are added to the pool under the Backing business investment – accelerated depreciation rules.

    For income years ending between 7:30pm AEDT on 6 October 2020 and 30 June 2022, you deduct the entire balance of the small business pool (there is no threshold for that period). For more information about which new accelerated depreciation measure applies to an asset, see Interaction of tax depreciation incentives.

    Small business entities that have previously elected out of the simplified depreciation rules are no longer subject to the ‘lock-out’ rule (which prevented small businesses from re-entering the simplified depreciation regime for five years if they had opted out). These entities may re-elect to use the simplified depreciation rules.

    The suspension of the five year restriction only applies from 12 May 2015 to the end of an income year that includes 30 June 2022.

    If the company is an eligible small business entity and has chosen to use the simplified depreciation rules, write at X the total depreciation deductions being claimed under the simplified depreciation rules and the uniform capital allowances (UCA) rules. You must also complete item 10 Small business entity simplified depreciation if you claim instant asset write-off. Also complete items 9S and T if you claim temporary full expensing.

    Some depreciating assets are excluded from these simplified depreciation rules but a deduction may be available under the UCA or the R&D depreciating asset regime.

    For more information about the small business entity depreciation rules, see Simpler depreciation for small business or phone 13 28 66.

    Calculating depreciation deductions for small business entities

    Use the following steps 1 to 6 to calculate the depreciation deductions only if the company is an eligible small business entity and has chosen to use the simplified depreciation rules.

    If the company’s profit and loss statement provides the amounts to complete worksheet 1, write these amounts in the worksheet. Otherwise, use steps 1 to 6 to calculate its depreciation deductions.

    The amounts in the table must be tax and not accounting values.

    Step 1: Deduction for certain assets (costing less than the relevant instant asset write off threshold or using temporary full expensing)

    For each depreciating asset the company purchased any time from 7.30pm (AEST) on 12 May 2015 to before 7.30pm (AEDT) on 6 October 2020 and first used or installed ready for use for a taxable purpose such as for producing assessable income in 2020-21:

    • you deduct the business portion of eligible depreciating assets costing less than $150,000 each (excluding input tax credit entitlements) under instant asset write-off.

    For assets you start to hold, and first use (or have installed ready for use) for a taxable purpose any time between 7.30pm (AEDT) 6 October 2020 and 30 June 2022, the instant asset write-off threshold does not apply. You must immediately deduct the business portion of the asset's cost under temporary full expensing.

    Under temporary full expensing, you must also claim a deduction for the cost of improvements made from 7.30pm (AEDT) on 6 October 2020 to 30 June 2022 to an asset that you have written off under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction at this step for the business portion of the improvement cost and no threshold applies. Any later improvements are added to the small business pool.

    For assets which qualify for a deduction under the small business entity depreciation rules, work out the extent it is used for the purpose of producing assessable income (taxable purpose proportion).The deduction for each eligible asset is calculated as:

    asset’s adjustable value × its taxable purpose proportion

    The adjustable value of an asset is its cost less its decline in value since it was first used, or installed ready for use, for any purpose, whether business or private. The adjustable value of an asset, at the time it was first used, or installed ready for use, for a taxable purpose, will be its cost unless the asset was previously used, or installed ready for use, by the company solely for non-taxable purposes. For example, for a truck bought on 1 October 2020 at a cost of $149,990 (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 $149,990 × 70% = $104,993.

    Add up all of the amounts from this step and write the total at a in worksheet 1.

    Do not include in this calculation:

    • amounts for depreciating assets that the company started to hold before starting to use the simplified depreciation rules and that cost less than the relevant instant asset write-off threshold. These assets are allocated to the general small business pool (see step 2).
    • amounts for depreciating assets that cost the same as or more than the relevant instant asset write-off threshold, even if the taxable purpose proportion is less than the relevant instant asset write-off threshold. Such assets must be allocated to the general small business pool (see step 2). For example, if the truck in the above example cost $150,200 (excluding input tax credit entitlements), the taxable purpose proportion is $105,140 ($150,200 × 70%). On 1 October 2020 the instant asset threshold was $150,000. However, you cannot obtain an instant deduction and the truck must still be allocated to the general small business pool because its cost is not less than the relevant threshold at the time it was first used.

    Are you lodging a part year return for the 2020-21 income year for a period that ended before 7.30pm AEDT on 6 October 2020?

    • If Yes – Go to Step 2
    • If No – Go to Step 2A
    Step 2: Opening balance of the general small business pool

    For companies previously using the simplified depreciation rules, the opening balance of the general small business pool is the closing pool balance for the previous income year, adjusted to reflect any changed business use of a pooled asset.

    For companies which have not previously used the simplified depreciation rules, the opening pool balance is the sum of the taxable purpose proportions of the adjustable values of those depreciating assets that are used, or held for use, just before the start of 2020-21, and that are not excluded from the simplified depreciation rules.

    When allocating each depreciating asset that the company holds at the start of the income year to the general small business pool only include the taxable purpose proportion of the adjustable value of each depreciating asset.

    For example, for an asset with an adjustable value of

    • $50,000 at the start of 2020-21 which is used only 60% for an income-producing purpose, add only $30,000 to the pool.

    The company can choose not to allocate an asset to the general small business pool if the asset was first used, or installed ready for use, for a taxable purpose before 1 July 2001. A company making this choice would depreciate such assets under the normal UCA rules.

    Calculate the opening pool balance for the general small business pool by adding the value of all depreciating assets allocated to the pool. Calculate the deduction for the general small business pool and complete as follows:

    Opening pool balance $ × 30%

    Write the result at b in worksheet 1.

    Go to Step 3

    Step 2A: General small business pool balance

    For companies previously using the simplified depreciation rules, the opening balance of the general small business pool is the closing pool balance for the previous income year, adjusted to reflect any changed business use of a pooled asset.

    For companies which have not previously used the simplified depreciation rules, the opening pool balance is the sum of the taxable purpose proportions of the adjustable values of those depreciating assets that are used, or held for use, just before the start of 2020-21, and that are not excluded from the simplified depreciation rules.

    Calculate your pool balance at the end of the year using the following steps:

    1. the opening pool balance, plus
    2. 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 (these are the assets that have not been written off in step 1), plus
    3. the taxable purpose proportion of any cost addition amounts for assets in the pool during the year (these are the improvements to assets that have not been written off in step 1), less
    4. the taxable purpose proportion of the termination value of any pooled assets disposed of during the year. If the company disposes of depreciating assets that have been allocated to the general small business pool, the taxable purpose proportion of the termination value is deducted from the closing pool balance, for example, for a pooled depreciating asset used only 60% for an income-producing purpose which was sold for $3,000 (excluding GST) only $1,800 will be deducted from the closing pool balance.

    If the result of applying a to d above (the balance of the pool) is greater than zero for the 2020-21 income year, you claim an immediate deduction for this amount. Write the result at b in worksheet 1.

    If the closing pool balance is less than zero, include the amount below zero in the company’s assessable income at B Other assessable income item 7. For more information about closing pool balances.

    The closing pool balance for this year becomes the opening pool balance for 2021–22, after any adjustments to reflect the changed business use of a pooled asset. Where you write off the entire pool balance your closing pool balance for 2020-21 will be zero.

    The company will need its closing pool balance to work out the pool deduction for next year. Do not write the closing pool balance on the company’s tax return.

    Go to Step 4

    Step 3: Depreciating assets first used for a taxable purpose during the income year and cost addition amounts for assets already allocated to a pool

    Do not complete this step if you completed Step 2A.

    You do not include at this step:

    • Assets for which you claimed an immediate deduction for their business portion at Step 1.
    • Improvement costs for which you claimed an immediate deduction for their business portion at Step 1.

    The company calculates the deduction for the income year as follows:

    • the taxable purpose proportion of the adjustable value of each depreciating asset first used for a taxable purpose during the year ended 30 June 2021 multiplied by 15% (57.5% for certain new assets of $150,000 or more first held from 12 March 2020 to 7.30pm AEDT 6 October 2020 which are eligible for backing business investment) for general small business pool assets, plus
    • 15% for cost addition amounts during 2020–21 for assets already allocated to the pool (that have not been claimed under temporary full expensing). Cost addition amounts include the costs 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 cost of demolishing the asset.

    Add up these results and write the total deduction for general small business pool assets at c in worksheet 1.

    Go to Step 4

    Step 4: Other depreciating assets

    Calculate the deduction for the decline in value of all the other depreciating assets of the company that are not included in Steps 1 to 3. For information on how to calculate the decline in value of these assets, see the Guide to depreciating assets 2021.

    Write the company’s total deduction at d in worksheet 1.

    Do not include at d in worksheet 1 depreciating assets that qualify for a deduction under Subdivision 40-F or 40-G of the ITAA 1997 as water facilities, fencing assets, fodder storage assets or landcare operations in the company’s primary production business and for which the company has chosen to claim a deduction under these subdivisions and not under the small business entity depreciation rules. Include these deductions at N Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset item 7.

    Go to Step 5

    Step 5: Disposal of depreciating assets

    Step 5a Certain assets less than the relevant instant asset write-off threshold (low-cost assets)

    If the company has disposed of a low-cost asset for which it has claimed an immediate deduction in step 1 this year or in a previous year, it must include the taxable purpose proportion of the termination value at B Other assessable income item 7. 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, for example, for a low-cost asset used only 60% for an income-producing purpose that was sold for $200 (excluding GST) only $120 will be assessable and included as a reconciliation adjustment.

    For example, the company acquired an asset on 1 February 2018 for $6,400 for 100% taxable use and claimed an immediate write-off under the threshold which existed at that time. The company disposed of the asset at arm's length on 1 February 2021 for $3,000 (excluding GST). Include $3,000 as income at B Other assessable income item 7.

    Step 5b Assets allocated to the general small business pool

    Do not complete this step if you completed Step 2A.

    If the company disposes of depreciating assets that have been allocated to the general small business pool, the taxable purpose proportion of the termination value is deducted from the closing pool balance. For example, for a pooled depreciating asset used only 60% for an income-producing purpose which was sold for $3,000 (excluding GST) only $1,800 will be deducted from the closing pool balance.

    Write this deduction against general small business pool assets at b in worksheet 1.

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

    Step 5c Other depreciating assets

    For information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets, see the Guide to depreciating assets 2021.

    Include assessable balancing adjustment amounts at B Other assessable income item 7. Include deductible balancing adjustment amounts at X Other deductible expenses item 7. See worksheet 2.

    Step 6 Closing pool balance

    Do not complete this step if you completed Step 2A.

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

    1. the opening pool balance (see step 2), plus
    2. 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 step 3), plus
    3. the taxable purpose proportion of any cost addition amounts for assets in the pool during the year (see step 3), less
    4. the taxable purpose proportion of the termination value of any pooled assets disposed of during the year (see step 5b), less
    5. the general small business pool deduction (see step 2), less
    6. the deduction for assets first used by the taxpayer during the year (see step 3), less
    7. the deduction for any cost addition amounts for pooled assets during the year (see step 3).

    If the company’s closing pool balance is less than zero, include the amount below zero in the company’s assessable income at B Other assessable income item 7.

    The company claims an immediate deduction if the balance of the pool is less than $150,000 (being the relevant instant asset write-off threshold from 12 March 2020) and writes this amount at b in worksheet 1.

    The closing pool balance for this year becomes the opening pool balance for 2021–22, after any adjustments to reflect the changed business use of a pooled asset. Where you write off the entire pool balance your closing pool balance for 2020-21 will be zero.

    The company will need its closing pool balance to work out the pool deduction for next year. Do not write the closing pool balance on the company’s tax return.

    Worksheet 1: Depreciation deductions (small business entities using simplified depreciation only)

    Row

    Calculation element

    Total

    a

    Certain assets (immediately written-off under temporary full expensing or instant asset write-off)

    $

    b

    General small business pool

    $

    c

    General small business pool (½ rate)

    $

    d

    Other assets

    $

    e

    Depreciation expenses: add a to d

    $

    Transfer the amount at e to X Depreciation expenses item 6.

    Transfer the amount at a to A Deduction for certain assets item 10.

    Transfer the total of the amounts at b and c to B Deduction for general small business pool item 10.

    Five-year restriction

    The law has been changed to suspend the 5 year 'lock out' rule that applies to small business entities that have previously chosen to use these simplified depreciation rules but have opted-out in a later year.

    If the company is a small business entity that has previously chosen to use these simplified depreciation rules but in a later year has chosen to stop using this concession, the company can again choose to use the simplified depreciation rules for income years including 30 June 2021 and 30 June 2022..

    Y Motor vehicle expenses

    Write at Y motor vehicle running expenses only. These expenses include fuel, repairs, registration fees and insurance premiums. They do not include the expenses shown at:

    • F Lease expenses within Australia item 6
    • I Lease expenses overseas item 6
    • V Interest expenses within Australia item 6
    • J Interest expenses overseas item 6
    • X Depreciation expenses item 6.

    Z – Repairs and maintenance

    Write at Z the expenditure on repairs and maintenance of plant, machinery, implements and premises.

    If the company has any item of a capital nature at Z, add it back at W Non-deductible expenses item 7.

    Provided it is not expenditure of a capital nature, the company may deduct the cost of repairs to property, plant, machinery or equipment used for producing assessable income or in carrying on a business for that purpose. Deductions for expenditure on repairs to property must be reduced to reflect the extent to which the property is not used for an income-producing purpose, for example, where the property is also used for private purposes, or in the production of exempt income.

    If items are newly acquired, including by way of a legacy or gift, the cost of remedying 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 when incurred. However, it may be subject to depreciation under the UCA or another capital allowance regime. For more information on deductions for repairs, see Taxation Ruling TR 97/23 Income tax: deductions for repairs.

    G – Unrealised losses on revaluation of assets to fair value

    Write at G the amount of any unrealised loss made on the revaluation of assets and liabilities to fair value that may arise as a result of the adoption of Australian equivalents to the international financial reporting standards.

    • Include any unrealised loss on the revaluation of a financial arrangement to fair value deductible under the TOFA rules.
    • Adjustments for tax purposes are made at item 7.
    • An unrealised loss that is not deductible is added back at W Non-deductible expenses item 7.
    • Any net capital gain for taxation purposes is included at A Net capital gain item 7.
    • Any net capital loss is included with any unapplied capital losses carried forward to later income years and is written at V Net capital losses carried forward to later income years item 13.

    S – All other expenses

    Write at S the total of all other expenses including losses on the disposal of depreciating assets (including assets used in R&D activities subject to the R&D tax incentive).

    Include at S any losses from the company’s financial arrangements to which the TOFA rules apply, except where they have already been included at item 6.

    Also include at S any extraordinary expenses, that is, expenses or losses from events outside the ordinary operations of the company and not of a recurring nature. An extraordinary loss that is not deductible is added back at W Non-deductible expenses item 7.

    S excludes amounts included at Expenses, B to G item 6.

    Calculation of some deductions may be affected by the commercial debt forgiveness provisions, see Appendix 1.

    Q – Total expenses

    Write at Q the total of all expense items written at B to S item 6.

    If there is a negative amount at A Cost of sales that exceeds the total of the Expenses at B and C to S, print L in the box at the right of the amount at Q.

    T – Total profit or loss

    Write the company’s total profit or loss at T. Total profit or loss is the amount written at Income, S Total income, less the amount written at Expenses, Q Total expenses. If this amount is a loss, print L in the box at the right of the amount at T.

    Next step:

    Last modified: 27 May 2021QC 64886