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  • Income (excluding foreign income) – items 5 to 15

    In this section:

    5. Business income and expenses

    In this section:

    The amounts you include here, at business income C to and D to H, and expenses P to N, are accounting system amounts subject to two exceptions for small business entities. These exceptions relate to the expenses and apply where small business entities choose to use:

    For more information on small business entities, see Appendix 14.

    The accounting system amounts are shown or included on the business profit and loss statements and form the basis of the calculation of the business net profit or loss. Make adjustments to these accounting amounts for tax purposes at item 5 Reconciliation items.

    Goods and services tax (GST) is payable by entities that are registered, or required to be registered, for GST. If GST is payable on income, exclude the GST from the income derived. Exclude input tax credit entitlements on outgoings from deductions. Some GST adjustments (for example, occurring where the percentage of business use of an asset changes) may be included in assessable income or allowed as deductions.

    Only include at item 5:

    • business income amounts derived directly by the partnership. Include distributions received from other partnerships and trusts at item 8 Partnerships and trusts
    • Australian-sourced income.

    Include foreign source income at:    

    • item 22 Attributed foreign income
    • item 23 Other assessable foreign source income.

    Income and expenses are divided into three columns:

    • primary production, showing relevant amounts of income and expenses from primary production
    • non-primary production, showing relevant amounts of income and expenses from non-primary production
    • totals, showing the total of the amounts within the previous two columns.

    Income subject to foreign resident withholding is shown only at B in the 'Non-primary production' column and the 'Totals' column.

    If the partnership is eligible and is continuing to use the simplified tax system (STS) accounting method, see Former STS taxpayers. Otherwise, see the information for All partnerships.

    See also:

    Former STS taxpayers

    Continued use of the STS accounting method

    Although the STS has now ceased, a partnership may continue using the STS accounting method for 2020–21 if it:

    • was an STS taxpayer continuously from the income year that started before 1 July 2005 (that is from 2004-05) until the end of 2006-07
    • used the STS accounting method from 2006–07 to 2020-21, and
    • is a small business entity for 2020–21.

    If the partnership 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 recognises most income only when received. A partnership that is eligible to continue using the STS accounting method can claim deductions for the following expenses only when they are paid:

    • general deductions, for example, stock purchases, wages and rent of business premises
    • tax-related expenses
    • expenses for repairs.

    If the partnership is registered or required to be registered for GST, exclude GST payable from income amounts and input tax credit entitlements from deductions.

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

    In addition, if another provision of the income tax law apportions or alters the assessability or deductibility of a particular type of ordinary income or general deduction, the timing rule in the specific provision overrides the received or paid rule under 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 5 Reconciliation items.

    Accordingly, base the amounts at item 5 Reconciliation items on the STS accounting method where applicable. If the partnership is continuing to use the STS accounting method and its profit and loss statement does not reflect the STS accounting method rules, you may need to make additional adjustments to show the correct amounts at items QR and S for Net income or loss from business. For more information about these adjustments, see item 5 Reconciliation items.

    Ceasing use of the STS accounting method

    If the partnership has discontinued using the STS accounting method, business income and expenses that have not been accounted for (because they have not been received or paid), will be accounted for in this year. You may need to make additional reconciliation adjustments, see Appendix 14.

    Income (all partnerships)

    In this section:

    Gross payments where ABN not quoted

    Show at C and item 5, as appropriate, gross income received by the partnership that was subject to withholding where an ABN was not quoted. This includes amounts of tax withheld.

    If you show an amount at or D, complete a Non-individual PAYG payment summary schedule 2021 and attach the completed schedule to the partnership tax return. For instructions on completing this schedule, see Non-individual PAYG payment summary schedule.

    If you complete C or D, show the corresponding amount of tax withheld where an ABN was not quoted at item 6.

    Gross payments subject to foreign resident withholding (excluding capital gains)

    Complete only if a partnership received gross payments subject to foreign resident withholding.

    Show at item 5 gross payments to the partnership that were regulated foreign resident income. Gross payments includes amounts withheld.

    Regulated foreign resident income refers to payments which are prescribed in the Taxation Administration Regulations 2017External Link (and former Tax Administration Regulations 1976) as being subject to the foreign resident withholding measure.

    Do not include payments where the amount was varied to nil under the foreign resident withholding measure because the income was not taxable under a tax treaty (also referred to as double tax agreement).

    Do not show at this item amounts subject to foreign resident capital gains withholding.

    If an amount is shown at B, complete a Non-individual PAYG payment summary schedule 2021 and attach the completed schedule to the partnership tax return. For instructions on completing this schedule, see Non-individual PAYG payment summary schedule.

    Broadly, the foreign resident withholding regime applies to foreign residents who engage in certain regulated categories of activities in Australia, such as foreign residents involved in sport, entertainment, and building and construction. Only foreign residents should complete this entry. An Australian resident should not include an amount, such as foreign sourced income, at this entry.

    Show gross distributions of regulated foreign resident income from other partnerships and trusts at item 8. A Non-individual PAYG payment summary schedule 2021 is not required for these distributions because they do not have an associated payment summary.

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

    Assessable government industry payments

    Generally, government grants, rebates, 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 amounts of a capital nature. However, amounts relating to the starting or ceasing of a business may not be assessable.

    However, 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 cash flow boost payments have been included as income in the partnership accounts, they can be reported at G and H, as appropriate, item 5 other business income and then included in the calculation of the Income reconciliation adjustments amount shown at A as an income subtractions item.
    • Commonwealth and State government grants and payments that are tax-free.

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

    Show at and F, as appropriate, the total amount of assessable government industry assistance. Examples are:

    • bounties
    • employee subsidies
    • export incentives grants
    • fuel tax credits
    • industry restructure and adjustment payments
    • JobMaker hiring credits
    • JobKeeper payments (COVID-19)
    • Supporting Apprentices and Trainees wage subsidy (COVID-19)
    • product stewardship (oil) benefit
    • alcohol manufacturer refund
    • producer rebate (wine equalisation tax).

    If the amount at or F includes fuel tax credit or a product stewardship (oil) benefit, print D in the CODE box at the right of the amount.

    Medical practices should show their Medicare payments at H Other business income, not at F Assessable government industry payments.

    JobKeeper reporting

    The accounting basis you use determines the way you report JobKeeper payments.

    Accruals accounting basis

    JobKeeper payments are derived when the entity 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 entity receives those payments. Payments received on or before 30 June 2021 are assessable in 2020–21.

    JobMaker hiring credit reporting

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

    Accruals accounting basis

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

    See also:

    Other business income

    Show at and H, as appropriate, other business income, such as revenue from the sale of goods, services rendered, disposal of depreciated assets, work in progress amounts assessable under section 15–50 of the ITAA 1997, and royalties.

    If the TOFA rules apply to the partnership, include other business income from financial arrangements subject to the TOFA rules at or H.

    Do not include amounts that are shown at CDBand F.

    If the amount at G or H is a loss, print L in the box at the right of the loss amount.

    If you have included an amount for profit on the sale of depreciating assets at or H, see Balancing adjustment amounts in Appendix 6.

    Expenses

    Apart from two exceptions for small business entities mentioned below, the amounts shown at to N item 5 are amounts derived from the accounting system or financial statements of the partnership. Make any adjustments to these amounts for tax purposes at item 5 Reconciliation items, B Expense reconciliation adjustments.

    Small business entities using the simplified trading stock rules should use tax values for their closing stock in calculating their cost of sales shown at E.

    Small business entities using the simplified depreciation rules should use tax values for their depreciation expenses at K.

    If the partnership is registered or required to be registered for GST, exclude input tax credit entitlements on outgoings from deductions.

    If any expenses have been prepaid, the prepayment provisions may affect the timing of the deduction that can be claimed. Generally, the partnership will need to apportion its deduction for prepaid business expenditure over the service period or 10 years, whichever is less. There are some exceptions to this under the 12-month rule for partnerships that are small business entities or would be small business entities if the aggregated turnover threshold was less than $50 million. If the amounts shown under any expense label at item 5 differ from the amount allowable as deductions in 2020–21, make a reconciliation adjustment at item 5 B.

    See also:

    In this section:

    Foreign resident withholding expenses

    Show at item 5 all expenses directly relating to gaining the income shown at item 5 B Gross payments subject to foreign resident withholding. These amounts should not be shown at any other expenses label in item 5. Do not include any expenses incurred in gaining income not assessable in Australia.

    Do not include at this item expenses in relation to amounts subject to foreign resident capital gains withholding.

    Only foreign residents should complete this entry. An Australian resident should not include expenses, such as expenses incurred in deriving foreign sourced income, at this entry.

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

    Contractor, sub-contractor and commission expenses

    Show 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
    • commissions paid to people not receiving a retainer
    • agency fees, for example, advertising
    • service fees, for example, plant service
    • management fees
    • consultant fees.

    Do not include the following at C:

    • expenses for external labour which are incorporated into the amount shown at E Cost of sales
    • expenses for accounting or legal services. Show these at N All other expenses.

    You must also keep records of these transactions. See Record-keeping requirements. Your records must include:

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

    Superannuation expenses

    Show at D the employee superannuation expenses incurred for the income year.

    Employers are entitled to a deduction for contributions made to a complying superannuation fund or retirement savings account (RSA).

    You can claim a deduction in the income year in which the contributions are made. Generally speaking, contributions are considered to be made when they are received by the superannuation fund. For more information on when the contributions are made see Taxation Ruling TR 2010/1.

    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 in respect of 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.

    See also:

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

    Employers can claim a deduction for superannuation contributions made in respect of a former employee where:

    • the contribution reduces an employer's charge percentage under the Superannuation Guarantee (Administration) Act 1992
    • the contribution is a one-off payment in lieu of salary or wages that relate to the employee’s period of service, or
    • the contribution is made within four months after the employee has ceased employment (there is no time limit for contributions to a defined benefit fund).

    Contributions made to a non-complying fund:

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

    Under the superannuation guarantee legislation, an employer needs to provide a minimum level of superannuation for employees by the quarterly due dates, or be liable for the superannuation guarantee charge (SGC). Where the SGC is incurred, an SGC statement needs to be lodged and the SGC is paid directly to us.

    If you don't pay an employee's super on time, you are liable for the SGC, even if you make the payment later. The Commissioner has no discretion to remit any part of the SGC.

    If you have paid late, you should either apply the late payments to future quarters or lodge SGC statements. You may be able to elect to apply late payment offsets (LPO) to reduce the SGC liability. LPO can only be used for those contributions paid before a SGC assessment is raised.

    The SGC paid to us is not a superannuation contribution and is not tax deductible. Contributions paid to a complying super fund are deductible however, late contributions lose their deductibility when the LPO is elected.

    Contributions paid by an employer for employees to a non-complying superannuation fund are fringe benefits and may be subject to tax under the Fringe Benefits Tax Assessment Act 1986External Link.

    Cost of sales

    Small business entities

    If the partnership is a small business entity using the simplified trading stock rules, it will need to know the value of its closing stock in order to calculate cost of sales. Small business entities only need to account for changes in the value of their trading stock in limited circumstances. If the partnership does not need to account for the change in value of closing stock, its closing stock will equal its opening stock value. If the partnership does need to account for the change in value of closing stock, or chooses to do so, then for information about how to calculate the closing stock value, see item 41. Closing stock.

    All partnerships

    Show at item 5 the total 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 recorded 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. Do not print brackets around the 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 TR 98/7 Income tax: whether packaging items (ie, containers labels, etc) held by a manufacturer, wholesaler or retailer are trading stock.

    Bad debts

    Show at F item 5 the bad debts expense incurred for the income year.

    • Show recovery of bad debts at G or H as appropriate at Other business income.
    • You can't claim a deduction for bad debts under subsection 25-35(1) of the ITAA 1997 unless the debt which is bad has previously been included in assessable income and it relates to money lent in the ordinary course of the business of lending of money by a partnership carrying on that business, or it represents a business loss or outgoing of a revenue nature.
    • Do not include accounting provisions for doubtful debts at F. Show these under all other expenses at N, then add them back at B Expense reconciliation adjustments. To calculate the amount of the expense reconciliation adjustment, see Worksheet 1.
    • Before a bad debt can be claimed, it must be bad and not merely doubtful. The deduction depends upon the facts in each case and, where applicable, the action taken for recovery. For more information, see TR 92/18 Income tax: bad debts.

    You can claim a deduction for partial debt write-offs where only part of a debt is bad and is written off. You can claim a deduction for the amount written off.

    Deductions for bad debts may be reduced by the commercial debt forgiveness provisions. See Appendix 4.

    You can claim a deduction for losses incurred in debt and equity swaps for debt written off. You may be able to claim a deduction for a debt and equity swap by the partnership, if the provisions of sections 63E to 63F of the ITAA 1936 are satisfied. Under these provisions, 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. 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.

    If the TOFA rules apply to the partnership, include all the partnership's bad debts from financial arrangements subject to the TOFA rules at item 5.

    Record keeping

    If the partnership writes off bad debts during the income year, you must keep a statement for all debt in respect of which a write-off occurred. You are required to keep this statement for five years. For each debt written off, the statement should show:

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

    For more information, see Overview of record keeping rules for business.

    Lease expenses

    Show at item 5 the expenditure incurred through both finance and operating leases on leasing assets, such as motor vehicles, plant or other equipment. Do not include the cost of leasing real estate (show this cost at H Rent expenses).

    If you include capital expenditure incurred to terminate a lease or licence you will need to add back the amount at B Expense reconciliation adjustments. Although capital expenditure to terminate a lease or licence is not deductible in one year, a five-year straight-line write-off may be allowable (see section 25–110 of the ITAA 1997) for certain capital expenditure incurred to terminate a lease or licence if the expenditure is incurred in the course of carrying on a business, or in connection with ceasing to carry on a business; see Worksheet 1.

    Expenses incurred under a hire-purchase or instalment-sale agreement of goods are not lease expenses. Such expenses are referred to in Appendix 6.

    In some circumstances, lease expenses may be debt deductions for the purposes of the thin capitalisation rules. For information on thin capitalisation, see Appendix 3.

    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 us. This is also subject to the operation of any relevant tax treaty (also referred to as double tax agreement). 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 by 31 October 2021.

    If an amount of lease expense is not allowable as a deduction, such as amounts disallowed under the thin capitalisation rules, or capital expenditure incurred to terminate a lease or licence, add back the amount at B Expense reconciliation adjustments.

    Record keeping

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

    • a description of the items leased
    • full particulars of the lease expenses for each item, including motor vehicles, showing      
      • to whom 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 the arrangement including to whom the payments were made
       
    • details of use other than for producing assessable income
    • any documentation on or relating to the lease of the items.

    For more information, see Overview of record-keeping rules for business.

    Rent expenses

    Show at item 5 the expenditure incurred as a tenant for the rental or lease of land and buildings used in the production of income.

    Total interest expenses

    Show at item 5 the interest incurred on money borrowed within Australia and overseas that relates to producing Australian income and that is to acquire income-producing assets, to finance business operations or to meet currentbusiness expenses.

    If the TOFA rules apply to the partnership, include all interest incurred on money borrowed within Australia and overseas to acquire income-producing assets, to finance business operations or to meet currentbusiness expenses from financial arrangements subject to the TOFA rules at I.

    Do not include interest expenses claimable against rental income. Interest deductions relating to rental income are shown at item 9.

    An amount of tax (withholding tax) is generally withheld from interest paid or payable to non-residents and to overseas branches of residents. You must remit this to us. 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 by 31 October 2021.

    If you are required to withhold an amount from interest paid or payable to non-residents and to overseas branches of residents, and either have not withheld or not remitted the amount to the ATO, you can't claim the interest deduction until the amount is paid to the ATO.

    The thin capitalisation rules may apply to reduce interest deductions. These rules place a limit on the amount of interest and other loan costs that can be deducted for Australian tax purposes. For more information, see Appendix 3. Include the disallowed amount at B Expense reconciliation adjustments.

    You may not be able to claim interest in certain situations, for example, if it has been incurred for private or domestic purposes, or for vacant land.

    Show the amount of interest not allowable at B Expense reconciliation adjustments.

    Record keeping

    If interest is paid to non-residents or to overseas branches of residents, you must keep a record of the:

    • name and address of recipient
    • amount of interest paid or credited
    • amount of withholding tax withheld and the date on which it was remitted to us
    • period in which the payments were made
    • ABN or TFN (if known).

    For more information, see Overview of record-keeping rules for business.

    Total royalty expenses

    Show at J the royalty expenses for the income year. Include royalties paid to residents and non-residents.

    An amount of withholding tax is generally withheld from royalties paid or payable to non-residents and to overseas branches of residents. You must remit this to us. 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 by 31 October 2021.

    If you are required to withhold an amount from royalties paid or payable to non-residents and to overseas branches of residents, and either have not withheld or not remitted the amount to the ATO, you can't claim the royalty deduction until the amount is paid to the ATO.

    Record keeping

    You must keep a record of the:

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

    For more information, see Overview of record-keeping rules for business.

    See also:

    Depreciation expenses

    If the partnership is an eligible small business entity and has chosen to use the simplified depreciation rules, see Small business entities using simplified depreciation. Otherwise see General information for partnerships.

    General information for partnerships (excluding small business entities using simplified depreciation)

    Show at K the book depreciation expenses for depreciating assets other than for those assets allocated in a prior year to a general small business pool. For assets allocated to such a pool, include at this entry the amount of the pool deduction to be claimed for tax purposes.

    The amount at K does not include:

    • profit on the sale of a depreciating asset, shown at labels or H Other business income (under income at item 5)
    • any loss on the sale of a depreciating asset, shown at N All other expenses.

    The accounting or book depreciation may differ from the deduction for the decline in value of depreciating assets. Reconcile the deduction for the decline in value of depreciating assets with accounting depreciation at B Expense reconciliation adjustments.

    For more information about deductions for the decline in value of depreciating assets, see Appendix 6. You can also work out your decline in value by using the Depreciation and capital allowances tool.

    Simplifying tax obligations for business

    Our PS LA 2003/8 Practical approaches to low-cost business expenses provides guidance on two straightforward methods which can be used by taxpayers carrying on a business to help determine whether expenditure incurred to acquire certain low-cost items is to be treated as revenue or capital.

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

    A deduction for expenditure incurred on low-cost tangible assets calculated in accordance with this practice statement will be accepted by us.

    Small business entities not applying the simplified depreciation rules

    Small businesses that do not apply the simplified depreciation rules can claim, under temporary full expensing, an immediate deduction for the business portion of the cost of eligible assets that you first used, or have installed ready for use, for a taxable purpose between 7.30pm AEDT 6 October 2020 and 30 June 2022, and where no balancing adjustment event has occurred in the same income year.

    Eligible small businesses can also deduct the business portion of cost of improvements to those new eligible depreciating assets, and to existing eligible depreciating assets, incurred between 7:30pm AEDT on 6 October 2020 and 30 June 2022.

    Small businesses that do not apply the simplified depreciation rules can op-out of temporary full expensing on an asset by asset basis, The choice is unchangeable once made and you must notify us by the day you lodge your income tax return for the income year to which the choice relates.

    For information about which new accelerated depreciation measure applies to an asset, see Interaction of tax depreciation incentives.

    The temporary full expensing measure is available to all entities with an aggregated turnover less than $5 billion, not just small business entities.

    See Temporary full expensing for further details on eligible assets and eligible businesses.

    Small Business entities using the simplified depreciation rules

    Small businesses using the simplified depreciation rules must apply temporary full expensing. You can't opt out of temporary full expensing for assets that the simplified depreciation rules apply to. For assets purchased between 7:30pm AEDT on 6 October 2020 and 30 June 2022, you write-off the taxable purpose portion of the cost of eligible depreciating assets of any value in the income year the asset is 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 business portion of the cost of any improvements made to a depreciating asset between 7.30pm AEDT on 6 October 2020 and 30 June 2022. Subsequent improvements made to the asset after those first improvements were made are added to the small business pool.

    Under temporary full expensing you must also claim a deduction for the cost of improvements made between 7.30pm AEDT on 6 October 2020 and 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 purchased that cost the relevant threshold amount or more are deducted over time using 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).

    See Temporary full expensing and Small business pool.

    The lock out rules – that prevent small business from re-entering simplified depreciation for five years after they opted out – are suspended for income years that include 30 June 2021 and 30 June 2022.

    For more information about which new depreciation measure applies to an asset, see Interaction of tax depreciation incentives.

    If the partnership is an eligible small business entity and has chosen to use the simplified depreciation rules, show at K the total depreciation deductions being claimed by the partnership under the simplified depreciation rules and the uniform capital allowances (UCA) rules.

    A small business entity choosing to use these simplified depreciation rules must use both the immediate write-off and the pooling, where applicable. You can’t choose to use one and not the other.

    Some depreciating assets are excluded from these simplified depreciation rules, but you may be able to claim a deduction under the UCA rules. Examples of assets excluded from the simplified depreciation rules are:

    • horticultural plants (including grapevines) are deducted under special UCA provisions as specified in Appendix 6
    • assets that are leased out, or will be leased out, by a small business entity for more than 50% of the time on a depreciating asset lease. You can generally claim a deduction under the UCA provisions.

    Depreciation deductions are generally available only to the legal owner of the asset, that is, to the partnership. However, a partnership is not entitled to claim a deduction for the decline in value of a depreciating asset it leases out under a hire-purchase agreement as the hire-purchase is treated as a sale of the asset to the hirer.

    For certain depreciating assets used by a small business entity in the course of carrying on a business of primary production, a taxpayer can choose whether to use these simplified depreciation provisions or specific UCA provisions. The specific UCA provisions are those applying to landcare operations, water facilities, fencing assets, fodder storage assets, electricity connections and telephone lines. However, deductions for these assets are not claimed by the partnership (unlike partnership assets depreciated under the general depreciation rules), but are allocated to each partner who can then claim for their share of the expenditure. For more information on these specific UCA provisions, see Appendix 6.

    As the small business entity depreciation rules apply only to depreciating assets, certain capital expenditure incurred by a small business entity which does not form part of the cost of a depreciating asset may be deducted under the UCA provisions. This includes capital expenditure on certain business-related costs and amounts directly connected with a project. Do not include these amounts at K. Show the amount that you can claim as a deduction at B Expense reconciliation adjustments.

    For more information on the UCA provisions, see Appendix 6.

    For more information about the small business entity depreciation rules, see Simpler depreciation for small business.

    Calculating depreciation deductions for small business entities

    Only use steps 1 to 6 below to calculate the depreciation deductions if the partnership is an eligible small business entity and has chosen to use these simplified depreciation rules.

    If the profit and loss statement of the partnership provides the amounts to complete Table 2, write these amounts in the table; otherwise, use steps 1 to 6 to calculate the depreciation deductions. You can also work out your decline in value by using the Depreciation and capital allowances tool.

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

    Table 1: Explanation of terms

    Term

    Explanation

    Depreciating asset

    An asset with a limited effective life which declines in value over that life

    Decline in value (previously ‘depreciation’)

    The value that an asset loses over its effective life

    Adjustable value of a depreciating asset

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

    Taxable purpose

    Includes the purpose of producing assessable income

    Taxable purpose proportion

    The extent to which you use the asset for a taxable purpose, such as for the purpose of producing assessable income

    Termination value

    Includes money received from the sale of an asset or insurance money received as the result of the loss or destruction of an asset

    Excludes the GST component where the amount received is for a taxable supply

    Assessable balancing adjustment amount

    Arises where the termination value of the depreciating asset is more than the adjustable value

    Deductible balancing adjustment amount

    Arises where the termination value of the depreciating asset is less than the adjustable value

    Cost addition amounts

    Includes 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 costs of demolishing the asset)

    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 you 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 taxable business proportion 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 between 7.30pm AEDT on 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 between 7.30pm AEDT on 6 October 2020 and 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 an asset which qualifies for a deduction under the small business simplified depreciation rules, work out the extent it is used for the purpose of producing assessable income (taxable purpose proportion).

    Calculate the deduction for each eligible asset as follows:

    asset’s adjustable value multiplied by asset's taxable purpose proportion

    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 partnership solely for private 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 these results and write the total at (a) in Table 2.

    Do not include in this calculation:

    • amounts for depreciating assets the partnership started to hold prior to commencing to use the simplified depreciation rules and that cost less than the relevant threshold (Allocate these assets to the general small business pool –see step 2 or step 2A below.)
    • amounts for depreciating assets that cost the relevant instant asset write-off threshold or more. Such assets must be allocated to the general small business pool (see step 2) even if the taxable purpose proportion is less than the threshold. For example, if the truck above cost $150,200 when the relevant threshold was $150,000, the taxable purpose proportion is $105,140 ($150,200 × 70%). However, you can't obtain an instant deduction and the vehicle must still be allocated to the general small business pool because its cost is not less than the relevant threshold ($150,000) 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?

    Yes – Go to Step 2

    No – Go to Step 2A

    Step 2
    Opening balance of the general small business pool

    The opening pool balance of the general small business pool is the closing pool balance for the previous income year, except where an adjustment is made to reflect the changed business use of a pooled asset.

    For partnerships 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 were used, or held for use, just before the start of the 2020–21 income year, and that are not excluded from the simplified depreciation rules. When allocating each depreciating asset the partnership 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 $160,000 (first used or installed ready for use from 1 July 2020), which is used only 60% for an income-producing purpose, you add only $96,000 to the pool.

    You 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. Depreciate such assets under the normal uniform capital allowance (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 as follows:

    Opening pool balance multiplied by 30%

    If necessary, make a reasonable apportionment for the general small business pool deduction between primary production and non-primary production activities.

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

    Go to Step 3

    Step 2A
    General small business pool balance

    If the partnership previously used 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 partnerships 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:

    • the opening pool balance, plus
    • the taxable purpose proportion of the adjustable value of assets that were first used, or installed ready for use, for a taxable purpose during the year (these are the assets that have not been written off in step 1), plus
    • 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
    • the taxable purpose proportion of the termination value of any pooled assets disposed of during the year. If the partnership 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 closing pool balance is greater than zero for the 2020-21 income year, you claim an immediate deduction for this amount. Write the result at (b) in Table 2.

    If the closing pool balance is less than zero, the amount below zero is included in assessable income at item 5 Reconciliation items.

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

    Go to Step 4

    Step 3
    Depreciating assets including motor vehicles first used for a taxable purpose in 2020–21 and cost addition amounts for assets already allocated to the 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.

    Calculate the deduction at the following pool rate:

    • 57.5% for new depreciating assets that the partnership first used or installed ready for use for a taxable purpose in 2020–21 which are eligible for backing business investment accelerated depreciation
    • 15% for depreciating assets that the partnership first used or installed ready for use for a taxable purpose in 2020–21 which are not eligible for the backing business investment accelerated depreciation (such as second-hand assets), and
    • 15% for cost addition amounts incurred in 2020–21 for assets already allocated to the pool.

    Calculate the deduction for 2020–21 as follows:

    • the taxable purpose proportion of the adjustable value of each eligible new depreciating asset first used for a taxable purpose in 2020–21 multiplied by 57.5% for general small business pool assets, plus
    • the taxable purpose proportion of the adjustable value of each depreciating asset first used for a taxable purpose in 2020–21 that is not eligible for the accelerated depreciation × 15%, plus
    • the taxable purpose proportion of cost addition amounts × 15%.

    Add up these results and write the total deduction at (c) in Table 2.

    If the pool balance (after taking into account additions and disposals but before calculating the deductions in steps 2 and 3) is greater than zero, calculate the deduction for these assets using Step 5(b).

    Go to Step 4

    Step 4
    Other depreciating assets

    Calculate the deduction for the decline in value of all other depreciating assets that are not included in steps 1 to 3. For more information, see Appendix 6 and Guide to depreciating assets 2021. Write the total deduction at (d) in Table 2.

    Go to Step 5

    Step 5
    Disposal of depreciating assets

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

    If the partnership has disposed of a depreciating asset (costing less than the relevant threshold) for which it has claimed an immediate deduction either in step 1 this year or in a prior year, include the taxable purpose proportion of the termination value at item 5 Reconciliation items. For example, for a low-cost asset used only 60% for an income-producing purpose which was sold for $200 (excluding GST) only $120 will be assessable and included as an income reconciliation adjustment.

    For example, you 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. You disposed of this asset at arm's length on 1 February 2021 for $3,000 (excluding GST). Include $3,000 as income at item 5 Reconciliation items.

    (b) Assets allocated to the general small business pool

    Do not complete this step if you completed Step 2A

    If the partnership disposes of depreciating assets 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.

    Show this deduction against general small business pool assets at b in Table 2 below.

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

    (c) Other depreciating assets

    See the Guide to depreciating assets 2021 for information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets. Include balancing adjustment amounts at item 5 Reconciliation items, see Worksheet 1.

    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:

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

    If the partnership’s closing pool balance is less than zero, the amount below zero is included in assessable income at item 5 Reconciliation items.

    The partnership 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 Table 2.

    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 partnership 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.

    Table 2: Depreciation deductions (small business entities using simplified depreciation only)

    Row

    Calculation element

    Primary production

    Non-primary production

    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
    (accelerated rate or 1/2 rate)

    $

    $

    $

    d

    Other assets

    $

    $

    $

    e

    Depreciation expenses: add up the amounts from row a to row d.

    $

    $

    $

    Transfer the total amount from row e to depreciation expenses K item 5.

    Transfer the total amount from row a to item 49.

    Transfer the total of the amounts from row and c to item 49.

    Motor vehicle expenses

    Show at L motor vehicle running expenses only. These expenses include fuel, repairs, registration fees and insurance premiums.

    They do not include the following expenses shown at:

    • G Lease expenses
    • I Total interest expenses
    • K Depreciation expenses.

    Special substantiation and calculation rules for car expenses apply to partnerships in which at least one partner is an individual.

    Under these rules, motor vehicle expenses can be claimed using one of two methods where the expense is for a motor car, station wagon, panel van, utility truck or other road vehicle designed to carry a load less than one tonne and fewer than nine passengers. For an explanation of these methods, see question D1 in Individual tax return instructions 2021.

    Print N in the CODE box at L if there is an amount shown at L and this amount relates to a:

    • motorcycle
    • taxi taken on hire
    • road vehicle designed to carry a load of one tonne or more, or nine or more passengers
    • car expense where none of the partners is an individual.

    In all other cases, print in the CODE box the code from Table 3 that determines the method used to claim motor vehicle expenses applicable to the partnership.

    If the partnership has more than one vehicle and uses a different method to claim motor vehicle expenses for each vehicle, use the code applicable to the largest claim.

    Table 3: Motor vehicle expense claim methods

    Code

    Method used

    S

    Cents per km

    B

    Logbook

    Show any adjustment for tax purposes to the motor vehicle expenses included in the profit and loss statement at item 5 B Expense reconciliation adjustments. To calculate the amount of the expense reconciliation adjustment, see Worksheet 1.

    Repairs and maintenance

    Show at M the expenditure on repairs and maintenance of plant, machinery, implements and premises.

    Write back any non-deductible expenditure, such as items of a capital nature or amounts relating to private use of an item shown at M, at B Expense reconciliation adjustments. The following information will help you work out whether you should make an expense reconciliation adjustment.

    Repairs

    As long as it is not expenditure of a capital nature, you may deduct the cost of repairs to property (premises (or part of premises), plant, machinery or equipment) used solely for producing assessable income or in carrying on a business. You can only deduct expenditure on repairs to property used partially for business or income-producing purposes to an extent that is reasonable in the circumstances, for example, if the property is used for private purposes, or in the production of exempt income.

    If items are newly acquired, including items acquired 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.

    You may be able to claim expenditure of a capital nature as capital works deductions. For more information on capital expenditure incurred to produce assessable income, see Appendix 5.

    For more information on deductions for repairs, see TR 97/23 Income tax: deductions for repairs.

    Record keeping

    To support any claim for repairs, keep source records showing full details of the nature and cost of repairs to each item.

    For more information see Overview of record-keeping rules for business.

    All other expenses

    Show at N the total of all other business expenses for the income year which have not already been included at to M, for example, travel expenses.

    • Write back capital and other non-deductible items included at N at B Expense reconciliation adjustments.
    • If you have included an amount for a loss on the sale of a depreciating asset at N, see Appendix 6.
    • Calculation of some deductions may be affected by the commercial debt forgiveness provisions; see Appendix 4.
    • Expenses that are costs associated with borrowing and servicing debt should only be included here if they relate to producing Australian income and have not already been included at I. These amounts may not be allowable under the thin capitalisation rules. For more information, see Appendix 3. Include the non-deductible amount at B Expense reconciliation adjustments.
    • If what you show at N includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).

    Total expenses

    Show at O the total of all expense items shown at to N.

    If there is a negative amount at E Cost of sales which exceeds the sum of expenses shown at to and to N, print L in the box at the right of the amount shown at O.

    Reconciliation items

    The reconciliation adjustments reconcile accounting profit or loss as shown in the profit or loss account (the accounts) with the net income or loss for income tax purposes.

    If the partnership has included any amounts such as exempt income or non-deductible expenses in the accounts, or has not included amounts which are assessable income or expenditure that is deductible, work out the reconciliation adjustments.

    Income reconciliation adjustments

    Show at A the net income-related reconciliation adjustments. The amount included here is the net amount of:

    • any add backs that increase the net adjustment, or
    • any subtractions that reduce it.

    Income add backs are amounts not shown in the accounts, but which are assessable income, including timing adjustments. These items increase the total shown at A. Examples include:

    • any excess of the tax value of closing stock over the tax value of opening stock (other than small business entities using the simplified trading stock rules) see Opening stock and Closing stock
    • assessable balancing adjustment amounts on depreciating assets, see Appendix 6
    • limited recourse debt amounts, see Appendix 6
    • xother assessable income not included in the accounts, former STS taxpayers see Former STS taxpayers.

    Income subtractions are income shown in the accounts, but which are not assessable income, including timing adjustments. These items reduce the total shown at A. Examples include:

    • exempt income, including income exempt from Australian tax under a tax treaty (also referred to as double tax agreement)
    • profit on the sale of a depreciating asset; see Appendix 6
    • personal services income included in the assessable income of an individual (attributed amount); see 30. Personal services income
    • other income shown in the accounts which is not assessable for income tax purposes; former STS taxpayers see Former STS taxpayers
    • cash flow boost payments if they have been included in other business income.

    To calculate the net amount of the income reconciliation adjustments, see Worksheet 1.

    If the income subtractions exceed the income add backs, the total is a negative amount. Show L in the box at the right of the amount shown at A.

    Expense reconciliation adjustments

    Show at B the net expense-related reconciliation adjustments. The amount included here is the net amount of:

    • any add backs that increase the net adjustment, or
    • any subtractions that reduce it.

    Expense add backs are expenses shown in the accounts which are either not tax deductible or are only partly tax deductible, including timing adjustments. These items increase the total shown at B. Examples include:

    • additions to provisions and reserves
    • capital expenditure
    • certain expenses relating to personal services income that are not deductible; see 30. Personal services income
    • debt deductions denied by the thin capitalisation provisions, see Appendix 3
    • deductions for vacant land
    • depreciation expenses (see depreciation expenses below)
    • expenses relating to exempt income, including expenses relating to DTA exempt income
    • hire-purchase payments, see Appendix 6
    • income tax expense
    • loss on the sale of a depreciating asset, see Appendix 6
    • luxury car lease payments, see Appendix 6
    • part of prepaid expenses not deductible this year, see Prepaid expenses
    • penalties and fines
    • amounts of capital expenditure incurred to terminate a lease or licence which were included as lease expenses
    • other non-deductible expenses, former STS taxpayers should, see Former STS taxpayers.

    Depreciation expenses: Add back amounts of depreciation expenses only if the partnership is not a small business entity using the simplified depreciation rules. However, exclude any small business pool deductions shown at K Depreciation expenses.

    Expense subtractions are amounts not shown as expenses in the accounts, but which are tax deductible, including timing adjustments. These items reduce the total amount shown at B. Examples include:

    • any excess of the tax value of opening stock over the tax value of closing stock, see Trading stock on hand
    • any expenditure incurred under Subdivision 40-J of the ITAA 1997 to establish trees in carbon sink forests
    • deductible balancing adjustment amounts on depreciating assets; see Appendix 6
    • deduction for decline in value of depreciating assets (other than partnerships using the small business entity depreciation rules); see Appendix 6
    • deduction for environmental protection expenses; see Appendix 6
    • deduction for project pool; see Appendix 6
    • hire-purchase agreements, interest component; see Appendix 6
    • luxury car leases, accrual amount; see Appendix 6
    • part of prepaid expenses deductible this year, but not shown in accounts; see Prepaid expenses
    • section 40–880 deduction; see Appendix 6
    • TOFA rules deduction not shown in accounts
    • that part of the capital expenditure incurred to terminate a lease or licence which is allowed as a tax deduction
    • other deductible items; former STS taxpayers see below.

    For information about which new depreciation measure applies to an asset, see Interaction of tax depreciation measures.

    If the expense subtractions exceed the expense add backs, the total is a negative amount. Print L in the box at the right of the amount shown at B.

    To calculate the net amount of the expense reconciliation adjustments, see Worksheet 1.

    Former STS taxpayers

    If the partnership is eligible and is continuing to use the STS accounting method, you may need to make additional adjustments; see Continued use of the STS accounting method and Appendix 14.

    You will need to make adjustments at Reconciliation items item 5 if:

    • the partnership is using the STS accounting method, and the amounts shown at item 5 sections are not based on the STS accounting method, or
    • the partnership stops using the STS accounting method.

    These adjustments are explained in more detail below. Worksheet 1 will help with the calculations. See also Appendix 14.

    Trade debtors and creditors as at 30 June 2021

    If the partnership is eligible, has chosen to continue using the STS accounting method and has included at any income labels at item 5, amounts of ordinary income that have been derived but not received in 2020–21, the amounts not received are not assessable, for example, trade debtors as at 30 June 2021.

    Show these amounts as income subtractions at A Income reconciliation adjustments.

    If the partnership is eligible, has chosen to continue using the STS accounting method and has included at any expense labels at item 5 amounts of general deductions, repairs or tax-related expenses that have been incurred but not paid in 2020–21, then the amounts not paid are not deductible, for example, trade creditors as at 30 June 2021.

    Show these amounts as expense add backs at B Expense reconciliation adjustments.

    Adjustments when ceasing to use the STS accounting method

    If the partnership has discontinued using the STS accounting method and changed to an accruals accounting method this year, read below.

    If the partnership has previously not included at any income label at item 5 amounts of ordinary income that were derived but not received while using the STS accounting method, these amounts are assessable this year, for example, trade debtors as at 30 June 2020.

    Show these amounts as income add backs at A Income reconciliation adjustments.

    If the partnership has previously not included at any expense labels at item 5 amounts of general deductions, repairs or tax-related expenses that were incurred but not paid while using the STS accounting method, these amounts are deductible this year, for example, trade creditors as at 30 June 2020.

    Show these amounts as expense subtractions at B Expense reconciliation adjustments unless they are tax-related expenses. Include the deduction for tax-related expenses at item 18.

    Disposal of depreciating assets

    If the partnership has disposed of depreciating assets during the income year, the following amounts (if any) are income add backs at A Income reconciliation adjustments:

    • taxable purpose proportion of the termination value of certain assets disposed of, for which an immediate deduction has been claimed
    • if the closing pool balance of the general small business pool is less than zero, the amount below zero
    • assessable balancing adjustment amounts on the disposal of depreciating assets not subject to the small business entity depreciation rules.

    Show any deductible balancing adjustment amounts on the disposal of depreciating assets not subject to the small business entity depreciation rules as expense subtractions at B Expense reconciliation adjustments.

    Prepaid expenses (immediate deduction)

    Small business entities and entities that would be small business entities if the aggregated turnover threshold was $50 million are entitled to an immediate deduction for prepaid expenses if:

    • the expenditure is incurred for a period of service not exceeding 12 months, and
    • the eligible service period ends on or before the last day of the next year of income.

    If the eligible service period is more than 12 months, or ends after 2021–22, you must apportion the deduction for the expenditure over the eligible service period or 10 years, whichever is less.

    The eligible service period is broadly the period over which you will receive the goods or services.

    For more information, see Deductions for prepaid expenses 2021. If expense items include prepaid expenses that differ from the amounts allowable as deductions in 2020–21, make the reconciliation adjustment at B Expense reconciliation adjustments.

    Prepaid expenses (apportionment)

    The partnership’s total deduction for prepaid expenses in 2020–21 may comprise two components:

    • the part of prepaid expenses incurred in 2020–21 which relates to that income year, and
    • that part of the 2019–20 or earlier income year’s expenses not deductible in that income year, but which is deductible in 2020–21 under the prepayment rules.

    For more information, see Deductions for prepaid expenses 2021.

    If any expense items include prepaid expenses which differ from the amounts allowable as deductions in 2020–21, make the reconciliation adjustment at B Expense reconciliation adjustments.

    Trading stock on hand (other than small business entities using the simplified trading stock rules)

    Reconciliation adjustments will be required where the tax values of trading stock on hand have not been used in calculating the amount shown at E Cost of sales item 5. Any excess of the tax value of closing stock over the tax value of opening stock would be an income add back. Any excess of the tax value of opening stock over the tax value of closing stock would be an expense subtraction. If you have used accounting values for trading stock on hand in calculating the amount shown at E Cost of sales, you will need to take further reconciliation adjustments from those amounts.

    For more information on the tax value of trading stock, see 39. Opening stock and 41. Closing stock.

    Net income or loss from business

    The net income or loss from business is total business income minus total expenses incurred in producing that income, adjusted by any reconciliation items.

    Show the net income or loss from business at:

    • Q for primary production, and
    • R for non-primary production.

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

    Show at S:

    • Total business income, minus
    • O Total expenses  
      • plus A Income reconciliation adjustments and B Expense reconciliation adjustments amounts which are positive, and
      • minus A Income reconciliation adjustments and B Expense reconciliation adjustments amounts which are negative
       

    The sum of the net income or loss from business at:

    • Q for primary production, and
    • R for non-primary production

    equals the amount shown at S.

    If the amount at S is an overall loss, print L in the box at the right of the amount.

    If the partnership made a loss on a business activity, the non-commercial loss rules may affect an individual partner's share of a business loss, see Appendix 7.

    Net small business income

    Is the partnership a small business entity?

    No – Go to item 6.

    Yes – Read on.

    The partnership needs to work out its net small business income. Partners who are individuals need to know their share of net small business income so that they can claim the small business income tax offset in their own tax return if eligible.

    An individual is only entitled to the offset in respect of a share of net small business income received from a small business entity partnership in which they are a partner, where the business income was derived by that partnership from carrying on its own business activities.

    Partners who are prescribed persons (under 18 years of age and not excepted persons) are entitled to the offset on their share provided they are actively carrying on the partnership business.

    The net small business income is the partnership’s assessable income from carrying on a small business, less deductions to the extent that they are attributable to that assessable income. If the partnership carries on multiple businesses, then combine all the partnership's assessable income and attributable deductions relating to those businesses to work out the net small business income.

    If the partnership made a loss on a business activity, the non-commercial loss rules may affect an individual partner's share of net small business income; see Appendix 7.

    To work out net small business income do not include:

    • any personal services income that was attributed to another person
    • any of the following deductions      
      • tax-related expenses
      • gifts or contributions.
       

    Completing this item

    Step 1 Did the partnership have business income or deductions shown at items other than item 5?

    No – The amount at item 5 is the partnership's net small business income. Show this amount at item 5. You have finished this item. Go to item 6.

    Yes – Go to step 2.

    Step 2 If the partnership had any of the following, use Worksheet 1A to work out the net small business income:

    • foreign source business income at item 23 or attributed foreign business income at item 22
    • interest income earned in the course of carrying on the business shown at item 11
    • dividend income earned in the course of carrying on the business shown at item 12, for example dividends earned in the course of carrying on a share trading business
    • any business income not already shown at this item
    • any business deductions not already shown at this item, for example debt deductions against foreign source business income claimed at item 18.

    Show the net small business income at item 5. Do not show cents.

    6. Tax withheld

    Tax withheld where ABN not quoted

    Show at T the total of amounts withheld from income subject to withholding where an ABN was not quoted. This amount equals the sum of the amounts shown in the tax withheld boxes on the Non-individual PAYG payment summary schedule 2021. For instructions on completing the schedule, see Non-individual PAYG payment summary schedule 2021.

    Do not include any share of amounts withheld that is a distribution from another partnership or trust where an ABN was not quoted. Show this at item 8.

    If you show an amount of tax withheld at item 6, then declare the corresponding gross income at and D Gross payments where ABN not quoted item 5, as appropriate.

    Credit for tax withheld – foreign resident withholding

    Complete only if the amount was withheld in Australia and remitted to us.

    Show at U the total amount of tax withheld from payments subject to foreign resident withholding. Do not include any share of foreign resident withholding credits distributed to the partnership from other partnerships or trusts, show this at item 8.

    If a credit is claimed at U for tax withheld under foreign resident withholding, you must show the corresponding gross payments subject to foreign resident withholding at item 5.

    Do not show at this item any credits in relation to the foreign capital gains withholding.

    Only foreign residents should complete this item. An Australian resident should not claim a foreign income tax offset at this item.

    8. Partnerships and trusts

    In this section:

    About partnership distributions

    The partnership’s income from another partnership includes income or a loss which the partnership received, was entitled to receive, or was entitled to deduct in respect of that other partnership.

    The partnership’s income from a trust includes the partnership's share of the net income (for tax purposes) of the trust which generally corresponds to the percentage share of the trust's distributable income which the partnership received or was entitled to receive as a beneficiary under a will, settlement, and deed of gift or other instrument of trust.

    Distributions from another partnership or a share of the net income of a trust include the share of any:

    • TFN amounts withheld from interest, dividends and unit trust distributions
    • franking credits attached to franked dividends received indirectly from an Australian franking company
    • amounts withheld where an ABN was not quoted
    • TFN amounts withheld from payments by the trustee of a closely held trust because a TFN was not provided.

    Copy the details from any statements of distribution or advice received from the other partnerships and trusts to Worksheet 2. This is the partnership’s record if we need more details later.

    If the partnership or trust statement of distribution or advice includes an amount described as dividends or franking credits from a New Zealand franking company, do not include these at item 8. Show these amounts at item 23 Other assessable foreign source income.

    Do not include any payments and loans received from trustees or amounts that are debts forgiven by trustees that are treated as dividends under Division 7A of Part III of the ITAA 1936. Show these amounts at item 12 if they are unfranked.

    Certain amounts treated as dividends may be able to be franked. If the amounts are franked, show them at item 12; see unfranked amount and franked amount below.

    If a partnership or trust statement of distribution or advice includes amounts described as foreign income or capital gains, do not include these at item 8.

    Show foreign income at:

    • item 22 Attributed foreign income, and
    • item 23 Other assessable foreign source income.

    A partnership does not own assets for CGT purposes. A partnership asset is owned by the partners in the proportion to which they have agreed.

    If a CGT event happens for a partnership during the year or to one of its CGT assets, or the partnership receives a share of a capital gain from a trust, any capital gain or capital loss is made by the partners individually. Each partner must calculate their capital gain or capital loss by reference to the partnership agreement, or to partnership law if there is no agreement, and include it on their own tax return. For more information on how a partner returns their share of a capital gain or capital loss, see Guide to capital gains tax 2021.

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

    For more information about the circumstances in which FTDT is payable, see Family trust distribution tax.

    If trustee beneficiary non-disclosure tax (TBNT) has been paid in respect of an amount that would otherwise be assessable to the partnership, that amount is excluded from the assessable income of the partnership.

    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 partnership can't claim a tax offset for any franking credits attributable to the whole or a part of a dividend that is excluded from assessable income.

    Primary production

    Distribution from partnerships

    Show at A the amount of primary production income or loss distribution from other partnerships.

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

    Share of net income from trusts

    Show at Z the partnership's share of primary production income which has been included in the net income (for tax purposes) of the trust. The statement of distribution or advice from the trust should separately show this amount. This amount should include the partnership's share of primary production income which has been included in the net income of the trust where the partnership became presently entitled to primary production income of the trust in the income year, but has not yet received it.

    If the partnership's share of primary production income included in the net income of the trust is zero because the trust has made a loss from its primary production activities, print L in the box at the right of the amount. Show a loss at Z only if it is a component of an overall distribution of net income from the same trust.

    If this amount is not a loss, in the box at the right of Z print the code from Table 4 that best describes the type of trust from which the distribution is made. If this amount is from more than one type of trust, print the code that represents the trust with the greatest amount of distribution.

    Table 4: Trust codes

    Code

    Type

    M

    Cash management unit trust

    D

    Deceased estate

    E

    Testamentary trust

    S

    Discretionary trust, where the main source of income of the trust is from service and 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

    H

    Hybrid trust

    P

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

    Q

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

    U

    Fixed unit trust, other than a public unit trust described in or Q

    F

    Fixed trust, other than a fixed unit trust or public unit trust described in P, Q or U

    Deductions relating to amounts shown at A and Z

    Show at S the partnership’s deductions for its own expenses relating to primary production distributions from other partnerships or share of net income from trusts. Also show at S the partnership's deductions for its own expenses in deriving its share of primary production income which has been included in the net income (for tax purposes) of a trust. Note that expenses incurred on behalf of the trust are not able to be deducted by the partnership.

    If you have prepaid any expenses, the amount that you can claim at S may be affected by the prepayment provisions. For more information, see Deductions for prepaid expenses 2021.

    Expenses listed here that are costs associated with borrowing and servicing debt may not be allowable deductions under the thin capitalisation rules. For more information, see Appendix 3. The disallowed amount reduces the amount that would otherwise be included at S.

    Net primary production amount

    Show at this entry the net result of adding partnership distributions of primary production income and the partnership's share of primary production income that has been included in the net income (for tax purposes) of a trust minus allowable deductions related to that income.

    Write the total amount in the box at Net primary production amount. If this amount is a loss, print L in the box at the right of the amount.

    Non-primary production

    Distribution from partnerships, less foreign income

    Show at B the amount of non-primary production income or loss distributions from other partnerships. Include any share of credit for tax withheld in Australia due to foreign resident withholding that is attached to the distribution. (You also include the share of credit at U item 8).

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

    If the distribution includes franked dividends from a franking entity, check the statement of distribution or advice detailing the distribution to ensure that the amounts to be included at this entry represent both the partnership’s share of the franked dividend and its share of the franking credit attached to the franked dividend. The franking credit is included at D item 8.

    Do not show any dividends or franking credits indirectly received attributable to distributions from a New Zealand franking company at this entry. If the partnership received dividends or franking credits indirectly from a New Zealand franking company, see 23. Other assessable foreign source income.

    If the partnership received a distribution from another partnership, and that other partnership claimed a deduction for a listed investment company (LIC) capital gain amount, then the partnership must add back its share of the deduction claimed by the other partnership at item 14 Other Australian income.

    Share of net income from trusts, less capital gains, foreign income and franked distributions

    Show at R the partnership's share of the non-primary production income which was included in the net income (for tax purposes) of trusts. The statement of distribution or advice from the trusts should separately show this amount. Include any share of credit for tax withheld in Australia due to foreign resident withholding that is attached to the distribution. (Also include the share of credit for tax withheld from foreign resident withholding at U item 8.)

    The partnership's share of franked distributions from trusts and its share of the franking credits referable to those franked distributions (the franking credit 'gross-up') should be included at F item 8. The franking credit should be included at item 8; see Franked distributions from trusts for more instructions on this amount. However, these amounts are still relevant to working out whether the overall share of net income (for tax purposes) from non-primary production activities is a positive amount.

    Do not show the partnership's share of any non-primary production income included in the net income of a trust that includes any dividends or franking credits indirectly received which were attributable to distributions from a New Zealand franking company at this entry. Instead, see 23. Other assessable foreign source income.

    In working out the partnership's share of non-primary production income that was included in the net income (for tax purposes) of a trust, amounts to which the partnership became presently entitled in the income year but has not yet received should also be taken into account.

    Although for tax purposes a trust can't distribute a loss, in certain circumstances a trust may have made a loss in relation to its non-primary production activities and yet still have a positive amount of net income because its share of primary production income included in the net income for tax purposes is positive. In these circumstances, for the purposes of certain provisions relating to primary producers, it may be necessary to identify where the partnership's share of net income from a trust related to non-primary production activities is a loss and record this at R.

    If the partnership's share of non-primary production income which was included in the net income (for tax purposes) of a trust is a loss, print L in the box at the right of the amount. Show a loss at R only if the amount is a component of an overall distribution of net income from the same trust. The loss at R should be reduced by amounts shown at and G relating to franked distributions from trusts.

    If this amount is not a loss, in the box at the right of R print the code from Table 4 that best describes the type of trust from which the distribution is made. If this amount is from more than one type of trust, print the code that represents the trust with the greatest amount of distribution.

    If the partnership received or was entitled to receive income from a trust, and that trust claimed a deduction for a listed investment company (LIC) capital gain amount, then the partnership must add back its share of the deduction allowed to the trust at item 14 Other Australian income.

    Deductions relating to amounts shown at B and R

    Show at T the partnership’s deductions for its own expenses relating to non-primary production distributions from other partnerships or share of net income from trusts, except those deductions which are directly related to the earning of franked distributions from trusts which are shown at G. Also show at T the partnership's own expenses incurred in deriving its share of non-primary production income which has been included in the net income (for tax purposes) of a trust. Note that expenses incurred on behalf of a trust are not able to be deducted by the trust.

    If any expenses have been prepaid, the amount that you can claim at T may be affected by the prepayment provisions. For more information, see Deductions for prepaid expenses 2021.

    Expenses listed here (and where relevant at G relating to franked distributions from trusts) that are costs associated with borrowing and servicing debt may not be allowable deductions under the thin capitalisation rules. For more information, see Appendix 3. The disallowed amount reduces the amount that would otherwise go at T.

    If family trust distribution tax (FTDT) has been paid on the income or capital of another partnership or trust that the partnership is entitled to or which has been distributed to the partnership, an amount is excluded from the partnership's assessable income under section 271-105 of Schedule 2F of the ITAA 1936. Do not show this at AZB, or F. You can't claim a deduction for any losses or outgoings incurred in deriving an amount which is excluded from assessable income at ST or G. For more information about the circumstances in which FTDT is payable, see Family trust distribution tax.

    If trustee beneficiary non-disclosure tax (TBNT) has been paid in respect of an amount that would otherwise be assessable to the partnership, that amount is excluded from the assessable income of the partnership. Do not show that income at AZBor F. You can't claim a deduction for any losses or outgoings incurred in deriving an amount which is excluded from assessable income at Sor G.

    Franked distributions from trusts

    If the partnership's share of the non-primary production income included in the net income of a trust includes an amount described as franked dividends, franked distributions or attributable franked distributions, check the statement of distribution or advice detailing the distribution to ensure that the amounts to be included at this entry represent both the partnership's share of the franked distribution and its share of the franking credit attached to the franked distribution (the franking credit 'gross-up').

    Show at F the partnership's share of the franked distribution (described as franked dividends, franked distributions or attributable franked distributions) plus its share of the franking credit attached to the franked distribution. The franking credit is also included at item 8.

    Do not show any share of a trust's non-primary production income included in the net income of that trust that includes any dividends or franking credits indirectly received which were attributable to distributions from a New Zealand franking company at this entry; instead, see 23. Other assessable foreign source income.

    Deductions relating to franked distributions from trusts in label F

    Show at G the partnership's deductions for its own expenses incurred in deriving its share of the franked distributions from trusts at label F.

    Net non-primary production amount

    Show at this entry the net result of adding the partnership distributions of non-primary production income and the partnership's share of non-primary production income included in the trust's net income (for tax purposes), minus deductions related to that income, plus the net amount of the franked distributions from trusts, minus the deductions relating to the franked distributions from trusts.

    Write the total amount in the box at Net non-primary production amount. If this amount is a loss, print L in the box at the right of the amount.

    Share of credits from income

    Share of credit for tax withheld where ABN not quoted

    If the income shown at AZBor F includes any share of amounts which have had tax withheld where an ABN was not quoted, show any share of credit for the tax withheld at C. The trust or partnership statement or distribution or advice should separately disclose this amount.

    Share of franking credits from franked distributions

    Show at D the partnership’s share of any franking credits from a franking entity received through another partnership or trust.

    Show franking credits received directly from a paying franking entity at item 12.

    Do not show franking credits relating to a dividend received through another partnership or trust if any of the following apply:

    • They were attributable to a distribution from a New Zealand franking company. If the partnership received franking credits indirectly from a New Zealand franking company, see 23. Other assessable foreign source income.
    • The holding period rule and related payments rule were not satisfied for the dividend, or the dividend washing integrity rule applies; for more information, see Appendix 1.
    • FTDT has been paid on the dividend paid or credited by a company which has made an interposed entity election. The dividend is excluded from assessable income under section 271-105 of Schedule 2F to the ITAA 1936. A franking credit or tax offset can't be claimed for any franking credit attached to that dividend. For more information about when FTDT is payable, see Family trust distribution tax.
    • Trustee beneficiary non-disclosure tax has been paid in respect of the dividend. A franking credit or tax offset can't be claimed for any franking credit attached to that dividend.
    Share of credit for TFN amounts withheld from interest, dividends and unit trust distributions

    Unless an entity claimed an exemption or quoted a TFN, an investment body may withhold amounts from interest, dividends or income of a unit trust to which a beneficiary is presently entitled; these are called ‘TFN amounts withheld’. The rate is 47% of the payment made.

    Show at E the partnership's share of any credit for TFN amounts withheld from amounts of interest, dividends and income of unit trusts to which a beneficiary is presently entitled, that are received from other partnerships or trusts. Credits for TFN amounts withheld are allowed in the assessments of the partners.

    Share of credit for TFN amounts withheld from payments from closely held trusts

    Where a beneficiary of a closely held trust does not provide their TFN to the trustee, the trustee may be required to withhold from payments or distributions.

    Show at O the amounts withheld from payments where a TFN has not been provided to the trustee of a closely held trust.

    If amounts have been withheld from distributions to the partnership under these rules, the partnership is required to receive an annual payment summary in the approved form from the trustee.

    Share of credit for tax withheld from foreign resident withholding

    Amounts may be withheld in Australia from some payments made to certain partnerships or trusts due to the operation of the foreign resident withholding measure. These payments relate to entertainment or sports activities, construction and related activities, and casino gaming junket activities.

    Show at U the partnership’s share of any foreign resident withholding credits received from other partnerships and trusts. Ensure this amount is included in the gross distribution amount shown at B Distribution from partnerships, less foreign income or R Share of net income from trusts, less capital gains, foreign income and franked distributions.

    Do not include at this item any credits in relation to foreign resident capital gains withholding.

    Taxation of financial arrangements (TOFA)

    If the TOFA rules apply to the partnership, include at item 8 Partnerships and trusts the partnership's share of all the partnership's primary production and non-primary production amounts, or deductions relating to such amounts. This includes amounts from financial arrangements subject to the TOFA rules.

    If what you show at item 8 includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).

    9. Rent

    If your partnership is carrying on a business and receiving rental income from that business you are required to complete this item. To determine whether you are carrying on a business, see TR 97/11 Income tax: am I carrying on a business of primary production?

    If the only income you derived jointly (or in common) with another person was:

    • rent from a jointly owned property
    • interest from a jointly held account
    • dividends from jointly held shares

    show your share of the rental income or deductions at item 21 Rent of your Tax return for individuals (supplementary section) 2021.

    Income tests require each partner to report their share of the partnership rental property income or loss. If the rental income is merely investment income and not partnership business income, this should be reported in your individual income tax return at item 21 for rental income or losses. If your rental income is partnership business income, you are required to complete item 9, and show your net rental property income or loss at item 52and your share of net rental property income or loss at item 53. For more information, see item 52 Income tests.

    In this section:

    Former STS taxpayers still using the STS accounting method

    If the partnership is eligible and has chosen to continue using the STS accounting method, base the gross rent at F, interest deductions at G, and general deductions and repairs included at H on the STS accounting method. For more information, see Continued use of the STS accounting method.

    Small business entities

    Depreciating assets used in rental properties are generally excluded from the small business entity depreciation rules on the basis the assets are part of property that is subject to a depreciating asset lease. For more information, see the Small business entity concessions.

    Gross rent

    Show at F the gross amount of rental income. This item can't be a loss.

    Rental income includes booking or letting fees, bond monies if the partnership becomes entitled to retain them, any insurance payouts that compensate for lost or forgone rent, and reimbursements from tenants of deductible expenses incurred.

    If the partnership is registered for GST, and GST is payable for rental income, exclude the GST from gross rent at F.

    Show rent from foreign sources at item 23 Other assessable foreign source income.

    Lease premium received from a CGT event

    A capital gain or a capital loss made from the receipt of a lease premium is shown on each partner’s own tax return.

    For more information about CGT events involving leases, see Guide to capital gains tax 2021.

    Interest deductions

    If borrowed monies are used to finance a property investment, interest paid on the borrowing generally is deductible.

    However, the thin capitalisation rules may apply to reduce interest deductions. These rules place a limit on the amount of interest and other borrowing costs that can be deducted for Australian tax purposes; for more information see Appendix 3. The disallowed amount reduces the amount that would otherwise be included at G.

    If the TOFA rules apply to the partnership, include all interest expenses incurred on monies borrowed to finance a property from financial arrangements subject to the TOFA rules at G.

    Show at G the total deductible amount of interest expense incurred in earning the rental income.

    Capital works deductions

    Show at X the total capital works deductions amount for rental buildings and structural improvements, such as fences, retaining walls and sealed driveways. For information on capital works deductions, see Appendix 5. You can also work out your capital works deductions by using the Depreciation and capital allowances tool.

    Other rental deductions

    Show at H the total of other deductible expenses incurred in earning rental income.

    If the partnership is registered for GST, and GST is payable for rental income, exclude any input tax credit entitlements that arise for expenses from the amount shown at H.

    Expenses listed here that are costs associated with borrowing and servicing debt may not be allowable deductions under the thin capitalisation rules. For more information, see Appendix 3. The disallowed amount reduces the amount that would otherwise be shown at H.

    Deductions for the decline in value of depreciating assets used to earn rental income are generally shown at H. However, if the partnership has allocated some of these assets to a low-value pool, you may need to show deductions at item 18 Other deductions. For more information, see Appendix 6.

    Net rent

    Show at this item the net amount of any rent. If this amount is a loss, print L in the box at the right of the amount. For more information, see Rental properties 2021.

    10. Forestry managed investment scheme income

    In this section:

    Definitions

    A partnership 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 partnership is a subsequent participant if it obtains an interest in a forestry managed investment scheme 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 in the scheme.

    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 partnership’s total forestry scheme deductions is the total of all the amounts it can deduct or has deducted for each income year it held its forestry interest. See item 17 Forestry managed investment scheme deduction for more information on amounts you can deduct.

    The amount of the partnership’s incidental forestry scheme receipts is the total of all the amounts it has received from the FMIS in each income year it held its forestry interest, other than amounts received because of a capital gains tax (CGT) event. Write at Q item 10 the total income from the following activities for each FMIS in which the partnership holds a forestry interest.

    For information on the CGT treatment of the partnership’s forestry interests, see Guide to capital gains tax 2021. If the partnership is a member of a collapsed agribusiness managed investment scheme, for information on calculating your income and deductions, see Collapse and restructure of agribusiness managed investment schemes – participant information.

    For an initial participant in an FMIS

    Thinning receipts

    If the partnership received thinning proceeds from its forestry interest, include the actual amount received at Q.

    Sale and harvest receipts – forestry interest no longer held

    Include the market value of the forestry interest at the time of the CGT event at Q if the following applies:

    • a CGT event happened and the partnership ceased holding its forestry interest (because it sold its interest or it received harvest proceeds), and
    • the partnership      
      • has claimed a deduction, or
      • can claim a deduction, or
      • would be entitled to deduct such amounts, but for a CGT event happening within four years after the end of the income year in which the partnership first pays an amount under the FMIS.
       
    Sale and harvest receipts – forestry interest still held

    Include the amount by which the market value of the forestry interest was reduced at Q if the following applies:

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

    For a subsequent participant in an FMIS

    Thinning receipts

    If the partnership received thinning proceeds from its forestry interest, include the actual amount received at Q.

    Sale and harvest receipts – forestry interest no longer held

    Include the amount worked out below in the total amount at Q if the following applies:

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

    Work out in relation to the forestry interest 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

    Include the amount worked out below in the total amount at Q if the following applies:

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

    Work out the lesser of the following two amounts, in relation to the forestry interest:

    • 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:

    Divide the decrease (if any) in the market value of the forestry interest as a result of the CGT event by the market value of the forestry interest just before the CGT event. Multiply the result by the lesser of the two amounts above.

    Include at Q the amount calculated using the above formula.

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

    Example 7: Sale receipts – forestry interest no longer held

    Cedar Partnership 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 Cedar Partnership 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 the same period, it received $1,500 from thinning proceeds (its incidental forestry scheme receipts).

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

    CGT notes:

    • Cedar Partnership will take the amount that it included at Q into account when working out the partners' share of the capital gain relating to the CGT event.
    • The capital gain to be shared by the partners would be $3,500, which is capital proceeds of $20,000 less cost base of $16,500 (that is 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 Partnership is a subsequent participant in an FMIS. It received 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 was $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 held its interest, Oakey Partnership 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 minus $1,500).

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

    Step 2 Using the formula:

    $2, 500 × ($5,000 ÷ $20,000) = $625

     

    When determining the amount to include in step 2 for any future income year in which the partnership receives harvest proceeds or sells the forestry interest, the $625 is disregarded. This is because the amount is already reflected in the assessable income for the income year.

    Step 3 Oakey Partnership will need to include $625 at Q.

    CGT notes:

    • Oakey Partnership has disposed of 25% of its forestry interest. The partnership will take the amount that it included at Q into account when working out the partners' share of the capital gain relating to the CGT event.
    • The capital gain to be shared by the partners would be $875, which is capital proceeds of $5,000 less apportioned original cost base of $4,125 (that is made up of $3,500 (25% of $14,000) plus $625 that is included in assessable income).
    End of example

    11. Gross interest

    Show at J the interest from banks and credit unions, building societies, debentures, notes and deposits, income accrued on discounted or deferred interest securities, government securities, and interest paid by us.

    The total, which is the gross amount of interest received or credited, must be included in assessable income.

    the only income you derived jointly (or in common) with another person was:

    • rent from a jointly owned property
    • interest from a jointly held account
    • dividends from jointly held shares

    and you were not in a partnership carrying on a business, do not show any interest income at this item. Show your share of the interest income at item 10 Gross interest on your Tax return for individuals 2021.

    If the TOFA rules apply to the partnership, include all interest received or credited to it from financial arrangements subject to the TOFA rules at J.

    Show interest that is part of a cash management trust distribution or other similar trust investment product at item 8 Partnerships and trusts.

    Copy details from all statements to Worksheet 3 and keep the worksheet with your tax records.Do not include non-share dividends received from holding a non-share equity interest. If the partnership holds such an interest, the issuer is obliged to forward a dividend statement with details of the dividends, which should be shown at item 12 Dividends. For more information on non-share dividends and non-share equity interests, see Debt and equity tests: overview.

    Discounted, deferred interest or capital-indexed securities

    Show at J the appropriate amount of discount, interest or other gain which accrued this income year on a discounted, deferred interest or capital-indexed security.

    Qualifying security rules

    A discounted, deferred interest or capital-indexed security may be subject to the qualifying security rules in Division 16E of the ITAA 1936.

    Those rules will only apply if the TOFA rules do not apply (see TOFA rules below). In addition, the security must be one that:

    • was issued after 16 December 1984
    • had a maturity date more than 12 months from the issue date, and
    • the sum of all payments under the security (except periodic interest, for example, a coupon rate) exceeds its issue price by greater than 1.5%.

    Example 9

    On 1 July, a zero-interest-discounted security is issued at $82.65, redeemable on 30 June after two years at a face value of $100. The investor holds the security until it matures. Where this security is not subject to the TOFA rules, the investor is required to calculate the effective rate of interest for each six-month period; in this case, it is 4.88%.

    The accrued amount included in gross interest is equal to the increase in value of the security in each income year, as follows:

    Table 5: Accrual amount

    Row

    Value of security

    Year 1
    $

    Year 2
    $

    a

    at beginning of year

    82.65

    90.91

    b

    at half year

    86.68

    95.35

    c

    increase: b minus a

    4.03

    4.44

    d

    at end of year

    90.91

    100.00

    e

    increase: d minus b

    4.23

    4.65

    f

    increase for year:
    row c plus e

    8.26

    9.09

     

    End of example

    In the example, the six-monthly period falls at exactly half-year.

    Taxation of financial arrangements (TOFA) rules

    A discounted, deferred interest or capital-indexed security that is a qualifying security may instead be subject to the TOFA rules.

    This will be the case if the partnership starts to have the security on or after the start of the partnership's first income year starting on or after 1 July 2010 (or 1 July 2009 if the partnership made an early start election under the TOFA rules), and:

    • the partnership is affected by the TOFA rules (below), or
    • the security is to end more than 12 months after the partnership starts to have it.

    If what you show at J includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).

    Example 9A

    On 1 July 2019, a zero-interest-discounted security is issued at $82.65, redeemable on 30 June 2021 after two years at a face value of $100. The investor holds the security until it matures. As this security is subject to the TOFA rules and the TOFA accruals method applies to the security (investor has not made any tax-timing method elections under the TOFA rules) the investor is required to calculate the rate of return for each accrual interval. Using a 12-month period interval, the rate of return is 10.00%.

    The gain amount included in gross interest is equal to the increase in value of the security in each income year, as follows:

    Table 5A: Accrual amount

    Row

    Calculation element

    Year 0
    $

    Year 1
    $

    Year 2
    $

    a

    Amortised cost (year start)

    0

    82.65

    90.91

    b

    Gain (increase in value of security)

    0

    8.26

    9.09

    c

    Cash flows

    -82.65

    0

    100.00

    d

    Amortised cost (year end):
    row a + b − c

    82.65

    90.91

    0

     

    End of example
    TFN amounts withheld from gross interest

    Show at I any TFN amounts withheld from gross interest where a TFN has not been provided to the investment body.

    Record keeping

    Keep all documents issued by the investment body that detail payments of income and any TFN amounts withheld from those payments.

    Do not attach these documents to the partnership tax return. Keep them with the partnership’s tax records.

    We may check the amount shown at J with our own records to determine accuracy. For more information, see Data-matching programs.

    12. Dividends

    If the only income you derived jointly (or in common) with another person was:

    • rent from a jointly owned property
    • interest from a jointly held account
    • dividends from jointly held shares

    and you were not in a partnership carrying on a business, do not show any dividend income at this item. Show your share of the dividend income at item 11 Dividends on your Tax return for individuals 2021.

    If the partnership is a shareholder or holder of a non-share equity interest in a company (including a LIC) or held units in a corporate unit trust or a public trading trust, that entity gives the partnership a dividend or non-share dividend statement. The statement is likely to include the:

    • name of the entity making the distribution
    • date on which the distribution was made
    • amount of the distribution
    • amount of franking credit allocated to the distribution
    • franking percentage for the distribution
    • amount of any withholding tax has been deducted from the distribution
    • name of the shareholder
    • if the distribution is unfranked, a statement to that effect, and
    • if the distribution is franked, the franked amount and the unfranked amount of the distribution.

    If a franked distribution has been received with an associated distribution statement that does not distinguish between the franked and unfranked portions of the dividend, include the total dividend amount at L Franked amount and include any attached franking credits at M Franking credit.

    Show only amounts received from Australian companies, corporate limited partnerships, corporate unit trusts and public trading trusts.

    Show dividends that are part of a distribution from a managed investment fund at item 8 Partnerships and trusts.

    Show dividends received from foreign sources, including dividends from a New Zealand franking company with Australian franking credits attached, at item 23 Other assessable foreign source income.

    Copy details from all statements to Worksheet 4 and keep the worksheet with the partnership’s tax records.

    If the partnership was paid a dividend by a LIC and the dividend advice statement shows a LIC capital gain amount, the partnership can claim a deduction of 50% of the LIC capital gain amount at item 16 Deductions relating to Australian investment income.

    Dividends on which family trust distribution or trustee beneficiary non-disclosure tax has been paid

    In this section:

    To the extent that FTDT has been paid on a dividend paid or credited to the partnership by a company that has made an interposed entity election, that amount is excluded from the assessable income of the partnership under section 271-105 of Schedule 2F to the ITAA 1936. Do not show it at or L.

    You can't claim a deduction for any losses or outgoings incurred in deriving an amount that is excluded from assessable income under section 271-105 and you can't claim a credit or tax offset for any franking credit attached to the non-assessable non-exempt portion of the dividend.

    Accordingly, do not include any amount at M for a franking credit attached to the whole or part of a dividend that is excluded under section 271-105. For more information about the circumstances in which FTDT is payable, see Family trust distribution tax.

    If trustee beneficiary non-disclosure tax has been paid on a dividend that is included in a share of net income which the partnership is presently entitled to or which has been distributed to the partnership, then the dividend is not included in the assessable income of the partnership.

    You can't claim a deduction for any losses or outgoings incurred in deriving these amounts that are excluded from assessable income, and you can't claim a tax offset for any franking credits attributable to the dividend.

    For more information on dividends, franking credits and tax offset entitlements, see Appendix 1.

    Unfranked amount

    Show at K the gross amount of unfranked dividends, and the unfranked amount of partially franked dividends, received before any TFN amounts were withheld.

    If the TOFA rules apply to the partnership, include all unfranked dividends that were paid or credited to it by Australian companies in respect of financial arrangements subject to the TOFA rules at K.

    If the partnership is a holder, or an associate of a holder, of a share or non-share equity interest in a private company and it received:

    • payments, loans or forgiveness of a debt from the company, directly or indirectly
    • loans or forgiveness of a debt from a trustee, where the company has an unpaid present entitlement from the trust, or
    • payments from a trustee which are attributable to certain unrealised gains, where the company has an unpaid present entitlement to the trust income

    then the amounts of those payments (subject to distributable surplus and in the case of a trust the unpaid present entitlement), loans not repaid or debts forgiven are returned as an unfranked dividend unless they are specifically excluded under the provisions of Division 7A of Part III of the ITAA 1936, or the amount treated as a dividend is franked. Division 7A was amended to enable certain amounts treated as dividends to be franked. For example, a private company can frank an amount treated as a dividend that arises because of a family law obligation in certain circumstances.

    Dividends paid under a demerger are generally not assessable dividends. Do not include a dividend paid under a demerger at K unless the head entity of the demerger group has advised that it is an assessable dividend.

    Franked amount

    Show at L the franked amount of franked dividends received before any TFN amounts were withheld.

    If you have received a franked distribution with an associated distribution statement that does not distinguish between the franked and unfranked portions of the dividend, include the total dividend amount at L and include any attached franking credits at M.

    Franking credit

    Show at M the amount of franking credits received directly from a paying company.

    The amount at M is distributed to the partners, and is allowed as a tax offset to reduce tax payable.

    Do not show:

    • franking credits if      
      • the partnership did not satisfy the holding period rule, and
      • the related payments rule for the dividend, or the dividend washing integrity rule applies
       

    (for more information, see Appendix 1)

    • franking credits received indirectly through another partnership or a trust; show your share of franking credit from franked distributions at item 8
    • franking credits attached to distributions paid by a New Zealand franking company. If the partnership received franked distributions from a New Zealand franking company, see 23. Other assessable foreign source income.
    TFN amounts withheld from dividends

    Show at N the total of TFN amounts withheld from dividends received, minus any refund of TFN amounts withheld.

    We may check the franking amount shown at Kand M with our own records to determine accuracy. See Data-matching programs.

    14. Other Australian income

    Show at O the total amount of other Australian income.

    If the amount is a loss, print L in the box at the right of the amount. The following are some examples of the amounts to be included at O.

    Gains on the disposal of traditional securities

    Show at O any gains on the disposal or redemption of a traditional security which are assessable under section 26BB of ITAA 1936. For more information about gains and losses on traditional securities, including traditional securities that are convertible notes or exchangeable notes, see You and your shares 2021.

    Bonuses from life insurance companies and friendly societies

    If, during the year ended 30 June 2021, the partnership received any bonuses or other amounts in the nature of bonuses on the maturity, forfeiture, partial or full surrender of a short-term life insurance policy taken out on or after 28 August 1982, you may need to show the amount at O.

    Life insurance policies are issued by life insurance companies and friendly societies.

    A partnership is regarded as having received a bonus if it re-invests or otherwise deals with the bonus during the income year.

    Do not include the amount shown on a bonus certificate if the partnership:

    • received it because of death, accident, illness or other disability suffered by the person on whose life the policy was effected
    • received it under a policy held by the trustee of a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust
    • can show that the amount was received because of serious financial difficulties
    • received a bonus certificate in respect of an amount allocated to increase the amount receivable on surrender or maturity.

    If the policy has a date of commencement of risk on or before 27 August 1982, any bonuses received this year are not assessable.

    If the policy has a date of commencement of risk after 7 December 1983, any bonus is included in assessable income as follows:

    • if received during the first eight years after the date of commencement of risk of the policy, the bonus is included in full
    • if received in the ninth year, two-thirds of the bonus amount is included
    • if received in the tenth year, one-third of the bonus amount is included
    • Amounts received after the tenth year are not included.

    If, during the term of the policy, the amount of a premium increases by more than 25% over the previous year’s premium, the policy is taken to have started again with a commencement date at the beginning of the policy year in which the premium increased.

    The partner may, on their own tax return, claim a tax offset for a bonus or any other amount in the nature of a bonus included in the income, if the organisation issuing the life policy is a:

    • life insurance company that pays tax on the income from which the amount was paid, or
    • friendly society.

    The tax offset a partner may claim on their own tax return for 2020–21 is equal to 30 cents in each dollar.

    Include the bonus or other amount in the nature of a bonus in the calculation of net income or loss of the partnership and apportion it among the partners in the same ratio as they share in that net income or loss of the partnership.

    If the partnership received assessable bonuses from a life insurance company or friendly society, include the total amount at O. To ensure the tax offset is allowed, provide a statement showing the amounts from the life insurance company and friendly society life insurance policies. Attach the statement to the tax return. Print X in the Yes box at Have you attached any ‘other attachments’? at the top of page 1 of the tax return.

    Record keeping

    If a bonus or other amount in the nature of a bonus is included at O, or an amount was not included because of the circumstances under which it was received, keep a record of the:

    • type of policy
    • name of the issuing organisation
    • policy number
    • date the policy was taken out
    • bonus statement or advice
    • date that each amount was received
    • nature of each amount, for example, bonus, loan or withdrawal
    • circumstances under which each amount was received, for example, partial surrender of policy, serious financial difficulties, death, accident, illness or other disability
    • basis of calculation of the amount included.

    For more information on bonuses received from certain life insurance policies, see Taxation Ruling IT 2346 Income tax: bonuses paid on certain life assurance policies – section 26AH – interpretation and operation.

    For more information on amounts switched between investment options for the same life insurance policy, see TD 94/82 Income tax: does section 26AH of the Income Tax Assessment Act 1936 apply when investment options are ‘switched’ under an eligible policy?

    Bonuses credited from friendly society income bonds

    Include bonuses received from friendly society income bonds at O. The distribution statement issued by friendly societies to income bond holders will advise the amount that should be included as income. Do not include these amounts in the calculation of the tax offset applicable to bonuses from life insurance policies.

    Add backs: Listed investment company (LIC) capital gain

    If a distribution is received from another partnership or trust which advises it has claimed a deduction for a LIC capital gain amount, the partnership is required to add back as income its share of the deduction allowed to the other partnership or trust.

    Royalties

    For information on royalty income shown at O, see Appendix 2.

    Foreign exchange gains or losses

    Show at O the assessable Australian source foreign exchange (forex) gains or deductible losses that you have not already included at any other label, for example, a label in item 5 Business income and expenses. If the total amount at O is a loss, print L in the box at the right of the amount.

    For more information on how to calculate forex gains and losses, see Foreign exchange gains and losses.

    As foreign currency is a CGT asset, the capital gains tax provisions can apply to any capital gain or capital loss made on a CGT event. Any capital gain would generally be ignored or reduced to prevent double taxation if the gain was assessable under the TOFA rules or Division 775 of the ITAA 1997.

    If a partnership has made a foreign exchange gain or loss which is subject to CGT, each partner must include their share of the capital gain or capital loss on their own tax return.

    TOFA amounts from financial arrangements

    If the TOFA rules apply to calculate an assessable gain or deductible loss on the partnership’s financial arrangements, include at this item those assessable gains relating to the financial arrangements.

    TOFA amounts that have been included elsewhere should not be included here, for example, amounts that have already been included at:

    • item 5S Net income or loss from business
    • item 8A Distribution from partnerships
    • item 8Z Share of net income from trusts
    • item 11J Gross interest
    • item 12K Unfranked amount
    • item 23B Gross other assessable foreign source income.

    If the TOFA rules apply to the partnership and the other Australian income shown at O or any other income label includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).

    See also:

    15. Total of items 5 to 14

    Show at item 15 the total of all Australian income.

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

    Continue to:

    Last modified: 27 May 2021QC 64904