Show download pdf controls
  • Income excluding foreign income – items 5 to 15

    In this section:

    5 Business income and expenses

    The amounts you include here, at business income C to G and D to H, and expenses P to N, are generally accounting system amounts (which may require specific adjustment, for example to exclude GST) subject to two exceptions for small business entities.

    Small business entities choosing to use:

    • the simplified trading stock rules should use tax values for their closing stock in calculating their cost of sales shown at E
    • the simplified depreciation rules should use tax values for their depreciation expenses at K.

    For more information on small business entities, see Appendix 13.

    The accounting system amounts are shown or included on the business profit and loss statements and form the basis of the calculation of the trust's business net income or loss for tax purposes. 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 (occurring, for example, 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 trust (include distributions received from other trusts and partnerships at item 8 Partnerships and trusts)
    • Australian-sourced income (include foreign source income at item 22 Attributed foreign income and 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 previous two columns.

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

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

    Ceasing use of the STS accounting method

    If the trust 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) are accounted for in this year. You may need to make additional reconciliation adjustments. See Specific reconciliation adjustments – Former STS taxpayers.

    Income (all trusts)

    In this section:

    Gross payments where ABN not quoted

    Show at C and D item 5, as appropriate, gross income received by the trust that was subject to withholding where an Australian business number (ABN) was not quoted, this includes amounts of tax withheld.

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

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

    Gross payments subject to foreign resident withholding

    Show at B item 5 gross payments to the trust that were regulated foreign resident income. Gross payments include amounts withheld.

    Complete this entry only if the trust is a non-resident trust. For a resident trust, do not include an amount, such as foreign sourced income, at this entry.

    'Regulated foreign resident income' refers to payments that are prescribed in the Taxation Administration Regulations 2017External Link (and former Tax Administration Regulations 1976External Link) 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.

    Do not include at this label amounts subject to the foreign resident capital gains withholding. The capital gains should be included at item 21 Capital gains.

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

    Show gross distributions of regulated foreign resident income from partnerships and other 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 credits, grants, rebates, bounties and subsidies are assessable income in the hands of the recipient if they are received in, or in relation to, the carrying on of a business. This generally includes amounts of a capital nature. However, amounts relating to the commencement or cessation of a business may not be assessable as income directly, but may give rise to a capital gain.

    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 the trustee accounts for the cash flow boost as income in the trust’s accounting system, the trustee may include it in:

    • the amount reported at G and H (as appropriate) at Income item 5 Business income and expenses, and
    • the calculation of Income reconciliation adjustments amounts shown at Reconciliation items item A Income reconciliation adjustments as an income subtractions item. As a result, no cash flow boost amount will be reported at item 5 Total net income/loss from business or item 26 Total net income/loss.

    Depending on the terms of the trust deed, if the cash flow boost is considered to be income of the trust estate it would be reported as follows:

    • the total amount reported at A item 56 Income of the trust estate, and.
    • the amount also reported at W item 57 Statement of distribution for each beneficiary’s share of the income of the trust estate.

    The cash flow boost should not be reflected at any other items in the Trust tax return or the Statement of distribution.

    Show at E 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)
    • producer rebate (wine equalisation tax)
    • alcohol manufacturer excise refund
    • product stewardship (oil) benefit.

    If the amount at E or F includes fuel tax credits 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 after 1 July 2020 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 G and H as appropriate, other business income such as revenue arising 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 trust, include other business income from financial arrangements subject to the TOFA rules at G or H.

    Do not include amounts that are shown at C, D, B, E and F.

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

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

    If you acquired or disposed of cryptocurrency in carrying on your business in 2020 – 21, the funds or property received through the acquisition and disposal are likely to be ordinary assessable income. For more information see Tax treatment of cryptocurrencies.

    Expenses

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

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

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

    If the trust 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 trust 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 trusts that are small business entities or would be small business entities if the aggregated turnover threshold was $50 million. If the amounts shown as expenses at item 5 differ from the amount allowable as deductions in 2020–21, make a reconciliation adjustment at B item 5.

    For more information, see Deductions for prepaid expenses 2021.

    In this section:

    Foreign resident withholding expenses

    Show at P item 5 all expenses directly relating to gaining the income shown at B Gross payments subject to foreign resident withholding, item 5. Do not show these amounts at any other expense entry in item 5. Do not include any expenses incurred in gaining income not assessable in Australia.

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

    Complete this entry only if the trust is a non-resident trust. For a resident trust do 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, subcontractor 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 such as advertising
    • service fees such as 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.
    Record keeping

    Keep a record of the following:

    • 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 eligible contributions made to a complying superannuation, provident, benefit or retirement fund, or retirement savings account (RSA), where the contribution is to provide superannuation benefits for employees or to provide benefits to the employee’s dependants on the employee’s death.

    Employers can claim a deduction for eligible superannuation contributions made in respect of a former employee within four months of the employee ceasing employment and at any time after the employee ceases employment for defined benefit interests.

    Superannuation benefits mean payments for superannuation member benefits or superannuation death benefits.

    You can claim a deduction in the income year in which the contributions are made.

    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 or pay the superannuation guarantee charge (SGC) that is payable on the superannuation guarantee shortfall.

    The SGC is not a superannuation contribution and is not tax deductible. Employers may not claim a tax deduction for any late contribution that they make to reduce the amount of SGC that they have to pay under the superannuation guarantee late payment measures.

    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 1986.

    There is no limit on the amount of contributions that can be claimed as a deduction by an employer contributing to a complying superannuation fund or RSA 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 the concessional contributions cap. For more information, see Super contributions - too much can mean extra tax.

    If an employee has reached the age of 75 years, there is a restriction on the deduction that can be claimed for an employer contribution to a complying superannuation fund or RSA. For contributions made after the 28th day of the month following the employee’s 75th birthday, the deduction claimable is limited to the greater of the following amounts:

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

    For more information, see Key superannuation rates and thresholds.

    Cost of sales

    Small business entities

    If the trust is a small business entity using the simplified trading stock rules, you 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 trust does not need to account for the change in value of closing stock, its closing stock will equal its opening stock value. If the trust does need to account for the change in value of closing stock, or chooses to do so, see item 41 Closing stock for information about how to calculate the closing stock value.

    All trusts

    Show at E item 5 the cost of anything produced, manufactured, acquired or purchased for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. This includes freight inwards and may include some external labour costs, if these are 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) then 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 (i.e. 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 cannot claim a deduction for bad debts unless the debt that is bad has previously been included in your assessable income, or is for money lent in the ordinary course of the business of the lending of money by a trust carrying on that business. Accordingly, you cannot generally claim a deduction for an unpaid present entitlement that has been written off as a bad debt under section 25-35 of the ITAA 1997.

    Under the Trust losses provisions of Schedule 2F to the ITAA 1936, certain rules have to be satisfied by a trust before the trustee can deduct bad debts or debt equity swap amounts. For more information about the trust loss provisions, see Trust loss provisions.

    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 trust 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 trust, include all the trust's bad debts from financial arrangements subject to the TOFA rules at F item 5.

    Record keeping

    If the trust writes off bad debts during the income year, keep a statement for all debtors in respect of which a write-off occurred, showing:

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

    Lease expenses

    Show at G 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 treaties (treaties). If you have withheld amounts from payments to non-residents, you may need to lodge by 31 October 2021 a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report. For more information, phone 13 28 66.

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

    Record keeping

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

    • a description of the items leased
    • full particulars of the lease expenses for each item, including motor vehicles, showing          
      • who the payments were made to
      • 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.

    Rent expenses

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

    Total interest expenses

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

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

    Do not include interest expenses incurred in relation to deriving rental income, these interest deductions are shown at G item 9.

    Interest paid or payable to non-residents

    An amount of tax, withholding tax, is generally required to be withheld from interest paid or payable to non-residents and to overseas branches of residents by the resident payer.

    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.

    Distributions made by the issuer of a non-share equity interest are not deductible.

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

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

    Record keeping

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

    • 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.

    Total royalty expenses

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

    Royalties paid or payable to non-residents

    An amount of tax, withholding tax, is generally required to be withheld from royalties paid or payable to non-residents and to overseas branches of residents by the resident payer.

    Record keeping

    Keep a record of the following:

    • 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 Appendix 2.

    Depreciation expenses

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

    Show the depreciation expenses of small business entities using the simplified depreciation rules as tax values, at K. 

    All other trusts

    Show at K the book depreciation expenses for depreciating assets, other than for pool assets. For assets allocated to the pool, include at K 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 G or H Other business income
    • 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

    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 businesses 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 from 7:30pm AEDT 6 October 2020 to 30 June 2022, and where no balancing adjustment event has occurred in the same income year. Additionally, eligible small businesses are also able to deduct the business portion of cost of improvements to those new eligible depreciating assets, and to existing eligible depreciating assets, incurred from 7:30pm AEDT on 6 October 2020 to 30 June 2022.

    Small businesses that do not apply the simplified depreciation rules can opt out of temporary full expensing on an asset-by-asset basis. The choice cannot be changed, 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.

    For more information about eligible assets and eligible businesses, see Temporary full expensing.

    Small business entities applying the simplified depreciation rules

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

    Under temporary full expensing, you must also claim a deduction for the cost of improvements made from 7:30pm AEDT on 6 October 2020 to 30 June 2022 to an asset that you have written off under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction for the taxable purpose portion of the improvement cost, and no threshold applies.

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

    Assets costing 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 also:

    The 'lock out' laws have been suspended for the simplified depreciation rules (these prevent small business from re-entering the simplified depreciation regime for five years if the they have opted out) for income years that include 30 June 2021 and 30 June 2022.

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

    If the trust 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 trust 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) which 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. However, a taxpayer 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. 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 that 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, see Small business entity concessions.

    Calculating depreciation deductions for small business entities

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

    If the profit and loss statement of the trust provides the amounts to complete Table 4, write these amounts in the table. Otherwise, use steps 1 to 6 to calculate the depreciation deductions.

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

    Table 3: Explanation of terms

    Term

    Explanation

    Depreciating asset

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

    Decline in value (previously ‘depreciation’)

    is the value that an asset loses over its effective life.

    Adjustable value of a depreciating asset

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

    Taxable purpose

    includes the purpose of producing assessable income.

    Taxable purpose proportion

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

    Termination value

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

    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

    include the costs of capital improvements to assets and costs reasonably attributable to disposing of or permanently ceasing to use an asset (this may include advertising and commission costs or the 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 purchased 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, 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 from 7:30pm AEDT on 6 October 2020 to 30 June 2022, the instant asset write-off threshold does not apply. You must immediately deduct the business portion of the asset's cost under temporary full expensing.

    Under temporary full expensing, you must also claim a deduction for the cost of improvements made from 7:30pm AEDT on 6 October 2020 to 30 June 2022 to an asset that you have written off under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction at this step for the business portion of the improvement cost and no threshold applies. Any later improvements are added to the small business pool.

    For assets which qualify for a deduction under the small business simplified depreciation rules, work out the extent they are used for the purpose of producing assessable income (taxable purpose proportion). Calculate the deduction for each eligible asset as follows:

    Asset adjustable value × asset 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 trust solely for private purposes. For example, for computing hardware bought on 1 December 2020 at a cost of $140,000 (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 $140,000 × 70% = $98,000.

    Add up all of the amounts from this step and write the total at (a) in Table 4.

    Do not include in this calculation:

    • amounts for depreciating assets that the trust started to hold prior to commencing to use the simplified depreciation rules and that cost less than the relevant instant asset write off threshold; allocate these assets to a general small business pool (see step 2)
    • amounts for depreciating assets that cost the relevant instant asset write off threshold or more, even if the taxable purpose proportion determines an amount to be deducted of less than the relevant threshold. Such assets must be allocated to the general small business pool (see step 2). For example, if a truck cost $150,200 (excluding input tax credit entitlements) and first used or installed ready for use on 1 October 2020, the taxable purpose proportion is $105,140 ($150,200 × 70%). On 1 October 2020 the instant asset threshold was $150,000. However, the truck must still be allocated to the general small business pool, because its cost is above the relevant threshold applicable at the time it was first used.

    Did your income year end 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 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. The opening pool balance for trusts which have not previously used the simplified depreciation rules 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
    • not excluded from the simplified depreciation rules.

    When allocating each depreciating asset the trust 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, add only $96,000 to the pool.

    The trust can choose not to allocate an asset to the general small business pool if the asset was first used, or installed ready for use, for a taxable purpose before 1 July 2001. A trust making this choice would 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:

    General small business pool deduction = opening pool balance ($) × 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 4.

    Go to step 3.

    Step 2A: General small business pool balance

    The opening 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. The opening pool balance for trusts which have not previously used the simplified depreciation rules 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
    • not excluded from the simplified depreciation rules.

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

    1. the opening pool balance, plus
    2. the taxable purpose proportion of the adjustable value of assets that were first used, or installed ready for use, for a taxable purpose during the year (these are the assets that have not been written off in step 1), plus
    3. the taxable purpose proportion of any cost addition amounts for assets in the pool during the year (these are the improvements to assets that have not been written off in step 1), less
    4. the taxable purpose proportion of the termination value of any pooled assets disposed of during the year. If the trust 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.

    The result of a to d above is the balance of the pool. If the result is greater than zero for 2020-21, you claim an immediate deduction for this amount. Write the result at (b) in Table 4.

    If the closing pool balance is less than zero, the amount below zero is included in assessable income at Reconciliation items item 5; see Worksheet 1. For more information about closing pool balances, see Closing pool balance.

    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 closing pool balance is needed to work out the pool deduction next year. Do not write the closing pool balance on the tax return.

    Go to step 4.

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

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

    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 half the general small business pool rate for    
      • depreciating assets that the trust first used or installed ready for use for a taxable purpose during 2020–21 which are not eligible for the accelerated depreciation rate of 57.5% (such as second hand assets)
      • cost addition amounts incurred during 2020–21 for assets already allocated to the pool
    • at 57.5% for eligible new depreciating assets that the trust first used or installed ready for use for a taxable purpose during 2020–21.

    Calculate the deduction for the income year as follows:

    • the taxable purpose proportion of the adjustable value of each eligible new depreciating asset first used for a taxable purpose from 1 July 2020 to 30 June 2021 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 from 1 July 2020 to 30 June 2021 that is not eligible for the accelerated depreciation × 15% for general small business pool assets, plus
    • the taxable purpose proportion of cost addition amounts × 15% for the general small business pool assets.

    Add up these amounts and write the total at (c) in Table 4. This amount is the total deduction for general small business pool assets.

    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 and write the total at (d) in Table 4. For more information see Appendix 6 and Guide to depreciating assets 2021.

    Write the total deduction at (e) in Table 4.

    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 trust has disposed of a low-cost asset for which it has claimed an immediate deduction under step 1 in 2020–21 or in a prior income year, include the taxable purpose proportion of the termination value at Reconciliation items item 5; see Worksheet 1. For example, if a low-cost asset used only 60% for an income-producing purpose, and was sold for $2,000 (excluding GST), only $1,200 will be assessable and included as a reconciliation adjustment.

    (b) Assets allocated to the general small business pool

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

    If the trust 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, if a pooled depreciating asset used only 60% for an income-producing purpose, and was sold for $3,000 (excluding GST), only $1,800 will be deducted from the closing pool balance.

    Write this deduction against the general small business pool deduction at (b) in Table 4.

    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 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 Reconciliation items item 5; 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:

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

    If the closing pool balance is less than zero, the amount below zero is included in assessable income at Reconciliation items item 5; see Worksheet 1. For more information about closing pool balances, see Closing pool balance.

    The trust 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 4

    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 closing pool balance is needed to work out the pool deduction next year. Do not write the closing pool balance on the tax return.

    Table 4: Depreciation deductions (small business entities using simplified depreciation rules only)

    Row

    Calculation elements

    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 the amounts from rows a to d.)

    $

    $

    $

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

    Transfer the amount at row a to A Deduction for certain assets item 51.

    Transfer the total of the amounts at rows b and c to B Deduction for general small business pool item 51.

    Five-year restriction

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

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

    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.

    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, 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 (for example, if the property is used for private purposes or in the production of exempt income) to an extent that is reasonable in the circumstances.

    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.

    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.

    All other expenses

    Show at N the total of all other business expenses for the income year that has not already been included at P 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.
    • The calculation of some deductions may be affected by the commercial debt forgiveness provisions; see Appendix 4.          
      • Expenses listed here that are costs associated with borrowing and servicing debt may not be allowable under the thin capitalisation rules; see Appendix 3. Include the non-deductible amount at B Expense reconciliation adjustments.
    • If what you show at N includes an amount that 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 P to N.

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

    Reconciliation items

    In this section:

    The reconciliation adjustments reconcile operating profit or loss as shown in the profit or loss account (the accounts) with the trust's net income or loss from business for income tax purposes.

    If the trust 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 amounts included here fall into two classes, which either increase or reduce the net adjustment, 'income add backs' and 'income subtractions'.

    • Income add backs are amounts not shown in the accounts, but 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)
      • assessable balancing adjustment amounts on depreciating assets; see Appendix 6
      • limited recourse debt amounts; see Appendix 6
      • other assessable income not included in the accounts, small business entities should see Appendix 6.
    • Income subtractions are income items shown in the accounts, 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 double-tax treaty
      • profit on the sale of a depreciating asset; see Appendix 6
      • personal services income (PSI) included in the assessable income of an individual (attributed amount); see item 30 Personal services income
      • other income shown in the accounts which is not assessable for income tax purposes; former STS taxpayers should 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. Print L in the box at the right of the amounts shown at A.

    Expense reconciliation adjustments

    Show at B the net expense related reconciliation adjustments. The amounts included here fall into two classes that either increase or reduce the net adjustment, 'expense add backs' and 'expense subtractions'.

    • 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 item 30 Personal services income
      • debt deductions denied by the thin capitalisation provisions; see Appendix 3
      • depreciation expenses; see Note
      • expenses relating to exempt income, including expenses relating to tax treaty exempt income
      • hire-purchase payments; see Appendix 6
      • income tax expense
      • loss on the sale of a depreciating asset
      • luxury car lease payments
      • part of prepaid expenses not deductible this year
      • penalties and fines
      • other non-deductible expenses; former STS taxpayers should see Former STS taxpayers

    Note: Only add back amounts of depreciation expenses if the trust 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 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
      • 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 trusts using the small business entity depreciation rules); see Appendix 6
      • instant asset write off for medium sized business; see Appendix 6
      • deduction for environmental protection expenses; see Appendix 6
      • deduction for project pool; see Appendix 6
      • deduction for electricity connections and telephone lines; see Appendix 6
      • hire purchase agreements, interest component; see Appendix 6
      • deductions for landcare operations and decline in value of water facility, fencing asset and fodder storage asset; see Appendix 6
      • luxury car leases, accrual amount; see Appendix 6
      • part of prepaid expenses deductible this year, but not shown in accounts
      • section 40–880 deduction; see Appendix 6
      • other deductible items; former STS taxpayers should see Former STS taxpayers.

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

    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.

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

    Specific reconciliation adjustments

    In this section:

    Former STS taxpayers

    If the trust is eligible and is continuing to use the STS accounting method, you may need to make additional adjustments; see Appendix 13.

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

    • uses the STS accounting method, and the amounts shown at item 5 Income and Expenses are not based on the STS accounting method, or
    • stops using the STS accounting method.

    These adjustments are explained in more detail below, Worksheet 1 will help with the calculations.

    Trade debtors and creditors as at 30 June 2021

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

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

    If the trust is eligible, has chosen to continue using the STS accounting method and has included, as expenses 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 (for example, trade creditors at 30 June 2021) are not deductible in 2020–21.

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

    Adjustments when ceasing to use the STS accounting method

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

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

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

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

    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 trust 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, amount below zero, and
    • 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 businesses 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 the next year of income, you must apportion the deduction for the expenditure over the eligible service period or 10 years, whichever is less.

    For more information, see Deductions for prepaid expenses 2021. If expense amounts 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 trust’s total deduction for prepaid expenses in 2020–21 may comprise two components:

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

    For more information, see Deductions for prepaid expenses 2021.

    If expense amounts include prepaid expenses that 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 item 39 Opening stock and item 41 Closing stock.

    Net income or loss from business

    The trust's net income or loss from business is the amount of the trust's net income or loss for tax purposes that is from business. It is the total business income less total expenses incurred in producing that income according to the accounting systems, adjusted by any tax 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 Q 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 or minus
    • A Income reconciliation adjustments and B Expense reconciliation adjustments.

    The amount shown at S equals the sum of the net income or loss from business at:

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

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

    Net small business income

    Is the trust a small business entity?

    No – Go to Item 6

    Yes – Read on.

    The trust must work out the net small business income. Beneficiaries who are individuals need to know their share of net small business income to claim the small business income tax offset on their own tax return if they are entitled to it.

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

    Trustees and beneficiaries who are prescribed persons (under 18 years of age and not excepted persons) are not entitled to the offset.

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

    Do not include:

    • any net capital gains from assets used in carrying on the business
    • any personal services income that was attributed to another person
    • any of the following deductions          
      • tax-related expenses
      • gifts or contributions
      • tax losses from prior years.

    Completing this item

    Step 1

    Did the trust have any business income or deductions shown at items other than item 5 Net income or loss from business?

    No – The amount at S item 5 Net income or loss from business is your net small business income. Show this amount at V item 5 Net small business income. You have completed with this item. Go to item 6.

    Yes – Read on.

    Step 2

    If you had any of the following, use worksheet 1A to work out your 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 show at this item; for example, debt deductions against foreign source business income claimed at item 18.

    You can find more information about the small business income tax offset here.

    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 trust or partnership where an ABN was not quoted. Show this at C item 8.

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

    Credit for tax withheld – foreign resident withholding

    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 trust from other trusts or partnerships.

    Do not include at this label any amount for foreign resident capital gains withholding. This amount should be shown at B item 21 Capital gains.

    Complete this entry only if the trust is a non-resident trust and the amount was withheld in Australia and remitted to us.

    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 B item 5.

    7 Credit for interest on early payments – amount of interest

    Show at W only the calculated interest amount of 50 cents or more for early payment. Do not show actual payments.

    Interest may be payable where an actual payment is made on account of certain amounts more than 14 days before the due date of payment. Amounts that may attract early payment interest include payments of:

    • income tax (including Medicare levy)
    • a shortfall interest charge
    • interest payable under section 102AAM of the ITAA 1936.

    Amounts that are not directly paid to us, but are reduced by the crediting or applying of an amount do not attract early payment interest. These amounts include:

    • credit for instalments payable under the PAYG instalment regime
    • credit for amounts withheld from withholding payments under the PAYG withholding regime
    • an overpayment of other income tax liabilities
    • a running balance account (RBA) surplus
    • any other credit entitlement arising under a taxation law.

    Early payment interest is also not payable on any part of the payment that:

    • exceeds the amount due
    • attracts interest on overpayment.

    For taxable trusts, early payment interest is calculated from the later of:

    • the date of issue of the notice notifying the amount of tax or interest, or
    • the date the early payment is made.

    Interest is payable up to the due date for payment, but only on the amount of payment up to the value of the debt.

    However, where an amount that is paid early is refunded before the day it becomes due and payable, interest does not accrue on the amount for any period after the day it is refunded.

    Date of payment is the date:

    • shown on the receipt
    • the payment is posted to us, plus three business days, or
    • shown on the taxpayer’s bank statement where payment is made through direct debit; that is, electronic funds transfer (EFT).
    Table 5 Interest rates for early payment

    Period

    Interest rate (p.a.)
    %

    1 July 2020 to 30 September 2020

    0.1

    1 October 2020 to 31 December 2020

    0.1

    1 January 2021 to 31 March 2021

    0.02

    1 April 2021 to 30 June 2021

    0.01

    If the early payment extends over two or more interest periods, calculate the interest for the number of days in each period.

    Interest is calculated as follows:

    Divide the number of days by 365 (366 for a leap year). Multiply the result by the amount of the payment. Take this amount, and multiply it by the interest rate for the period divided by 100.

    Keep a record of the amount of early payment interest claimed. This interest is assessable as income in the income year in which it is paid or credited against another liability.

    8 Partnerships and trusts

    In this section:

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

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

    Distributions from partnerships or shares of the net income of other trusts may include or be attributable to the partnership or trust's 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.

    Copy the details from any statements of distribution or advice received from the partnerships and other trusts to new Worksheet 2. This is the trust’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 the ITAA 1936. Show these amounts at K item 12.

    If 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, or
    • 23 Other assessable foreign source income.

    Show net capital gains (including foreign capital gains) at item 21 Capital gains.

    Amounts of foreign resident capital gains withholding should be shown at B item 21 Capital gains.

    Dividends received from listed investment companies (LIC) are not distributions of net capital gains. For more information, see Guide to capital gains tax 2021.

    To the extent that family trust distribution tax (FTDT) has been paid on income or capital to which the trust is presently entitled or has been distributed from or received from a partnership or other trust, an amount is excluded from the assessable income of the trust 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 the trust receives or is presently entitled to a share of income which includes an amount, received indirectly from a closely held trust, on which trustee beneficiary non-disclosure tax (TBNT) has been paid, you do not need to include the amount in the trust’s assessable income.

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

    Primary production

    Distribution from partnerships

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

    If the trust's share of primary production income included in the net income of other trusts is zero because the other 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 1 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.

    Deductions relating to amounts shown at A and Z

    Show at S the trust’s deductions for its own expenses relating to primary production distributions from partnerships. Also show at S the trust'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 other trusts. Expenses incurred on behalf of those other trusts are not able to be deducted by the trust.

    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 here the net result of adding the trust’s partnership distributions of primary production income and the trust's share of primary production income that has been included in the net income (for tax purposes) of other trusts less 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 from partnerships. 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 at U item 8 but do not include amounts subject to foreign resident capital gains withholding).

    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 here represent both the trust’s share of the franked dividend and its share of the franking credit attached to the franked dividend. The franking credit is also included at D item 8. Franked distributions received from a partnership are shown at B and not at F item 8.

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

    If the trust received a distribution from a partnership and that partnership advised that it claimed a deduction in respect of a LIC capital gain amount, the trust is required to include its share of the deduction allowed to the 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 trust's share of the non-primary production income, which was included in the net income (for tax purposes) of other trusts. The statement of distribution or advice from the other 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 but do not include amounts subject to foreign resident capital gains withholding).

    The trust's franked distributions from trusts and its share of the franking credits referrable to those franked distributions (the franking credit 'gross-up') are no longer included at the amount shown at R. These amounts are now included at F. 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. Unfranked distributions are still shown at R.

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

    Although for tax purposes a trust cannot 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 trust's share of net income from another trust related to non-primary production activities is a loss, and record this at R.

    If the trust's share of non-primary production income which was included in the net income (for tax purposes) of another 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 adjusted for any amounts shown at F 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 1 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.

    Deductions relating to amounts shown at B and R

    Show at T the trust’s deductions for its own expenses relating to non-primary production distributions from partnerships, 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 trust'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 other trusts. Expenses incurred on behalf of those other trusts 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 or where relevant G.

    If FTDT has been paid on income or capital of another trust or partnership that the trust is entitled or which has been distributed to the trust, an amount is excluded from the trust's assessable income under section 271-105 of Schedule 2F to the ITAA 1936. Do not show this at A, Z, B, R or F. You cannot claim a deduction for any losses or outgoings incurred in deriving an amount that is excluded from assessable income at S, T 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 trust, that amount is excluded from the assessable income of the trust. Do not show that income at A, Z, B, R or F. You cannot claim a deduction for any losses or outgoings incurred in deriving an amount which is excluded from assessable income at S, T or G.

    Franked distributions from trusts

    A franked distribution is a distribution that has a franking credit attached to it and includes both fully and partially franked distributions. If the trust's share of the non-primary production income included in the net income of other trusts 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 trust’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 trust'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 D item 8. Unfranked distributions are shown at R item 8.

    Do not show any share of another trust's non-primary production income included in the net income of that other 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 item 23 Other assessable foreign source income.

    If the trust received, or was entitled to receive, income from another trust, and that income included a franked distribution (dividend) paid by a LIC, the total franked distribution should be shown at F.

    If the trust received, or was entitled to receive, income from another trust, and that trust advised that it claimed a deduction in respect of a LIC capital gain amount, the trust is required to include an amount equal to its share of the deduction allowed to the trust at item 14 Other Australian income.

    Deductions relating to franked distributions from trusts in F

    Show at G the trust's deductions for its own expenses incurred in deriving its share of the franked distributions from trusts at F. The amount of deductions which can be claimed at G may be also be limited in circumstances such as those described above, for example by the prepayment and thin capitalisation rules, or because an amount shown at F was excluded from the trust's assessable income.

    Net non-primary production amount

    Show at this entry the net result of adding the partnership distributions of non-primary production income and the trust's share of non-primary production income included in the net income (for tax purposes) of other trusts, less deductions related to that income, plus the net amount of the franked distributions from trusts, less 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 A, Z, B, R or F includes any share of amounts that 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 trust’s share of any franking credits from a franking entity received indirectly through a partnership or other trust.

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

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

    • They were attributable to a distribution from a New Zealand franking company. If the trust received franking credits indirectly from a New Zealand franking company, see item 23 Other assessable foreign source income.
    • The holding period rule and related payments rule were not satisfied in relation to the dividend. For more information, see appendix 1.
    • FTDT has been paid on the dividend paid or credited by a company that 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 cannot 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 cannot 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 current rate is 47% of the payment made.

    Show at E the trust'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 partnerships or other trusts. Credits for TFN amounts withheld are allowed in the assessments of the beneficiaries or trustees.

    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 any amounts withheld by a trustee of a closely held trust because a TFN was not provided.

    Share of credit for amounts 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, sports activities, construction, related activities and casino gaming junket activities.

    Show at U the trust’s share of any foreign resident withholding credits received from partnerships or other 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 amounts of foreign resident capital gains withholding at U item 8. These should be shown at B item 21 Capital gains.

    Do not include a share of tax paid under subsection 98(4) from other trusts.

    Taxation of financial arrangements (TOFA)

    If the TOFA rules apply to the trust, include at item 8 Partnerships and trusts the trust's share of all primary production and non-primary production income distributed from partnerships or included in the net income (for tax purposes) of other trusts and deductions relating to such amounts. This includes amounts from financial arrangements subject to 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

    In this section:

    Former STS taxpayers still using the STS accounting method

    If the trust 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 Appendix 13.

    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 Small business entity concessions.

    If the sole reason you derived income jointly (or in common) with another person was that you were a part owner of a property available for rent, but you were not in a trust carrying on a business of renting out properties, do not show any income or deductions from that rental property at this item. Show your share of the income or deductions at item 21 Rent of your Tax return for individuals (supplementary section) 2021 or the relevant items of the company, trust or fund tax return or the self-managed superannuation fund annual return.

    For more information to help you work out whether you are carrying on a business, see TR 97/11 Income tax: am I carrying on a business of primary production?

    Gross rent

    Show at F the gross amount of rental income. This item cannot be a loss.

    Rental income includes booking or letting fees, bond monies if the trust 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 trust is registered for GST, and GST is payable in relation to 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 at item 21 Capital gains.

    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, to the extent that the loan is used or refinanced for a private purpose, you must apportion the interest expense to account for the private use.

    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 trust, include all interest expenses incurred on monies borrowed to finance a property: this includes interest expense 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.

    Other rental deductions

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

    If the trust is registered for GST and GST is payable in relation to rental income, exclude any input tax credit entitlements that arise in relation to 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; 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 trust has allocated some of these assets to a low-value pool, you may need to show deductions at 18 Other deductions; see Appendix 6.

    Net rent

    Show at this entry 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.

    Tax agents who lodge trust tax returns through PLS must complete the Partnerships and trusts rental property schedule 2021 if item 9 Rent is completed. You do not have to complete the schedule if you are lodging a paper version of the trust tax return.

    10 Forestry managed investment scheme income

    Write at Q item 10 the total income from the forestry interests that the trust holds in a forestry managed investment scheme (FMIS). The amount you show at Q will depend on the points below.

    Do not include capital gains from an FMIS; show these at A Net capital gain item 21. For more information on the CGT treatment of the trust’s forestry interests, see Guide to capital gains tax 2021. If the trust is a member of a collapsed agribusiness managed investment scheme, see Collapse and restructure of agribusiness managed investment schemes – participant information for information on calculating your income and deductions.

    In this section:

    Definitions

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

    A trust is an initial participant in a FMIS if:

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

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

    The amount of the trust’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. For more information on amounts the trust can deduct, see item 17 Forestry managed investment scheme deduction.

    The amount of the trust’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.

    For an initial participant in an FMIS

    Thinning receipts

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

    Sale and harvest receipts – forestry interest no longer held

    If:

    • the trust ceased holding its forestry interest as a result of a CGT event (because it sold its interest or it received harvest proceeds), and
    • the trust 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 it first pays an amount under the FMIS,

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

    Sale and harvest receipts – forestry interest still held

    If:

    • a CGT event happened and the trust still held its forestry interest (because it sold part of its interest or there was a partial harvest), and
    • the trust 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 trust first pays an amount under the FMIS,

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

    For a subsequent participant in an FMIS

    Thinning receipts

    If the trust received thinning proceeds from its forestry interest then include the actual amount received at Q.

    Sale and harvest receipts – forestry interest no longer held

    If:

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

    then include at Q the lesser of

    • 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.

    Example 6 shows how to calculate the amount to include at Q where the trust sold its forestry interest.

    Sale and harvest receipts – forestry interest still held

    If:

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

    work out:

    • the market value of the forestry interest at the time of the CGT event
    • 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:

    IND51153step6

    Include at Q the amount calculated using the formula.

    In a future income year (a year in which the trust 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 shows how to calculate the amount to include at Q where there is a harvest payment made and the trust still holds the forestry interest.

    To complete this item

    Add up all the amounts you worked out for the trust’s FMIS income. Write the total at Q.

    See examples 6 and 7 for how to calculate the amount you show at Q where the trust is a subsequent participant that holds the forestry interest on capital account.

    For more information on the CGT treatment of a trust’s forestry interest acquired as a subsequent participant, see Guide to capital gains tax 2021.

    Example 6: Sale receipts: forestry interest no longer held

    Cedar Trust 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 Trust 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.

    During an earlier period, it received $1,500 from thinning proceeds (its incidental forestry scheme receipts).

    Cedar Trust will need to include $2,500 (that is, $4,000 − $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 Trust will take the amount that it included at Q into account when working out the amount to include at A Net capital gain; see Guide to capital gains tax 2021.
    • The capital gain would be $3,500. That is, capital proceeds of $20,000 less cost base of $16,500. The $16,500 is made up of $14,000 plus $2,500 that was included in assessable income.
    End of example

     

    Example 7: Harvest receipts: forestry interest still held

    Oakey Trust 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.

    During the time that it held its interest, Oakey Trust claimed $4,000 in deductions (its total forestry scheme deductions) for lease fees, annual management fees and the cost of felling that it has 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) was $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 for the net deductions).

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

    Step 2 Using the formula above:

    $2,500 × $5,000 ÷ $20,000 = $625

    Oakey Trust disregards the $625 when determining the amount to include in step 2 for any future income year when it receives harvest proceeds or sells its forestry interest. This is because the $625 amount is already reflected in its assessable income in the current income year, 2020–21.

    Step 3 As the amount calculated at step 2 is less than the amount calculated at step 1, the Oakey Trust includes $625 at Q in its 2021 tax return.

    CGT notes:

    • Oakey Trust has disposed of 25% of its forestry interest. It must also calculate the amount it must include at A Net capital gain.
    • For 2020–21 the capital gain is $875. That is, capital proceeds of $5,000 less apportioned original cost base of $4,125. The $4,125 is made up of $3,500 (25% of $14,000) plus $625 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.

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

    If the trust has received or is entitled to receive an amount described as interest from a cash management trust or other similar trust investment product include this at item 8 Partnerships and trusts.

    Copy details from all statements to Worksheet 3. Keep the worksheet with your tax records.

    Do not include non-share dividends received from holding a non-share equity interest. If the trust 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 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
    • 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 8

    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 TOFA, 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 the total income each income year is equal to the increase in value of the security in that year, as follows:

    Table 6: Value of security

    Value of security at:

    Year 1
    ($)

    Year 2
    ($)

    Calculation

    Beginning of year

    82.65

    90.91

    a

    Half-year

    86.68

    95.35

    b

    Increase

    4.03

    4.44

    c = b − a 

    End of year

    90.91

    100.00

    d

    Increase

    4.23

    4.65

    f = d − b 

    Increase for year

    8.26

    9.09

    c + f

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

    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 trust tax return; keep them with the trust’s tax records.

    We may check the amount shown at J with our own records to determine accuracy; see Information matching.

    12 Dividends

    If the trust is a shareholder or holder of a non-share equity interest in a company (including a LIC) or it held units in a corporate unit trust or a public trading trust, that entity will usually give the trustee a dividend (also referred to as a distribution) or non-share dividend statement. The statement is likely to include:

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

    As a result of the 2016 amendments to repeal Division 6B and modify Division 6C, for income years starting on or after 1 July 2016, some trusts will cease to be taxed as corporate tax entities. Affected trusts will no longer be taxed similarly to companies, and distributions from those trusts will not be treated as dividends. However, some distributions may be treated as dividends until 30 June 2020. You should refer to any distribution statement from the trust. For more information see Application and transitional provisions for the new tax system for MITs.

    If a franked distribution has been received with an associated statement of distribution 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 directly 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 or other trust or partnership 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 trust’s tax records.

    If the trust was paid a dividend by a LIC and the dividend advice statement shows a LIC capital gain amount, the trust can claim a deduction of 50% of the LIC capital gain amount at item 16 Deductions.

    In this section:

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

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

    You cannot 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 cannot 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 trust is presently entitled to or which has been distributed to the trust, then the dividend is not included in the assessable income of the trust.

    You cannot claim a deduction for any losses or outgoings incurred in deriving these amounts that are excluded from assessable income and you cannot 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 (if the dividend statement shows this amount separately) received before any TFN amounts were withheld.

    If the TOFA rules apply to the trust, 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 trust is a holder, or an associate of a holder, of a share or non-share equity interest in a private company and it received:

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

    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. For the purpose of these rules, a loan has an extended meaning to also include, for example, the provision of financial accommodation and transactions that are in-substance loans.

    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 statement of distribution 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 beneficiaries or trustee may be entitled to a share of the franking credits shown at M. This share will be shown at item 57 on the statement of distribution. The amount of franking credits to which they will be entitled will depend on their individual share of the franked distribution received by the trustee, having regard to the deed and any relevant trustee resolutions.

    Do not show:

    • franking credits if the trustee did not satisfy the holding period rule and the related payments rule in relation to the dividend, or if the dividend washing integrity rule applies; for more information, see Appendix 1
    • franking credits received indirectly via a partnership or other trust; show your share of franking credit from these franked distributions at D item 8
    • franking credits attached to distributions paid by a New Zealand franking company; if the trust received franked distributions from a New Zealand franking company, see item 23 Other assessable foreign source income.

    We may check the franking amount shown at K, L and M with our own records to determine accuracy; see Information matching.

    TFN amounts withheld from dividends

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

    13 Superannuation lump sums and employment termination payments

    Death benefit employment termination payments (ETPs) and superannuation lump sums paid to trustees of deceased estates are reported at this item.

    To complete this question, use the:

    that your payer has provided.

    Superannuation death benefits paid to a trustee of a deceased estate

    A superannuation death benefit paid to a trustee is taxed in the hands of the trustee in the same way that it would be taxed if paid directly to a beneficiary, that is, portions of the payment are subject to tax to the extent that the beneficiary is a dependant or a non-dependant of the deceased. There is no tax payable to the extent that the payment is made to a dependant or eligible non-dependant (see Definition of terms) of the deceased.

    Eligible non-dependants of deceased members of the Australian Defence Force and Australian police forces (including Australian Protective Services) who have died in the line of duty are to be treated as dependants for tax purposes.

    The superannuation fund should have provided you with a PAYG payment summary – superannuation lump sum which shows the components of the payment.

    The tax-free component of a superannuation death benefit received by a trustee is not subject to tax, regardless of whether the beneficiary is a dependant or non-dependant.

    To the extent that a non-dependant is the beneficiary of the estate, the taxable component of the payment is assessable income. Show the taxed element at V and the untaxed element at W.

    If you have more than one payment summary, add the taxable component elements together and show the total of the taxed elements at V and the total of the untaxed elements at W.

    Death benefit employment termination payments

    An ETP paid to a trustee is taxed in the hands of the trustee in the same way that it would be taxed if paid directly to a beneficiary, that is, the portions of the payment are subject to tax to the extent that the beneficiary is a dependant or a non-dependant of the deceased.

    The employer should have provided you with a PAYG payment summary - employment termination payment which shows the components of the payment.

    The tax-free component of an employment termination payment received by a trustee is not subject to tax, regardless of whether the beneficiary is a dependant or a non-dependant.

    To the extent that a non-dependant is the beneficiary of the estate, the taxable component of the payment is assessable income and should be shown at Y item 13.

    To the extent that the beneficiary of the estate is a dependant, taxable component amounts up to the ETP cap ($215,000 for 2020–21) are not subject to tax and are not shown on the return. Amounts above the ETP cap are assessable income and should be shown at X.

    If you have more than one payment summary from the same employer, add the components that are assessable income together and show them at the appropriate label.

    For more information, see Taxation of termination payments.

    Definition of terms

    A person is a dependant of the deceased if, at the time of death or the time the payment was made, the person was:

    • the surviving spouse, including a de facto spouse
    • a former spouse, including a former de facto spouse
    • a child of the deceased who was under 18 years old
    • a financial dependant of the deceased person just before he or she died, or
    • in an interdependency relationship with the deceased.

    A person who is not a dependant of the deceased may be referred to as a non-dependant.

    A person is an eligible non-dependant if they are a non-dependant of a deceased member of the Australian Defence Force or of an Australian police force (including Australian Protective Services) who has died in the line of duty.

    An interdependency relationship exists where there is a close personal relationship between two people who live together, and one or both provide for the financial, domestic and personal support of the other. An interdependency relationship can also exist where there is a close personal relationship, but the other conditions are not satisfied, because of the physical, intellectual or psychiatric disability of one of the people.

    Your spouse includes another person (of any sex) who:

    • you were in a relationship with that was registered under a prescribed state or territory law
    • although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.

    Child, in relation to a person, includes:

    • an adopted child, stepchild or an ex-nuptial child of the person
    • a child of the person’s spouse (as defined above)
    • someone who is a child of the person within the meaning of the Family Law Act 1975, for example, a child who is considered to be a child of a person under a state or territory court order giving effect to a surrogacy agreement.

    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.

    In this section:

    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

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

    If, during the year ended 30 June 2021, the trust 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 after 27 August 1982, you may need to show the amount at O.

    A trust is regarded as having received a bonus if it reinvests or otherwise deals with the bonus during the income year.

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

    • 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 in 2020–21 are not assessable.

    If the policy has a date of commencement of risk after 7 December 1983, include any bonus 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 10th year, one-third of the bonus amount is included, and
    • any amounts received after the 10th 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 beneficiary or trustee 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 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 trust and apportion it among the beneficiaries in the same ratio as they share in that net income or loss.

    If the trust 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 and 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 following:

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

    Royalties

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

    Foreign exchange gains or losses

    Show at O assessable Australian source foreign exchange gains or deductible losses that you have not included elsewhere, such as 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, 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 trust has made a foreign exchange gain or loss which is subject to CGT, show the capital gain or capital loss at A Net capital gain item 21.

    Excepted net income

    Show at Excepted net income and include at O the excepted net income received, excluding net capital gains that are included at A Net capital gain item 21.

    Provide a statement on a separate sheet of paper:

    • detailing the distribution of excepted income to each beneficiary, and
    • listing each beneficiary who is considered to be an excepted person, giving supporting reasons.

    Attach this statement to the tax return and print X in the Yes box at Have you attached any ‘other attachments’? at the top of page 1 of the tax return.

    For an explanation of excepted income and excepted person, see Appendix 9.

    TOFA amounts from financial arrangements

    If the TOFA rules apply to calculate an assessable gain or deductible loss on the trust’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:

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

    If the TOFA rules apply to the trust 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).

    For more information, see Guide to taxation of financial arrangements (TOFA).

    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 64913