P8 Business income and expenses
This item has three sections:
The amounts to be included in the Income and Expenses sections of item P8 are amounts derived from your accounting system or financial statements, except for:
- the values of opening and closing stock, which are to be shown at tax values, and
- depreciation expenses for small business entities choosing to use the simplified depreciation rules, which are to be shown at tax values.
The income and expense amounts to be included at item P8 should form part of your profit and loss statement and are the basis for calculating your net profit or loss. You should deal with any adjustments to these amounts for tax purposes in the Reconciliation items section of item P8.
Former STS taxpayers
If you are eligible and are continuing to use the STS accounting method, you must complete the income and expenses sections using the STS accounting method, see Former simplified tax system (STS) taxpayers.
Stop:
You show personal services income and related expenses at item P1, with the exception of personal services income subject to foreign resident withholding, which you show at this item.
Income
The business income to be shown at item P8 is divided into:
Stop
Do not show the following types of income at item P8:
- gross interest; show the amount of income at item 10 on your tax return
- dividends and franking credits; show the amounts at item 11 on your tax return
- distributions from partnerships and trusts; show these at item 13 on your tax return (supplementary section)
- gross rental or similar income that is not derived from carrying on a business of renting property, such as agistment or hire fees; show the amount at item 21 on your tax return (supplementary section)
- net capital gains; show at item 18 on your tax return (supplementary section)
- PSI shown at item P1
- farm management repayments; show at item 17 on your tax return (supplementary section)
- attributed foreign income; show at item 19 on your tax return (supplementary section)
- foreign source income; show at item 20 on your tax return (supplementary section).
Goods and services tax (GST)
If you are registered or required to be registered for GST, the following apply:
- For income tax purposes, you should exclude GST from assessable income, exempt income and amounts received or receivable that you take into account in calculating income and deductions.
- You should reduce deductible losses and outgoings by the amount of input tax credit entitlement.
- In certain circumstances, for example, a change in how much you used an asset for business purposes, an adjustment for GST purposes results in an amount being included in assessable income (if the adjustment is a
GST-decreasing adjustment) or being deductible (if the adjustment is a
GST-increasing adjustment).
- You should also exclude GST components under other specific rules including capital gains tax (cost base, reduced cost base, capital proceeds) and termination values.
If you are not registered or required to be registered for GST, you do not need to adjust your income and deductions for GST. You can claim the GST-inclusive amount incurred on deductible outgoings.
Former STS taxpayers
If you are eligible and are continuing to use the STS accounting method, you must complete the income and expenses sections using the STS accounting method, see Former simplified tax system (STS) taxpayers.
What you may need
- Primary production worksheet: If you are a primary producer, you will need this worksheet to help you determine some of the amounts in this section. The worksheet is included in Information for primary producers 2013 (NAT 1712). Complete the worksheet before proceeding.
- Individual PAYG payment summary schedule 2013 (NAT 3647).
Did you have amounts withheld from your business income – other than PSI included at item P1?
If tax has been withheld from business income, you should have received a payment summary.
You will need to complete the Individual PAYG payment summary schedule 2013 before completing item P8 if you received any of the following payment summaries:
The PAYG payment summary – business and personal services income allows reporting of different payment types (including voluntary agreement, labour hire or other specified payments). When completing the individual payment summary schedule, you must specify the nature of the income and the payment type made to you.
For more information, see the next section How to complete the Individual PAYG payment summary schedule 2013.
A payer may issue a receipt, remittance or similar document in place of the PAYG payment summary – withholding where ABN not quoted.
If you received income from which tax was withheld and you did not receive or have lost your payment summary, contact your payer and ask for a copy.
How to complete the Individual PAYG payment summary schedule 2013
Remember: If you have both business income (item P8) and personal services income (item P1), you will need to complete an Individual PAYG payment summary schedule 2013 for each type of income.
STEP 1 Write your TFN and name in the appropriate boxes at the top of the schedule.
STEP 2 Nature of income, print X in the Business income box.
STEP 3 For each payment summary, transfer the following information to the schedule:
- the type of withholding; look at your payment summary carefully to determine its type and complete the Type box, using the following key
V voluntary agreement
S labour hire or other specified payments
N withholding where ABN not quoted
F foreign resident withholding
- the payer’s ABN or withholding payer number (WPN) and the payer’s name in the appropriate boxes
- the total tax withheld in the Tax withheld box
- the gross payment in the Gross payment box.
STEP 4 Check that you have recorded details from all relevant payment summaries on your payment summary schedule, then attach the schedule to page 3 of your tax return.
Do not attach the payment summaries to your tax return. You must keep them for a period of five years.
Payers must report to us details of payments where amounts of tax have been withheld. This information will be cross-checked with that on your tax return to make sure that you have declared the correct amount of income and the correct amount of tax withheld.
Gross payments where Australian Business Number (ABN) not quoted
Did you have amounts of tax withheld for failure to quote an ABN?
You need to know
The amounts you show at C and D are the total income you received from which your payers have withheld an amount because you did not quote your ABN. You will be able to calculate these amounts from your completed Individual PAYG payment summary schedule 2013.
Completing this item
STEP 1 Add up all the Gross payment amounts on your completed payment summary schedule derived from primary production activities that have an N in the Type box. Write the total at C item P8 on page 2 of your schedule. Do not show cents.
STEP 2 Add up all the Gross payment amounts on your completed payment summary schedule derived from non-primary production activities that have an N in the Type box. Write the total at D. Do not show cents.
STEP 3 Add up the amounts you have written at C and D and write the total in the adjacent Totals box.
If you complete C or D item P8 you must complete W item 15 on page 14 of your tax return (supplementary section).
Gross payments subject to foreign resident withholding
Did you receive any payments that were subject to foreign resident withholding?
You need to know
The amount you show at B is the total income you received from your payers which is subject to foreign resident withholding. It includes any amounts of tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2013.
Completing this item
STEP 1 Add up all the Gross payment amounts on your completed payment summary schedule derived from non-primary production activities that have an F in the Type box. Write the total at B item P8 on page 2 of your schedule. Do not show cents.
STEP 2 Transfer the amount at B to the adjacent Totals box.
If you complete B item P8, you must complete E item 15 on page 14 of your tax return (supplementary section).
Gross payments – voluntary agreement
Did you receive any income that was subject to a PAYG voluntary agreement?
You need to know
The amounts you show at E and F are the total income you received that was subject to a voluntary agreement to withhold tax and include the tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2013.
Completing this item
STEP 1 Add up all the Gross payment amounts on your completed payment summary schedule derived from primary production activities that have a V in the Type box. Write the total at E item P8 on page 2 of your schedule. Do not show cents.
STEP 2 Add up all the Gross payment amounts on your completed payment summary schedule derived from non-primary production activities that have a V in the Type box. Write the total at F. Do not show cents.
STEP 3 Add up the amounts you have written at E and F, and write the total in the adjacent Totals box.
If you complete E or F item P8, you must complete D item 15 on page 14 of your tax return (supplementary section).
Gross payments – labour hire or other specified payments
Did you receive:
- income under a labour-hire arrangement, or
- a specified payment, including
- income from tutorial services provided for the Indigenous Tutorial Assistance Scheme of the Department of Education, Employment and Workplace Relations
- income from translation and interpretation services for the Translating and Interpreting Service National of the Department of Home Affairs, or
- income as a performing artist in a promotional activity?
You need to know
The amount you show at O is the total income you received from labour hire or specified payments and includes the tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2013.
Stop
Do not include income received as an employee of a labour-hire business. These amounts will appear on your PAYG payment summary – individual non-business, and should be shown at item 1 on your tax return.
Completing this item
STEP 1 Add up all the Gross payment amounts on your completed payment summary schedule that have an S in the Type box. These amounts are non-primary production income. Write the total at O item P8 on page 2 of your schedule. Do not show cents.
STEP 2 Transfer the amount at O to the adjacent Totals box.
If you complete O item P8, you must complete F item 15 on page 14 of your tax return (supplementary section).
You will not have any primary production amounts at this item. Leave N blank.
Assessable government industry payments
Did you receive assessable government industry assistance?
You need to know
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 income, but may give rise to a capital gain.
Examples of assessable government industry assistance are:
- bounties
- cleaner fuels grant
- drought relief
- employee subsidies
- export incentive grants
- fuel grant under the energy grants credits scheme
- fuel tax credits
- industry restructuring and adjustment payments
- producer rebate (wine equalisation tax)
- product stewardship (oil) benefit.
For more information, see Taxation Ruling TR 2006/3: Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business.
Stop
Do not show ‘Medicare payments received by medical practices’ at this item. Show them at Other business income.
Completing this item
STEP 1 Write your total primary production government industry payments received by each business at G item P8 on page 2 of your schedule. Do not show cents.
If you have completed the Gross income from primary production worksheet in Information for primary producers 2013, include at G the amount at PP11 on the worksheet.
STEP 2 If your assessable primary production government industry payments include a fuel grant under the energy grants credits scheme or fuel tax credits, print D in the TYPE box at the right of the amount at G.
STEP 3 Write your total non-primary production government industry payments received by each business at H. Do not show cents.
STEP 4 If your assessable non-primary production government industry payments include a fuel grant under the energy grants credits scheme or fuel tax credits, print D in the TYPE box at the right of the amount at H.
STEP 5 Add up the amounts you have written at G and H, and write the total in the adjacent Totals box.
Other business income
Did you receive any other business income?
You need to know
Other business income includes:
- gross sales of trading stock
- gross sales from produce
- goods taken from stock for your own use
- value of livestock killed for rations
- value of livestock exchanged for other goods or services
- gross earnings from services
- rent derived from carrying on a business of renting property
- taxi driver earnings (income you earned as a non-employee taxi driver if it is not shown at item P1)
- amounts received as recoupment of expenses
- bad debts recovered
- profit on sale of depreciating assets
- royalties
- insurance recoveries
- subsidies
- employee contributions for fringe benefits
- assessable non-government assistance from all sources
- foreign exchange (forex) gains; for more information about forex gains, search ato.gov.au or see question 24 in Individual tax return instructions supplement 2013.
Your ‘other business income’ excludes amounts shown at C, D, B, E, F, N, O, G and H on your schedule.
If you are a primary producer, you must add the amounts shown at PP1, PP2, PP6, PP7 and PP10 on your Gross income from primary production worksheet. This worksheet is included in the publication Information for primary producers 2013. You must add the total to any other income from a business of primary production referred to above. You show the total of all other income from the business of primary production at I item P8 on page 2 of your schedule.
Completing this item
STEP 1 Write your total amount of ‘other’ primary production business income or loss at I item P8 on page 2 of your schedule. Do not show cents.
STEP 2 If you made a loss, print L in the box at the right of the amount at I.
STEP 3 Write your total amount of ‘other’ non-primary production business income or loss at J. Do not show cents.
STEP 4 If you made a loss, print L in the box at the right of the amount at J.
STEP 5 Add up your ‘other’ primary production and non-primary production business income or loss and write the total in the adjacent Totals box.
STEP 6 If you made a loss, print L in the box at the right of the Totals box.
Total business income
Completing this item
STEP 1 Add up the primary production amounts shown at C, E, N, G and I item P8 on your schedule. Write the total at TOTAL BUSINESS INCOME in the Primary production column. Remember that N will be blank.
STEP 2 If you made a loss, print L in the box at the right of the amount at TOTAL BUSINESS INCOME in the Primary production column.
STEP 3 Add up the non-primary production amounts shown at D, B, F, O, H and J item P8 . Write the total at TOTAL BUSINESS INCOME in the Non-primary production column.
STEP 4 If you made a loss, print L in the box at the right of the amount at TOTAL BUSINESS INCOME in the Non-primary production column.
STEP 5 Add up the amounts at TOTAL BUSINESS INCOME in the Primary production and Non-primary production columns and write the total in the adjacent Totals box. If you made a loss, print L in the box at the right of this amount.
Expenses
Stop
Do not include the following expense items on your schedule:
- non-business interest and dividend income expenses; claim deductible expenses at items D7 and D8 on your tax return
- farm management deposits; take them into account as required at item 17 on your tax return (supplementary section)
- non-business rental expenses; claim deductible expenses at item 21 on your tax return (supplementary section)
- expenses and losses relating to foreign source income; take them into account as required at item 20 or, in the case of certain debt deductions, claim them at item D15 on your tax return (supplementary section)
- expenses relating to your personal services income shown at item P1 on your schedule
- low-value pool deduction, where the pool contains assets used for work-related, self-education or non-business rental purposes; see question D6 in Individual tax return instructions 2013.
You need to complete all items that relate to your business or businesses. You can deduct business expenses if the expenses were necessary to carry on your business for the purpose of earning assessable income.
If you are a primary producer, you will need a primary production worksheet to help you work out some of the amounts in this section. This worksheet is included in the publication Information for primary producers 2013. Complete the worksheet before proceeding.
Goods and services tax
If you are registered or required to be registered for GST, exclude from the deductions any input tax credit entitlements that arise in relation to outgoings. If you pay GST by instalments, and incurred a penalty for underestimating a varied GST instalment, you can claim a deduction for the penalty at item D10 on your tax return. Do not show the penalty on your Business and professional items schedule for individuals 2013. For more information, see Individual tax return instructions 2013.
Records you need to keep
You must keep your business expenses records for five years after you prepared or obtained them, or five years after you completed the transactions or acts to which they relate.
Prepayments of $1,000 or more
If you made a prepayment of $1,000 or more for something to be done (in whole or in part) in a future income year, the timing of your deduction may be affected by the rules relating to prepayments. Generally, you will need to apportion your deduction for prepaid business expenditure over the service period, or 10 years, whichever is less. There is an exception for small business entities if the 12-month rule applies.
For more information, see the publication Deductions for prepaid expenses 2013 (NAT 4170).
Where expenses shown at item P8 include prepaid expenses that differ from the amounts allowable as deductions in 2012–13, then make an expense reconciliation adjustment at H in the Reconciliation items section of item P8.
Thin capitalisation
The thin capitalisation provisions apply to entities (including individuals) to reduce certain deductions (called ‘debt deductions’) for costs incurred in obtaining and servicing debt finance, where the debt applicable to Australian operations exceeds the limits set out in Division 820 of the ITAA 1997.
Do the thin capitalisation provisions apply to you?
The thin capitalisation rules may apply to you if:
- you are an Australian resident and you, or any of your associate entities, are an Australian controller of a foreign entity or carry on business overseas at or through a permanent establishment, or
- you are a foreign resident and you carry on business in Australia at or through a permanent establishment or otherwise have Australian income-producing assets.
The thin capitalisation rules will not apply to you if:
- your debt deductions (combined with the debt deductions of your associate entities) do not exceed $250,000 in the income year, or
- you are an Australian resident and the combined value of your associates’ and your Australian assets is not less than 90% of the value of your associates’ and your total assets.
If the thin capitalisation rules apply to you, the amount of any debt deductions you can claim may be reduced by these rules. For more information, see the Guide to thin capitalisation.
Opening stock
Did you have trading stock on hand at the start of the year?
You need to know
The opening value of an item of stock must equal its closing value in the previous year. The total value of all stock on hand at the start of the year is equal to the amount shown as closing stock on your 2012 schedule.
If you are a primary producer, you must add the value of your opening stock from your livestock account at PP4 on your primary production worksheet to the value of your opening stock from your produce account at PP9 on your primary production worksheet. The total of these amounts is the total value of your primary production opening stock.
Do not include any amounts representing opening stock of a business which commenced operations during the year. Include the purchase costs of these items in the relevant Purchases and other costs box.
Completing this item
STEP 1 Write the total value of your primary production opening stock at Opening stock in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write the total value of your non-primary production opening stock at Opening stock in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production opening stock values and write the total at K.
Purchases and other costs
Did you have purchases and other costs?
You need to know
This represents the direct cost of materials used for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. It includes inwards freight; and also the cost of stock acquired when starting or acquiring a business during the year. It may also include some costs for labour and services provided under contract, if these are recorded in the cost of sales account in your business books of account. If so, do not also include this amount as Contractor, sub-contractor and commission expenses.
If you are a primary producer, you must include the value of your purchases from your livestock account at PP5 on your primary production worksheet.
Completing this item
STEP 1 Work out the value of your primary production purchases and other costs directly related to trading stock. If you have more than one business, add up all your primary production purchases and costs.
STEP 2 Write the total value of your primary production purchases and other costs directly related to trading stock at Purchases and other costs in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 3 Work out the value of your non-primary production purchases and other costs directly related to trading stock. If you have more than one business, add up all your non-primary production purchases and other costs.
STEP 4 Write the total value of your non-primary production purchases and other costs directly related to trading stock at Purchases and other costs in the Non-primary production column. Do not show cents.
STEP 5 Add up your primary production and non-primary production purchases and other costs directly related to trading stock, and write the total at L.
Former STS taxpayers
If you are eligible and are continuing to use the STS accounting method, show at L only purchases and other costs that you have paid. See Former simplified tax system (STS) taxpayers.
Closing stock
Did you have trading stock on hand at the end of the year?
If you are a small business entity and are choosing to use the simplified trading stock rules, read on. Otherwise, go to Other businesses.
Small business entities
You need to know
You need to account for changes in the value of your trading stock only if there is a difference of more than $5,000 between the value of all your stock on hand at the start of the income year and a reasonable estimate of the value of all your stock on hand at the end of the income year.
The value of your stock on hand at the start of the income year is the same value as the closing value shown on your schedule in the previous year. This may not necessarily reflect the actual value of your stock if you did not account for the change in value of your stock in the previous year. For more information on a reasonable estimate of the value of stock, see ato.gov.au or phone 13 28 66.
You can still choose to conduct a stocktake and account for changes in the value of trading stock, if you wish.
Is the difference between the value of your opening stock and a reasonable estimate of your closing stock more than $5,000?
Yes
|
You must account for changes in the value of your trading stock. Go to step 2.
|
No
|
If you choose not to account for changes in the value of your trading stock, go to step 1. Otherwise, go to step 2.
|
Completing this item
STEP 1 If the difference referred to above is $5,000 or less and you choose not to account for this difference, the closing stock values you put in both the Primary production and Non-primary production columns at item P8 on page 3 of your schedule must be the same as the values you put at Opening stock. Do not put your reasonable estimate.
Add up your primary production and non-primary production closing stock values, and write the total at M.
Write in the TYPE box at the right of M the code letter you used last year to value closing stock:
C cost
M market selling value
R replacement value.
If this is your first year in business, the value of your closing stock will be zero. Print C in the TYPE box.
Go to Cost of sales.
STEP 2 If the difference referred to above is more than $5,000 or you choose to account for the difference in trading stock, the closing stock values must be brought to account under section 70-35 of the ITAA 1997. See Other businesses for how to complete this item.
You must include in your closing stock value at M item P8 the value of all stock on hand, regardless of whether you have paid for the stock.
Other businesses
You need to know
The amount that is shown at Closing stock is the total of the value of all items of trading stock, with the value of each item calculated for tax purposes in accordance with section 70-45 of the ITAA 1997.
Trading stock is anything you have on hand which you produced, manufactured, acquired or purchased for the purpose of sale, manufacture or exchange. For example, trading stock includes livestock but not working animals (except those used by a primary producer), crops and timber when harvested, and wool after it is removed from the sheep.
Manufacturers must include as trading stock partly manufactured goods and materials on hand. However, closing stock excludes any amount that represented closing stock of a business that ceased operations during the year. This amount is included in Other business income at I or J in the Income section of item P8. For more details about what constitutes trading stock, read Simplified trading stock rules or phone 13 28 66.
You can choose one of the following three methods to value your trading stock:
- cost
- market selling value
- replacement value.
You may elect to value an item of trading stock below the lowest value calculated by any of these methods because of obsolescence or other special circumstances. The value you elect must be reasonable. Where you elect to value an item of trading stock below cost, market selling value and replacement value, you must complete item P19 on your schedule.
You may use different methods to calculate each item of trading stock in different years or for different items in the same year. However, the opening value of each item in a particular year must be the same as the closing value for that item in the previous year.
If you are registered for GST, the value of closing stock should not include an amount equal to the input tax credit that would arise if you had acquired the item solely for business purposes at the end of the income year. Input tax credits do not arise for some items of trading stock, such as shares.
If you are a primary producer, you must add the value of your closing stock from your livestock account at PP3 on your primary production worksheet to the value of your closing stock from your produce account at PP8 on your primary production worksheet.
The total of these amounts is the total value of your primary production closing stock.
As the tax values of closing stock on hand are shown at PP3 and at PP8 on your primary production worksheet, you cannot reduce these values by accounting entries. Keep records showing how each item was valued.
Completing this item
STEP 1 Work out the value of your primary production closing stock. If you have more than one business, add up all your primary production closing stock values.
STEP 2 Write the total value of your primary production closing stock at Closing stock in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 3 Work out the value of your non-primary production closing stock. If you have more than one business, add up all your non-primary production closing stock values.
STEP 4 Write the total value of your non-primary production closing stock at Closing stock in the Non-primary production column. Do not show cents.
STEP 5 Add up your primary production and non-primary production closing stock values and write the total at M.
STEP 6 From the list below, choose the letter that matches the method you used to value closing stock. If more than one method was used, select the letter that applies to the largest value:
C cost
M market selling value
R replacement value.
STEP 7 Print the letter in the TYPE box at the right of the amount at M.
Cost of sales
Did you have any cost of sales?
You need to know
Goods taken for your own use should not be accounted for as stock on hand at 30 June 2013. Include at I and J Other business income in the Income section of item P8 on your schedule the value of:
- livestock killed for rations
- livestock exchanged for other goods or services
- goods taken for your own use.
Use worksheet 1 to work out your cost of sales.
WORKSHEET 1: Cost of sales
|
Primary production
|
Non-primary production
|
|
Stock at 1 July 2012
|
$
|
$
|
(a)
|
Purchases at cost
|
$
|
$
|
(b)
|
Freight inwards
|
$
|
$
|
(c)
|
Other, for example, labour and services
|
$
|
$
|
(d)
|
Add (a), (b), (c) and (d).
|
$
|
$
|
(e)
|
Stock at 30 June 2013
|
$
|
$
|
(f)
|
Your cost of sales
Take away (f) from (e).
|
$
|
$
|
|
For further information on stock on hand at 1 July 2012, see Opening stock . For information on stock on hand at 30 June 2013, see Closing stock.
Completing this item
STEP 1 Write your total primary production cost of sales at Cost of sales in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 If the cost of sales in the Primary production column, after taking away (f) from (e), is a negative amount, print L in the box at the right of this amount.
STEP 3 Write your total non-primary production cost of sales at Cost of sales in the Non-primary production column. Do not show cents.
STEP 4 If the cost of sales in the Non-primary production column, after taking (f) away from (e), is a negative amount, print L in the box at the right of this amount.
STEP 5 Add up your primary production and non-primary production cost of sales and write the total at Cost of sales in the Totals column.
STEP 6 If your total cost of sales is a negative amount, print L in the box at the right of this amount.
Foreign resident withholding expenses
Did you have any expenses directly relating to income subject to foreign resident withholding?
Completing this item
STEP 1 Write your total non-primary production foreign resident withholding expenses at Foreign resident withholding expenses in the Non-primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Transfer the amount you wrote at step 1 to the adjacent Totals box at U.
You will not have any primary production expense amounts at this item.
Contractor, sub-contractor and commission expenses
Did you have any contractor, sub-contractor or commission expenses in your business?
You need to know
These are expenses for labour and services provided under contract, other than salaries or wages, for example:
- payments to self-employed people, such as consultants and contractors, including payments subject to a PAYG voluntary agreement to withhold, and payments made under a labour-hire arrangement
- commissions paid to people not receiving a retainer
- agency fees, for example, for services provided by an advertising agency
- service fees, for example, plant service
- management fees
- consultant fees.
Do not include the following at this item:
- expenses for external labour which have been included in the business cost of sales account
- expenses for accounting or legal services; include these at All other expenses.
Completing this item
STEP 1 Write your total primary production contractor, sub-contractor and commission expenses at Contractor, sub-contractor and commission expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production contractor, sub-contractor and commission expenses at Contractor, sub-contractor and commission expenses in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production contractor, sub-contractor and commission expenses and write the total at F.
Superannuation expenses
Did you make any superannuation contributions on behalf of eligible employees or their dependants as a business expense?
You need to know
Show superannuation expenses for the income year. Do not include any amount that was a contribution for yourself. The deduction for your own superannuation contributions must be claimed at item D12 on your tax return (supplementary section). See question D12 in Individual tax return instructions supplement 2013.
Employers are entitled to a deduction for the contributions they made to a complying superannuation, provident, benefit or retirement fund or retirement savings account (RSA) where the contributions are to provide superannuation benefits for employees or to provide benefits to the employee’s dependants on the employee’s death. A deduction is allowable in the income year in which the contributions are made.
Contributions made to a non-complying fund:
- are not allowable as a deduction, and
- do not count towards superannuation guarantee obligations.
Under the superannuation guarantee, an employer needs to provide a minimum level of superannuation for employees. If the employer does not make the minimum contribution by the relevant date, the employer is required to pay the superannuation guarantee charge on the superannuation guarantee shortfall. The superannuation guarantee charge is not a superannuation contribution and is not tax deductible. Contributions made by employers to offset a superannuation guarantee charge liability are not deductible.
Contributions paid by an employer to a non-complying superannuation fund on behalf of an employee are generally fringe benefits (other than where the contributions are made for an exempt visitor) 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 for employees under the age of 75 years old. However, the employee may be subject to excess concessional contributions tax if their concessional contributions in the financial year exceed $25,000. This tax is levied at the rate of 31.5% on the amount by which the employee’s concessional contributions in a financial year exceed their concessional contributions cap.
If an employee is 75 years old or older, 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 amount of the contribution required under an industrial award, determination or notional agreement preserving state awards.
Completing this item
STEP 1 Write your total primary production superannuation contributions at Superannuation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production superannuation contributions at Superannuation expenses in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production superannuation contributions and write the total at G.
Bad debts
Did you write off any bad debts in your business?
You need to know
Include income from the recovery of bad debts in Other business income at I or J in the Income section of item P8.
You are not allowed a deduction for bad debts unless you have previously included the amount in your assessable income or it is for money you lent in the ordinary course of a money-lending business carried on by you.
Before you can claim a bad debt, it must be bad and not merely doubtful. The question of whether a debt is a bad debt will depend on the facts in each case and, where applicable, the action taken for recovery.
Do not include accounting provisions for doubtful debts at I. You show them in the Expenses section at All other expenses, then add them back at H Expense reconciliation adjustments in the Reconciliation items section.
For more information, see Taxation Ruling TR 92/18 – Income tax: bad debts.
You can also claim a deduction for:
- partial debt write-offs; where only part of a debt is bad and is written off, you may claim a deduction for the amount written off
- losses incurred in debt-for-equity swaps for debt written off; where under an arrangement you discharge, release or otherwise extinguish the whole or part of a debt owed to you in return for equity in the debtor.
You can claim a deduction for the difference between the amount of the debt and the greater of the market value of the equity at the time of issue or the value of the equity recorded in your 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.
Where you are not in the business of lending money, the deduction is limited to the amount of the debt you have included in assessable income.
Records you need to keep
Keep a statement for all debtors whose bad debts you wrote off during the year, showing:
- their name and address
- the amount of the debt
- the reason you regarded the debt as bad
- the year that you returned the amount as income.
Completing this item
STEP 1 Write your total primary production bad debts at Bad debts in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production bad debts at Bad debts in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production bad debts and write the total at I.
Lease expenses
Did you have lease expenses in your business?
You need to know
This is expenditure incurred on financial leases and on operating leases for assets such as motor vehicles and plant. Do not include the cost of leasing real estate (show this cost at K Rent expenses) or capital expenditure incurred to terminate a lease or licence. However, a five-year straight-line write-off is allowed 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 4 and note 3 and the details under Change 3 in the fact sheet Other capital expenses (including capital works deductions).
In some circumstances, lease expenses may be debt deductions for the purposes of the thin capitalisation rules.
If you include an amount of lease expense which is not allowable as a deduction, such as amounts disallowed under the thin capitalisation rules, you will need to add back the amount at H Expense reconciliation adjustments in the Reconciliation items section on your schedule.
Expenses incurred under a hire purchase agreement are not lease expenses. Such expenses are dealt with at H Expense reconciliation adjustments in the Reconciliation items on your schedule.
Special rules apply to leased cars if the cost of the car exceeds the car limit that applies for the financial year in which the lease commences. The car limit for 2012–13 is $57,466.
If you lease a car that is subject to the special rules, the reconciliation between the lease expense and the tax treatment is carried out at H Expense reconciliation adjustments in the Reconciliation items section. For more information, see Luxury car leasing.
Records you need to keep
List the assets leased and keep full details of the leasing expenses for each item, including motor vehicles, and details of any private use. Leasing expenses of certain cars fall under the substantiation rules.
Completing this item
STEP 1 Write your total primary production lease expenses at Lease expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production lease expenses at Lease expenses in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production lease expenses and write the total at J.
Rent expenses
Did you have rent as a business expense?
You need to know
This is expenditure you incurred as a tenant for rental of land and buildings used in the production of income. Include the cost of leasing real estate.
Completing this item
STEP 1 Write your total primary production rent expenses at Rent expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production rent expenses at Rent expenses in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production rent expenses and write the total at K.
Interest expenses within Australia
Did you incur interest as a business expense on money borrowed within Australia?
You need to know
Include interest you incurred on money borrowed within Australia to acquire income-producing assets used in your business, to finance business operations or to meet current business expenses.
Do not include interest incurred in deriving rental income. Claim this at item 21 on your tax return (supplementary section).
If you include an amount of interest which is not allowable as a deduction, such as amounts denied by the thin capitalisation rules, you will need to add back the amount at H Expense reconciliation adjustments in the Reconciliation items section on your schedule.
Completing this item
STEP 1 Write your total primary production interest expenses within Australia at Interest expenses within Australia in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production interest expenses within Australia at Interest expenses within Australia in the Non-primary production column, item P8 on your schedule. Do not show cents.
STEP 3 Add up your primary production and non-primary production interest expenses within Australia and write the total at Q.
Interest expenses overseas
Did you incur interest as a business expense on money borrowed overseas?
You need to know
Include any interest incurred on money borrowed from overseas sources to acquire income-producing assets used in your business, to finance business operations or to meet current business expenses.
Do not include interest incurred in deriving rental income. Claim this at item 21 on your tax return (supplementary section).
Generally, you are required to withhold an amount of withholding tax from interest paid or payable to non-residents and from interest derived by a resident through an overseas branch. You must send these amounts to us. You cannot deduct an interest expense if you were required to withhold tax on that interest and you failed to do so.
If you paid or credited any interest or amounts in the nature of interest to a non-resident of Australia or to a resident’s overseas branch, you will need to provide additional information. Print SCHEDULE OF ADDITIONAL INFORMATION – ITEM 15 on the top of a separate piece of paper. Show the name and address of each recipient, total amounts paid or credited to each non-resident or overseas branch of a resident and the amount of tax withheld. If no tax was withheld, state the reason for this. Include your name, address and TFN. Print X in the YES box at Taxpayer’s declaration question 2a on your tax return. Attach the schedule to page 3 of your tax return.
Note: For more information on the tax treatment of interest paid to non-residents, phone 13 28 66.
If you include an amount of interest which is not allowable as a deduction, such as amounts denied by the thin capitalisation rules, you will need to add back the amount at H Expense reconciliation adjustments in the Reconciliation items section on your schedule.
Completing this item
STEP 1 Write your total primary production overseas interest expenses at Interest expenses overseas in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production overseas interest expenses at Interest expenses overseas in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production overseas interest expenses and write the total at R.
Depreciation expenses
Did you have depreciation as a business expense?
Continuing small business pools
If you are not carrying on a business this year, but in a prior year you allocated assets to a general small business pool or long-life small business pool (or the law allocated the assets to such a pool), do not include the pool deductions at this item. Show such deductions at item D15 on your tax return (supplementary section).
Small business entities
You need to know
You show at M Depreciation expenses item P8 the total depreciation deductions being claimed under the small business entity capital allowances (depreciation) rules and for the business use of other assets under the uniform capital allowances (UCA) rules. This includes your deduction under the small business entity rules for depreciating assets used for work-related or self-education purposes. However, this excludes any amount included at part B of item P1.
Small business entities can claim an immediate deduction for most depreciating assets costing less than $6,500 (excluding input tax credit entitlements) and can pool most of their other depreciating assets in a general small business pool.
From the 2012-13 income year, small business entities can also claim an accelerated initial deduction of $5,000 for eligible motor vehicles in the year they start to use the motor vehicle, or have it installed ready for use, for a taxable purpose. The remaining cost of the motor vehicle is depreciated through the general small business pool at 15%.
Some depreciating assets are excluded from these simplified depreciation rules, but a deduction may be available under the UCA rules.
If you are a small business entity and are choosing to use these simplified depreciation rules, you must use immediate write-off and pooling as applicable. You cannot choose to use one and not the other.
For more information about the small business entity depreciation rules, read Simplified depreciation rules or phone 13 28 66.
Calculating your depreciation deductions
If your accounting system or financial statements provide you with the amounts to complete worksheet 2, write these amounts in the worksheet. Otherwise, use calculations 1 to 6 below to calculate your depreciation deductions.
The amounts you write in worksheet 2 must be tax values and not accounting values.
Calculation 1: Deduction for certain assets (costing less than $6,500)
An immediate deduction is available for certain assets:
- whose cost at the end of the income year in which you started to use it for a taxable purpose, or had it installed ready for such use, was less than $6,500 (excluding input tax credit entitlements), and
- that qualifies for a deduction under the small business entity depreciation rules.
Work out the taxable purpose proportion of each of each of these types of assets you acquired in 2012–13 and used, or held ready for use, for the purpose of producing assessable income. You calculate the deduction for each eligible asset as follows:
asset's adjustable value x taxable purpose proportion
Add up these results and write the total at (a) in worksheet 2.
For example, for a computer bought on 1 December at a cost of $4,800 (excluding input tax credit entitlements) and used for producing assessable income from that date at an estimated 70% of the time, the immediate 70% = $3,360. X deduction would be $4,800
In the calculation above, do not include:
- depreciating assets which cost less than $6,500 (excluding input tax credit entitlements) that you acquired before commencing to use these simplified depreciation rules. You allocate these assets to the general small business pool (see calculation 2).
- amounts for depreciating assets that cost $6,500 or more, but the taxable purpose proportion determines an amount to be deducted of less than $6,500. Such assets must be allocated to the general small business pool (see step 2). For example, if a computer is bought above cost $6,800, the taxable purpose proportion is $4,760 ($6,800 x 70%), which is less than the $6,500 instant deduction threshold. However, the computer must still be allocated to the general small business pool because its purchase cost is above $6,500.
Definitions
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.
Assessable balancing adjustment amount arises where the termination value of the depreciating asset is more than the adjustable value.
Cost addition amounts include the cost 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).
Decline in value (previously ‘depreciation’) is the value that an asset loses over its effective life.
Deductible balancing adjustment amount arises where the termination value of the depreciating asset is less than the adjustable value.
Depreciating asset is an asset with a limited effective life which declines in value over that life.
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.
Calculation 2: General small business pool deduction
To calculate your deductions for the general small business pool you must first calculate the opening pool balance of the pool.
If 2012–13 was the first income year for which you were a small business entity, the opening balance of the general small business pool is the sum of the taxable purpose proportions of the adjustable values of the depreciating assets that were used, or held for use, just before the start of 2012–13, and that were not excluded from the simplified depreciation rules.
Include only the taxable purpose proportion of the adjustable value of each depreciating asset. For example, for an asset with an adjustable value of $10,000 that is used only 50% for an income-producing purpose, you will add only $5,000 to the pool.
You can choose not to allocate an asset to your general small business pool if you first used it, or installed it ready for use, for a taxable purpose before 1 July 2001.
For an income year that is not the first income year for which you were a small business entity, the opening pool balance of the general small business pool is the closing pool balance for the previous income year, except where you make an adjustment to reflect the changed business use of a pooled asset. For the 2012-13 income year, the opening balance of the general small business pool will also include the closing balance of a long life pool that was used in the 2011-12 income year.
Example
Chantal's Café is a small business and at the end of the 2011-12 income year the closing balance of its long life pool was $8,000 and the closing balance of its general small business pool was $10,000. For the 2012-13 income year, Chantal's Café long life pool no longer exists, but its general small business pool opening balance is now $18,000.
Calculate your deduction for the general small business pool as follows.
opening pool balance ($) x 30%
Where necessary, make a reasonable apportionment for the general small business pool deduction between primary production and non-primary production activities.
Write the result of your general small business pool deduction at (b) in worksheet 2.
If the pool balance (after taking into account additions and disposals but before calculating the deductions in steps 2, 3 and 4) is below $6,500, you instead work out the deduction for the pool using calculation 6(b).
End of exampleCalculation 3: Depreciating assets other than eligible motor vehicles first used for a taxable purpose during 2012–13 and cost addition amounts for assets already allocated to a pool
You calculate your deduction at half the general small business pool rate for:
- depreciating assets other than eligible motor vehicles that you first used or installed ready for use for a taxable purpose during the year, and
- cost addition amounts for assets already allocated to the general small business pool.
Calculate your deduction as follows:
- the taxable purpose proportion of the adjustable value of each depreciating asset first used for a taxable purpose this year multiplied by 15%, plus
- the taxable purpose proportion of the cost addition amounts multiplied by 15%.
Write the total deduction for general small business pool assets at (c) in worksheet 2.
Calculation 4: Special depreciation rules for eligible motor vehicles
From the 2012-13 income year, small businesses can claim up to $5,000 as an immediate deduction for an eligible motor vehicle they started to hold in 2012-13 and used, or installed ready for use, for a taxable purpose.
An eligible vehicle is generally a motor powered road vehicle (including four wheel drive vehicles), but excludes road vehicles that are not used on public roads, or only travel on public roads as a secondary function to their main use (for example, earthmoving equipment, tractors, graders etc). Eligible motor vehicles include cars, trucks, vans and utilities.
An eligible motor vehicle can be purchased new or second-hand.
Calculation 4a Low-cost motor vehicles
For motor vehicles costing less than $6,500, an immediate deduction is available. In these circumstances you determine you deduction under calculation 1 and include at (a) in worksheet 2 as the special motor vehicle depreciation rules do not apply.
Calculation 4b Adjustable value of the motor vehicle is more than $5,000
Each eligible motor vehicle subject to the special depreciation rules must be allocated to the general small business pool. Where the taxable purpose proportion of the adjustable value of an eligible motor vehicle is more than $5,000, the deduction for the start year comprises:
(i) $5,000 and
(ii) 15% x ((the taxable purpose proportion x the adjustable value of the motor vehicle) - $5,000)
Add up the totals of (i) and (ii) for each eligible motor vehicle at (d) in worksheet 2.
Calculation 4c Adjustable value of the motor vehicle is less than $5,000
If the taxable purpose proportion of the adjustable value of an eligible motor vehicle allocated to the general small business pool is $5,000 or less, the deduction in the start year is that amount and this is included at (d) in worksheet 2.
Example
Digby’s Builders is a small business entity and in 2012-13 it purchases a second hand utility for $8,000. The cost of the utility means Digby’s Builders allocates it to the general small business pool. Digby also enjoys many outdoor adventure leisure activities and often uses the utility to carry equipment, and travel to and from these private activities. He estimates that 40 per cent of his use of the motor vehicle is for private purposes and 60 per cent for taxable purposes. Digby’s Builders calculates its start year deduction in the following way:
60% × $8,000 = $4,800
Where a motor vehicle is allocated to a small business pool with a balance (after taking into account additions and disposals but before determining the deductions in calculations 2, 3 and 4) below $6,500, calculate the small business’ deduction for these assets using calculation 6(b). The deductions for the motor vehicle are included in this deduction for the general small business pool and no further deductions are available under the special depreciation rules for eligible motor vehicles.
End of exampleCalculation 5: Other depreciating assets
Work out your deduction for the decline in value of all your other depreciating assets that are not included in calculations 1 to 4.
See the Guide to depreciating assets 2013 (NAT 1996) for information on how to calculate the decline in value of these assets.
Write your total deduction for other depreciating assets at (e) in worksheet 2.
Do not include at (e) in the worksheet depreciating assets which qualify for a deduction under Subdivision 40-F or 40-G of the ITAA 1997 as water facilities or landcare operations in your primary production business and for which you have chosen to claim a deduction under those Subdivisions and not these small business entity depreciation rules. Show these deductions at W Landcare operations and business deduction for decline in value of water facility item P8 Reconciliation items.
Calculation 6: Disposal of depreciating assets
(a) Certain assets (costing less than $6,500) and low-cost assets claimed in previous years
If you have disposed of a depreciating asset (costing less than $6,500) for which you have claimed an immediate deduction in calculation 1 this year and/or a low-cost asset for which you have claimed an immediate deduction in a prior year, include the taxable purpose proportion of the termination value in the Reconciliation items section of item P8. For example, for a low-cost asset used only 50% for an income-producing purpose, which was sold for $200 (excluding GST), only $100 will be assessable and included as a reconciliation adjustment.
(b) Assets allocated to the general small business pool
Where you dispose of depreciating assets that have been allocated to the general small business pool, you deduct the taxable purpose proportion of the termination value from the closing pool balance. For example, for a pooled depreciating asset used only 50% for an income-producing purpose, which was sold for $3,000 (excluding GST), only $1,500 will be deducted from the closing pool balance. If the balance of a pool is below $6,500 but greater than zero (after taking into account any additions and disposals but before calculating the deductions in calculations 2, 3 and 4) you can claim an immediate deduction for this amount. Write this deduction against general small business pool assets at (b) in worksheet 2.
If the closing pool balance is less than zero, you include the amount below zero in your assessable income in the Reconciliation items section of item P8.
If expenses are incurred in disposing of a depreciating asset, these expenses may be taken into account in calculation 3.
(c) Other depreciating assets
See the Guide to depreciating assets 2013 for information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets.
Balancing adjustment amounts are included in the Reconciliation items section of item P8. See Whatareincomereconciliationadjustments and What are expense reconciliation adjustments?
Closing pool balance
The closing balance of each small business pool for an income year is:
- the opening pool balance (see calculation 2) plus
- the taxable purpose proportion of the adjustable value of assets that were first used, or installed ready for use, for a taxable purpose during the year (see calculation 3) plus
- the taxable purpose proportion of any cost addition amounts for assets in the pool during the year (see calculation 3) less
- the taxable purpose proportion of the termination value of any pooled assets disposed of during the year [see calculation 6(b)] less
- the general small business pool deduction (see calculation 2) less
- the deduction for assets first used by you during the year (see calculation 3) less
- the deduction for eligible motor vehicles (see calculation 4) less
- the deduction for any cost addition amounts for pooled assets during the year (see calculation 3).
If your closing pool balance is less than zero, see calculation 6(b).
The closing pool balance for this year becomes the opening pool balance for 2013–14 except where you made an adjustment to reflect the changed business use of a pooled asset.
You will need your opening pool balance to work out the pool deduction next year. Do not write your closing pool balance on your tax return (supplementary section).
WORKSHEET 2: Depreciation deductions for small business entities
|
Primary production
($)
|
Non-primary production
($)
|
Total
($)
|
|
Certain assets (costing less than $6,500)
|
|
|
|
(a)
|
General small business pool
|
|
|
|
(b)
|
General small business pool (1/2 rate)
|
|
|
|
(c)
|
Deduction for eligible motor vehicles
|
|
|
|
(d)
|
Other assets
|
|
|
|
(e)
|
Depreciation
expenses: add (a), (b), (c), (d) and (e).
|
|
|
|
(f)
|
Completing this item
STEP 1 Write your total primary production depreciation deductions at Depreciation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production depreciation deductions at Depreciation expenses in the Non-primary production column. Do not show cents.
Do not show any amount included at part B of item P1.
STEP 3 Transfer the amount at (f) in worksheet 2 to M Depreciation expenses item P8. Do not show cents.
STEP 4 Transfer the amount at (a) in worksheet 2 to A item P10 Small business entity simplified depreciation on page 4 of your schedule. Do not show cents.
STEP 5 Add up the amounts at (b), (c) and (d) in worksheet 2 and write the total at B item P10. Do not show cents.
STEP 6 Go to Motor vehicle expenses.
Five-year restriction
If you are a small business entity and have chosen to use these simplified depreciation rules but then, in a later year, choose to stop using this concession, you cannot choose to use the simplified depreciation rules again until at least five years after the income year in which you chose to stop using the rules.
Other businesses
You need to know
You show at M Depreciation expenses item P8 the depreciation claimed in your books of account other than for those assets allocated in a prior year to a general pool or a long-life pool. For assets allocated to such a pool, include here the amount of the pool deduction to be claimed for tax purposes. For further information, see Definitions.
The depreciation amount shown at M item P8 should not include profit or loss on the sale of depreciating assets. You should include profits on the sale of depreciating assets in Other business income at I or J in the Income section of item P8 on your schedule. You should include losses on the sale of depreciating assets at P All other expenses in the Expenses section.
Accounting or book depreciation may differ from the deduction for the decline in value of depreciating assets.
You carry out the reconciliation between accounting depreciation and the deduction for decline in value at H Expense reconciliation adjustments in the Reconciliation items section of item P8.
You can use the decline in value calculator at ato.gov.au to calculate the decline in value of these assets or see the Guide to depreciating assets 2013 for more information on how to calculate decline in value.
Is expenditure revenue or capital in nature?
Law Administration Practice Statement PS LA 2003/8 – Taxation treatment of expenditure on low cost items for taxpayers carrying on a business provides guidance on two straightforward methods that 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 expenditure or capital expenditure.
Subject to certain qualifications, the two methods cover expenditure below a threshold and the use of statistical sampling to estimate total revenue expenditure on low-cost items. 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 of the total purchases on qualifying low-cost business items that are revenue expenditure.
We will accept a deduction for expenditure incurred on low-cost assets calculated in accordance with this Practice Statement.
Completing this item
STEP 1 Write your total primary production depreciation expenses at Depreciation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production depreciation expenses at Depreciation expenses in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production depreciation expenses and write the total at M Depreciation expenses.
Motor vehicle expenses
Did you have motor vehicle expenses in your business?
You need to know
Special substantiation and calculation rules for car expenses apply to an individual. Under these rules, motor vehicle expenses can be claimed using one of four methods where the expense is for a motor car, station wagon, panel van, utility truck or other road vehicle designed to carry a load of less than one tonne or fewer than nine passengers. For an explanation of these methods, see question D1 in Individual tax return instructions 2013.
Do not include depreciation, finance leasing charges or interest paid. You should include these at M Depreciation expenses, J Lease expenses, Q Interest expenses within Australia or R Interest expenses overseas item P8 on your schedule.
Completing this item
STEP 1 Write your total primary production motor vehicle expenses at Motor vehicle expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production motor vehicle expenses at Motor vehicle expenses in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production motor vehicle expenses and write the total at N item P8 on your schedule.
STEP 4 If you worked out the amount you are claiming for motor vehicle expenses using one of the four methods described in question D1 in Individual tax return instructions 2013, find the code letter that identifies the method you used and print it in the TYPE box at the right of the amount at N.
S if you used the ‘cents per kilometre’ method
T if you used the ‘12% of original value’ method
O if you used the ‘one-third of actual expenses’ method
B if you used the ‘logbook’ method.
Print the code letter N in the TYPE box if the amount shown at N relates to a:
- motorcycle
- taxi taken on hire
- road vehicle designed to carry a load of one tonne or more, or nine or more passengers
- any other motor vehicle expenses covered by question D2 in Individual tax return instructions 2013.
If you have more than one code, print the code that applies to the largest claim.
Repairs and maintenance
Did you have repairs and maintenance as a business expense?
You need to know
This is expenditure shown in your accounts for repairs and maintenance of premises, plant, machinery, implements, utensils, rolling stock or articles associated with the production of income. Any non-deductible expenditure, such as items of a capital nature or amounts relating to private use of an item, included at this item, should also be included at H Expense reconciliation adjustments in the Reconciliation items section item P8 on your schedule. The following information on deductions for repairs will assist you to work out whether you need to make an expense reconciliation adjustment.
Repairs
You may deduct the cost of repairs (not being expenditure of a capital nature) to premises and depreciating assets such as plant, machinery or equipment used solely for producing assessable income, or in carrying on a business for that purpose.
Expenditure on repairs to property used partially for business or income-producing purposes (for example, where the property is also used for private purposes or in the production of exempt income) is deductible only to the extent that is reasonable, taking account of such use.
Where items are newly acquired, including by way of a legacy or gift, the cost of repairs to 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 further information on deductions for repairs, see Taxation Ruling TR 97/23 – Income tax: deductions for repairs.
Records you need to keep
To support your claim for the cost of repairs, you must keep full details, including source documents, of the nature and cost of repairs to each item.
Completing this item
STEP 1 Write your total primary production repairs and maintenance expenses at Repairs and maintenance in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production repairs and maintenance expenses at Repairs and maintenance in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production repairs and maintenance expenses and write the total at O. Do not show cents.
All other expenses
Did you have any other business expenses?
You need to know
This is the total of all other expenses which you incurred in deriving your profit or loss and which you have not already shown elsewhere at item P8. Other expenses include wages, accounting and professional fees, advertising, office supplies, foreign exchange (forex) losses and any loss on the sale of a depreciating asset as shown in your accounts.
You should also include gifts and donations that are a business expense and amounts you pay professionals in managing the tax affairs of the business at item P8. You should not claim these amounts at the gifts and donations label or the cost of managing tax affairs label on your individual tax return.
For more information about forex losses, go to ato.gov.au or see question D15 in Individual tax return instructions supplement 2013.
You should also include capital and other non-deductible items (including debt deductions denied by thin capitalisation rules) shown here at H Expense reconciliation adjustments in the Reconciliation items section of item P8 on your schedule. For further information, see Income and expense reconciliation adjustments.
For further information, see Thin capitalisation.
Home office expenses
If part of your home was specifically set aside as your place of business and used solely for the purpose of conducting your business affairs and you had no other place from where they were mainly carried on, the following expenses are partly deductible:
- occupancy expenses, including rent, mortgage interest, rates, and house and contents insurance
- running expenses, including electricity, cleaning, depreciation, leasing charges and repairs to furniture and furnishings in the office.
In most cases, you can apportion expenses on a floor area basis and, if the area of your home was a place of business for only part of the year, on a time basis.
Where you used part of your home as a home office but it did not qualify as a place of business, only the additional running expenses you incurred may be deductible.
For further details, see Taxation Ruling TR 93/30 – Income tax: deductions for home office expenses and Law Administration Practice Statement PS LA 2001/6 – Home office expenses: diaries of use and calculation of home office expenses.
Records you need to keep
You should keep records to show how you have calculated your home office expenses. We may ask you for these at a later date.
Completing this item
STEP 1 Write your total ‘other’ primary production expenses at All other expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total ‘other’ non-primary production expenses at All other expenses in the Non-primary production column. Do not show cents.
STEP 3 Add up your ‘other’ primary production and ‘other’ non-primary production expenses and write the total at P item P8 on your schedule.
Total expenses
Completing this item
STEP 1 Add up all the expenses you have written in the Primary production column, from Cost of sales down to and including All other expenses. Write the total at S item P8 on page 3 of your schedule. Do not show cents.
STEP 2 If your total of primary production expenses is a negative amount, print L in the box at the right of the amount at S.
STEP 3 Add up all the expenses you have written in the Non-primary production column, from Cost of sales down to and including All other expenses. Write the total at T. Do not show cents.
STEP 4 If your total of non-primary production expenses is a negative amount, print L in the box at the right of the amount at T.
STEP 5 Add up your primary production and non-primary production expenses. Write the total at TOTAL EXPENSES in the Totals column.
STEP 6 If your total expenses is a negative amount, print L in the box at the right of this amount.
Reconciliation items
Consider the following items to see whether you qualify for a deduction.
Any adjustments to your income and expense amounts are dealt with at Income and expense reconciliation adjustments.
Section 40-880 deduction
Can you deduct business-related costs under section 40-880?
You need to know
Section 40-880 provides a five-year write-off for certain capital expenditure incurred by you in relation to a past, present or prospective business if the expenditure is not already taken into account or not denied a deduction by another provision.
You can claim a deduction for capital expenditure:
- in relation to your business
- in relation to a business that used to be carried on, such as capital expenses incurred in order to cease the business
- in relation to a business proposed to be carried on, such as the costs of feasibility studies, market research or setting up the business entity
- as a shareholder, beneficiary or partner to liquidate or deregister a company or to wind up a trust or partnership (the company, trust or partnership must have carried on a business).
If you incur expenditure in relation to your existing business, a business that you used to carry on or a business that you propose to carry on, the expenditure is deductible to the extent the business is, was or is proposed to be carried on for a taxable purpose.
You cannot deduct expenditure in relation to an existing business that is carried on by another entity. However, you can deduct expenditure you incur in relation to a business that used to be, or is proposed to be, carried on by another entity. The expenditure is only deductible to the extent that:
- the business was, or is proposed to be, carried on for a taxable purpose, and
- the expenditure is in connection with the business that was or is proposed to be carried on and with you deriving assessable income from the business.
Generally, you can deduct 20% of the expenditure in the year you incur it and in each of the following four years. However, for some pre- and post-business expenditure you may have to defer your claim for a deduction because the non-commercial loss rules apply.
For example, if you were carrying on a business during the year, but your relevant capital expenditure relates to a new business that did not commence before 30 June 2012, you generally cannot claim a deduction for the expenses incurred until the business activity commences. If you incur such expenditure in these circumstances, you should not claim the deductible amount (20%) but note it in your business or taxation records and claim all the amounts deferred for this item in the year the business commences.
The deduction cannot be claimed for capital expenditure if it:
- can be deducted under another provision
- forms part of the cost of a depreciating asset you hold, used to hold or will hold
- forms part of the cost of land
- relates to a lease or other legal or equitable right
- would be taken into account in working out an assessable profit or deductible loss
- could be taken into account in working out a capital gain or a capital loss
- would be specifically not deductible under the income tax laws if the expenditure was not capital expenditure
- is specifically not deductible under the income tax laws for a reason other than the expenditure is capital expenditure
- is of a private or domestic nature
- is incurred in relation to gaining or producing exempt income or non-assessable non-exempt income
- is excluded from the cost or cost base of an asset because, under special rules in the UCA or capital gains tax regimes respectively, the cost or cost base of the asset was taken to be the market value
- is a return of or on capital or is a return of a non-assessable amount (for example, repayments of loan principal).
Claim the amount deductible under section 40-880 here if you carried on a business as an individual at any time during the year.
If you have incurred relevant capital expenses that relate to a business that ceased in a previous income year and you carried on the business as a sole trader or through a partnership, claim the expenses here. If you carried on the business through a company or trust, you claim the amount deductible (20%) at item D15 on your tax return (supplementary section).
You must show any recoupment of the expenditure as assessable income, either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8 on your schedule.
Completing this item
STEP 1 Write your deduction for primary production business-related costs at Section 40-880 deduction in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your deduction for non-primary production business-related costs at Section 40-880 deduction in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production deductions for business-related costs and write the total at A.
Business deduction for project pool
Did you have capital expenditure directly connected with a business project?
NO
Go to Landcare operations and business deduction for decline in value of water facility.
YES
Read on.
You need to know
Certain capital expenditure you incurred after 30 June 2001 which is directly connected with a project you carry on or propose to carry on for a taxable purpose can be allocated to a project pool and written off over the life of the project. Each project has a separate project pool. The project must be of sufficient substance and be sufficiently identified that it can be shown that the capital expenditure said to be a ‘project amount’ is directly connected with the project.
You are carrying on a project if it involves a continuity of activity and active participation. Merely holding a passive investment, such as a rental property, would not be regarded as carrying on a project.
Such capital expenditure, known as a project amount, is expenditure incurred on:
- creating or upgrading community infrastructure for a community associated with the project; this expenditure must be paid (not just incurred) to be a project amount
- site preparation for depreciating assets (other than to drain swamp or low-lying land or to clear land for horticultural plants, including grapevines)
- feasibility studies for the project
- environmental assessments for the project
- obtaining information associated with the project
- seeking to obtain a right to intellectual property
- ornamental trees or shrubs.
Project amounts also include mining capital expenditure and expenditure on certain facilities used to transport minerals or quarry materials. For more information on these project amounts, see the Guide to depreciating assets 2013.
The expenditure must not be otherwise deductible or form part of the cost of a depreciating asset. If the expenditure incurred arises from a non-arm’s length dealing and is more than the market value of what it was for, the amount of the expenditure is taken to be that market value.
Project amounts are allocated to a ‘project pool’. Your deduction for project amounts allocated to a project pool is spread over the ‘project life’. The project life is the period from the date on which the project starts to operate until the date on which it stops operating. The period must be limited by something inherent in the project. If there is no limited project life, no deduction is available under these rules.
A deduction is available from the income year in which you started to operate a project to gain or produce assessable income. The deduction is worked out on the value of the project pool at the end of the income year at the rate of 150%. For pools containing only project amounts incurred on or after 10 May 2006 for projects starting on or after that day, the rate is 200%. Your deductions are capped at 150% if on or after 10 May 2006 you abandon, sell or otherwise dispose of an existing project and then restart it after that date in circumstances where it would be reasonable to conclude that this was done for the main purpose of ensuring that deductions would be calculated using the higher rate.
Use worksheet 3A or worksheet 3B to work out your deduction. For projects which started to operate on or after 10 May 2006 the calculation is as follows:
WORKSHEET 3A: Project pool deduction for projects which started on or after 10 May 2006
Value of the project pool at 30 June 2013. This is the closing pool value for 2011–12 (if any) plus the sum of the project amounts you allocated to the pool in 2012–13.
|
$
|
(a)
|
Your estimate of the life of the project (in years).
|
years
|
(b)
|
Divide (a) by (b).
|
$
|
(c)
|
Multiply (c) by 200%. This is your 2012–13 deduction for the project pool.
|
$
|
(d)
|
Your deduction at (d) must not be more than the amount at (a).
If a project operated in 2012–13 for purposes other than earning assessable business income, you must reduce your deduction at (d) by a reasonable amount for the extent to which the project operated for such other purposes.
|
WORKSHEET 3B: Project pool deduction for projects which started before 10 May 2006
Value of the project pool at 30 June 2013. This is the closing pool value for 2011–12 (if any) plus the sum of the project amounts you allocated to the pool in 2012–13.
|
$
|
(a)
|
Your estimate of the life of the project (in years).
|
years
|
(b)
|
Divide (a) by (b).
|
$
|
(c)
|
Multiply (c) by 150%. This is your 2012–13 deduction for the project pool.
|
$
|
(d)
|
Your deduction at (d) must not be more than the amount at (a).
If a project operated in 2012–13 for purposes other than earning assessable business income, you must reduce your deduction at (d) by a reasonable amount for the extent to which the project operated for such other purposes.
|
The pool value can be subject to adjustments, for example, a foreign exchange (forex) adjustment may apply where you met an obligation to pay foreign currency incurred as a project amount which you had allocated to a project pool.
Closing pool value for 2012–13
This is (a) minus (d) in worksheet 3A and worksheet 3B. You will need the closing pool value for 2012–13 to work out your deduction for the project pool next year.
Any recoupment of the expenditure must be shown as assessable income either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8 on your schedule.
Where a project was abandoned, sold or otherwise disposed of in 2012–13
In this case, whether or not the project had begun to operate, you can claim a deduction for the 2011–12 closing pool value (if any) plus any project amounts allocated to the pool in the 2012–13 year. You must show any proceeds from the abandonment, sale or disposal of the project as assessable income either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of your schedule.
Completing this item
STEP 1 Write your total primary production project pool business deduction at Business deduction for project pool in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total non-primary production project pool business deduction at Business deduction for project pool in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production project pool business deductions and write the total at L.
Landcare operations and business deduction for decline in value of water facility
Did you have landcare operations and/or water conservation/conveying expenses?
You need to know
Landcare operations expenses
You can claim a deduction for capital expenditure you incur on a landcare operation for land in Australia in the year it is incurred.
If you can deduct expenditure under both the water facilities and landcare operation rules, you can only deduct the expenditure as expenditure on a water facility; see Water conservation and conveyance facilities. If you can deduct expenditure under both the carbon sink forests and landcare operation rules, you can only deduct the expenditure as expenditure on carbon sink forests.
Unless you are a rural land irrigation water provider, the deduction is available if you use the land for either:
- a primary production business, or
- in the case of rural land, a business for the purpose of producing assessable income from the use of that land, except a business of mining or quarrying.
However your deduction is reduced by a reasonable amount to reflect your use of the land other than for the purpose of carrying on the relevant business in an income year after you incurred the expenditure.
You may claim the deduction even if you are only a lessee of the land.
Rural land irrigation water providers can claim a deduction for certain expenditure they incur. A rural land irrigation water provider is an entity whose business is primarily and principally supplying water to entities for use in primary production businesses on land in Australia or businesses (except mining or quarrying businesses) using rural land in Australia. The supply of water by using a motor vehicle is excluded.
If you are a rural land irrigation water provider, you can claim a deduction for capital expenditure you incurred on a landcare operation for land used by other entities that you supply with water if the land is:
- land in Australia that those entities use at the time for primary production businesses, or
- rural land in Australia that those entities use at the time for carrying on businesses for a taxable purpose, except a business of mining or quarrying.
If you are a rural land irrigation water provider your deduction is reduced by a reasonable amount to reflect an entity’s use of the land for other than a taxable purpose in an income year after you incurred the expenditure.
A landcare operation is one of the following:
- erecting fences to separate different land classes in accordance with an approved land management plan
- erecting fences primarily and principally to keep animals out of areas affected by land degradation in order to prevent or limit further damage and assist in reclaiming the areas
- constructing a levee or similar improvements
- constructing drainage works, other than the draining of swamps or low-lying land, primarily and principally to control salinity or assist in drainage control
- an operation primarily and principally for eradicating or exterminating animal pests from the land
- an operation primarily and principally for eradicating, exterminating or destroying plant growth detrimental to the land
- an operation primarily and principally for preventing or fighting land degradation other than by erecting fences, or
- an extension, alteration or addition to any of the assets described in 1 to 4 above or an extension of an operation described in 5 to 7 above.
A landcare operation also includes:
- a repair of a capital nature to an asset described in 1 to 4 above
- constructing a structural improvement that is reasonably incidental to levees (or similar improvements) or drainage works deductible as capital expenditure on a landcare operation
- a repair of a capital nature, or an alteration, addition or extension to a structural improvement that is reasonably incidental to levees (or similar improvements) or drainage works deductible as capital expenditure on a landcare operation.
An example of a structural improvement that may be reasonably incidental to drainage works is a fence constructed to prevent livestock entering a drain that was constructed to control salinity.
No deduction is available if the capital expenditure is on plant unless it is on certain fences, dams or other structural improvements. Where a levee is constructed primarily and principally for water conservation, it would be a water facility and no deduction would be allowable under these rules. Its decline in value would need to be worked out under the rules for water facilities, see Water conservation and conveyance facilities.
If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.
These deductions are not available to a partnership. Expenses for landcare operations incurred by a partnership are allocated to each partner, who can then claim the relevant deduction for their share of the expenditure.
You may need to show any recoupment of the expenditure as assessable income either at Other business income in the Income section of item P8 on your schedule or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8. For further information, see the Guide to depreciating assets 2013 or phone 13 28 66.
Water conservation and conveyance facilities
You can claim a deduction for the decline in value of a water facility. A water facility includes plant or a structural improvement, or an alteration, addition or extension to plant or a structural improvement, that is primarily or principally for the purpose of conserving or conveying water.
‘Water facility’ includes dams, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills. Water facility also includes certain other expenditure incurred on or after 1 July 2004 for:
- a repair of a capital nature to plant or a structural improvement that is primarily or principally for the purpose of conserving or conveying water, for example, if you purchase a pump that needs substantial work done to it before it can be used in your business, the cost of repairing the pump may be treated as a water facility
- a structural improvement, or an alteration, addition or extension to a structural improvement that is reasonably incidental to conserving or conveying water
- a repair of a capital nature to a structural improvement that is reasonably incidental to conserving or conveying water.
Examples of structural improvements that are reasonably incidental to conserving or conveying water include a bridge over an irrigation channel, a culvert (a length of pipe or multiple pipes that are laid under a road to allow the flow of water in a channel to pass under the road), or a fence preventing livestock entering an irrigation channel.
A deduction for the decline in value of a water facility can be claimed by deducting relevant capital expenditure in equal instalments over three years.
Unless you are an irrigation water provider, the expenditure must be incurred primarily and principally for conserving or conveying water for use in a primary production business you conduct on land in Australia. You may claim the deduction even when you do not own the land. Therefore, if you are a lessee carrying on a business of primary production on the land, you can still claim the deduction. Your deduction is reduced where the facility is not wholly used for either:
- carrying on a primary production business on land in Australia, or
- a taxable purpose, for example, producing assessable income.
Irrigation water providers are entitled to a deduction for water facilities expenditure incurred on or after 1 July 2004. An irrigation water provider is an entity whose business is primarily and principally the supply of water to entities for use in primary production businesses on land in Australia. The supply of water by using a motor vehicle is excluded.
If you are an irrigation water provider, you must incur the expenditure primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia (being entities supplied with water by you). The deduction is reduced if the facility is not used wholly for a taxable purpose.
If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.
These deductions are not available to a partnership. Costs incurred by a partnership for facilities to conserve or convey water are allocated to each partner who can then claim the relevant deduction for their share of the expenditure.
You may need to show any recoupment of the expenditure as assessable income either at Other business income in the Income section of item P8 on your schedule or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8. For further information, see the Guide to depreciating assets 2013 or phone 13 28 66.
Small business entities
The amount you show at W must not include any amount relating to a depreciating asset used in your primary production business if you have chosen to claim a deduction for it under the small business entity depreciation rules.
Completing this item
STEP 1 Write your total deductions for primary production landcare operations expenses and for water facilities at Landcare operations and business deduction for decline in value of water facility in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
STEP 2 Write your total deduction for non-primary production landcare operations expenses and water facilities at Landcare operations and business deduction for decline in value of water facility in the Non-primary production column. Do not show cents.
STEP 3 Add up your primary production and non-primary production deductions for landcare operations and water facilities and write the total at W.
Income and expense reconciliation adjustments
Do you need to make any income or expense reconciliation adjustments?
You need to know
You may need to make income reconciliation adjustments or expense reconciliation adjustments. These adjustments reconcile your business operating profit or loss with your business taxable income.
Do not complete any income reconciliation adjustments or expense reconciliation adjustments if all the amounts you have written at C Gross payments where Australian business number not quoted to W Landcare operations and business deduction for decline in value of water facility item P8 on your schedule are assessable income or allowable tax deductions for income tax purposes.
If you have included amounts such as exempt income or non-deductible expenses or have not included amounts which are assessable income or expenditure that is deductible, you must work out your reconciliation adjustments.
Worksheet 4 will assist you with your calculations.
What are income reconciliation adjustments?
Income reconciliation adjustments include:
- income add backs; this is income not shown in the accounts which is assessable income for tax purposes, such as
- assessable balancing adjustment amounts on disposal of depreciating assets, and
- other assessable income not included in the profit and loss statement
- income subtractions; this is income shown in the accounts which is not assessable income, such as
- profit on sale of depreciating assets, and
- other income that is not assessable for income tax purposes, for example, gross exempt income.
Your income reconciliation adjustment is:
your total income add backs – your total income subtractions
Use worksheet 4 to work out your income reconciliation adjustments for your primary and non-primary production businesses. The amount you write at X Income reconciliation adjustments item P8 on your schedule is the total of your primary production and non-primary production income adjustments.
If the amount is negative, print L in the box at the right of the amount.
What are expense reconciliation adjustments?
Expense reconciliation adjustments include:
- expense add backs; expenses shown in the accounts which are not tax deductible, including timing deductions, such as
- prepaid expenses not deductible in this year
- depreciation
- loss on sale of a depreciating asset, and
- other items not allowable as a deduction, for example, capital expenditure, additions to provisions and reserves, income tax expense, expenses relating to exempt income, debt deductions denied by the thin capitalisation rules, other non-deductible expenses (for further information, see Thin capitalisation, and PSI deductions)
- expense subtractions; items not shown as expenses which are deductible for tax purposes, such as
- prepaid expenses deductible this year but not included elsewhere
- deduction for decline in value of depreciating assets
- deductible balancing adjustment amounts on disposal of depreciating assets
- deduction for environmental protection expenses, and
- other items deductible for tax purposes.
Your expense reconciliation adjustment is:
your total expense add backs – your total expense subtractions
Use worksheet 4 to work out your expense reconciliation adjustments for your primary and non-primary production businesses. The amount you write at H Expense reconciliation adjustments item P8 on your schedule is the total of your primary production and non-primary production expense adjustments.
If the amount is negative, print L in the box at the right of the amount.
Specific reconciliation adjustments
There are examples of specific reconciliation adjustments that may apply to you.
If you were previously in the STS read Former STS taxpayers below first. Otherwise, go to Prepaid expenses.
Former STS taxpayers
Make adjustments in this section of item P8 on your schedule if you:
- are eligible and have chosen to continue using the STS accounting method and the amounts you have shown at the Income and Expense sections of item P8 are not based on the STS accounting method, or
- have stopped using the STS accounting method.
These adjustments are explained in more detail below.
Worksheet 4 will assist you with your calculations.
Income derived but not received as at 30 June 2013 and expenses incurred but not paid as at 30 June 2013
If you are eligible and have chosen to continue using the STS accounting method and have included at item P8 amounts of ordinary income that have been derived but not received in 2012-13, the amounts not received are not assessable this year, for example, trade debtors as at 30 June 2013.
These amounts form part of your income reconciliation adjustments at X at P8. Include these amounts at (f) on worksheet 4.
If you are eligible and have chosen to continue using the STS accounting method and have included at item P8 amounts for general deductions, repairs and tax-related expenses that have been incurred but not paid in 2012–13, the amounts not paid are not deductible this year, for example, trade creditors as at 30 June 2013.
These amounts form part of your expense reconciliation adjustments at H item P8. Include these amounts at (n) on worksheet 4.
Adjustments when ceasing to use the STS accounting method
If you have discontinued using the STS accounting method read on.
If you have not included at Income at item P8 any amounts of ordinary income that were derived but not received while using the STS accounting method, these amounts are assessable this year, for example, trade debtors as at 30 June 2012.
Include these amounts at (b) on worksheet 4.
If you have not included at Expenses at item P8 any amounts of general deductions, repairs or tax-related expenses that were incurred but not paid while using the STS accounting method, these amounts are deductible this year, for example, trade creditors as at 30 June 2012.
Include these amounts (other than tax-related expenses) at (t) on worksheet 4. Write your deduction for tax-related expenses at item D10 on your tax return.
Depreciating assets deducted under the simplified depreciation rules
Disposal of depreciating assets
If you disposed of any depreciating assets during the income year, the following amounts (if any) form part of your Income reconciliation adjustments at X item P8.
- the taxable purpose proportion of the termination value of assets that have been disposed of for which an immediate deduction has been claimed ie certain assets (costing less than $6,500) for which an immediate deduction was claimed this year and/or a low-cost asset for which an immediate deduction was claimed in a prior year
- if the closing pool balance of a general small business pool is less than zero, the amount below zero, and
- assessable balancing adjustment amounts on the disposal of depreciating assets not allocated to a general small business pool.
See the Definitions box for an explanation of these terms.
Include the amounts at (b) on worksheet 4.
Any deductible balancing adjustment amounts on the disposal of depreciating assets that you have not allocated to a small business pool form part of your Expense reconciliation adjustments at H item P8. Include these amounts at (q) on worksheet 4.
For more information on assessable balancing adjustment amounts and deductible balancing adjustment amounts, see the Guide to depreciating assets 2013.
Prepaid expenses
Special rules may affect the timing of deductions for prepaid expenditure. Under these rules you may need to apportion certain prepaid expenses over more than one income year. You must make an expense reconciliation adjustment to add back that part of the expense that is not deductible in the year it is incurred. Show the adjustment at (k) on worksheet 4.
If you had a prepaid expense in a prior year which is to be apportioned over the service period and you are entitled to a deduction for part of the expense this year but have not included it elsewhere, show the adjustment as an expense subtraction at (s) on worksheet 4.
For more information about the prepayment rules, see the publication Deductions for prepaid expenses 2013.
Deduction for decline in value
A deduction for a decline in value of a depreciating asset calculated under income tax law may differ from the accounting or book calculation of depreciation. Different rules regarding such things as effective life, the calculation of balancing adjustment amounts and the treatment of debt forgiveness amounts can produce a discrepancy between the two calculations.
Under income tax law you can deduct an amount equal to the decline in value of a depreciating asset in 2012–13 if you held the depreciating asset for any time during the year and used it (or installed it ready for use) for a taxable purpose, such as for producing assessable income.
The deduction is reduced to the extent you do not use the asset for a taxable purpose.
To help you calculate your deduction for decline in value, see the Guide to depreciating assets 2013, which also provides explanations of relevant terms. The publication also explains the option to allocate to a low-value pool depreciating assets that cost less than $1,000 (excluding input tax credit entitlements) and depreciating assets that have an opening adjustable value of less than $1,000.
If you choose to use the low-value pool method to calculate the decline in value of low-cost or low-value depreciating assets and the pool contains assets used for work-related, self-education or non-business rental purposes, read question D6 in Individual tax return instructions 2013. Do not include the deduction at item P8 on your schedule. If none of the depreciating assets in the pool is used for any of those purposes, include the amount of your low-value pool deduction at (r) on worksheet 4. Where necessary, make a reasonable apportionment between primary production and non-primary production activities.
You should also include the deduction for decline in value of depreciating assets not allocated to a pool at (r) on worksheet 4.
You should also add back the depreciation charged in your accounts and shown at M Depreciation expenses in the Expenses section of item P8 as an expense reconciliation adjustment. Include the amount at (h) on worksheet 4. The amount at (h) should not include any small business pool deductions which you have claimed at M.
Luxury car leasing
A leased car, either new or second-hand, is a luxury car if its cost exceeds the car limit that applies for the income year in which the lease commences. The car limit for 2012–13 is $57,466.
A luxury car lease entered into after 7.30pm (by legal time in the ACT) on 20 August 1996 (other than genuine short-term hire arrangements) is treated as a notional sale-and-loan transaction.
The cost or value of the car specified in the lease (or the market value if the parties were not dealing at arm’s length in connection with the lease) is taken to be the cost of the car for the lessee and the amount loaned by the lessor to the lessee to buy the car.
In relation to the notional loan, the actual lease payments are divided into notional principal and finance charge components. That part of the finance charge component for the notional loan applicable for the particular period (the accrual amount) is deductible to the lessee, subject to any reduction required under the thin capitalisation rules.
The amount forms part of your expense reconciliation adjustments at H item P8 on your schedule. Include the amount at (p) on worksheet 4.
In relation to the notional sale, the lessee is treated as the holder of the luxury car and may be entitled to claim a deduction for the decline in value of the car. If the lessee is a small business entity using the simplified depreciation rules for the income year in which the lease is entered into, the lessee allocates the car to their general small business pool.
For the purpose of calculating the deduction, the cost of the car is limited to the car limit for the income year in which the lease is granted.
For more information on deductions for the decline in value of leased luxury cars, see the Guide to depreciating assets 2013.
In summary, the lessee is entitled to deductions equal to:
- the accrual amount, and
- the decline in value of the luxury car, based on the applicable car limit, unless the car is allocated to the general small business pool.
You reduce both deductions to reflect any use of the car for a non-taxable purpose.
Where you allocated the car to the general small business pool with the cost based on the applicable car limit, see Calculating your depreciation deductions.
If you have included the lease expense at J Lease expenses in the Expenses section of item P8 in your schedule, the amount should also form part of your expense reconciliation adjustments at H item P8. Include the amount at (i) on worksheet 4. Include the deduction for the accrual amount at (p).
If the lease terminates or is not extended or renewed and the lessee does not actually acquire the car from the lessor, the lessee is treated under the rules as disposing of the car by way of sale to the lessor. This constitutes a balancing adjustment event. If the car is not subject to the simplified depreciation rules, any assessable or deductible balancing adjustment amount for the lessee must be determined. If the car has been allocated to the lessee’s general small business pool, see calculation 5 for small business entities.
Hire-purchase agreements
Hire-purchase and instalment sale agreements of goods are treated as a sale of the property by the financier (or hire-purchase company) to the hirer (or instalment purchaser).
The sale is treated as being financed by a loan from the financier to the hirer at a sale price of either their agreed cost or value or the property’s arm’s length value.
The periodic hire-purchase (or instalment) payments are treated as payments of principal and interest under the notional loan. The interest component is deductible to the hirer, subject to any reduction required under the thin capitalisation rules. This amount forms part of the expense reconciliation adjustments at H item P8 on your schedule. Include the amount at (t) on worksheet 4.
In relation to the notional sale, the hirer of a depreciating asset is treated as the holder of the asset and either allocates the asset to the appropriate small business pool if they are a small business entity using the simplified depreciation rules for the income year, or may be entitled to claim a deduction for the decline in value of the depreciating asset. The cost of the asset for this purpose is taken to be the agreed cost or value, or the arm’s length value if the dealing is not at arm’s length.
If you have included hire-purchase charges as an expense at item P8 on your schedule, the amount should also form part of your expense reconciliation adjustments at H item P8. Include the amount at (n) on worksheet 4.
Termination of a limited recourse debt
Excessive deductions for capital allowances are included in assessable income under the limited recourse debt rules contained in Division 243 of the ITAA 1997. This will occur where:
- expenditure on property has been financed or re-financed wholly or partly by the limited recourse debt
- the limited recourse debt is terminated after 27 February 1998 but has not been paid in full by the debtor, and
- because the debt has not been paid in full, the capital allowance deductions allowed for the expenditure exceed the deductions that would be allowable if the unpaid amount of the debt was not counted as capital expenditure of the debtor. Special rules apply in working out whether the debt has been fully paid.
A limited recourse debt is a debt where the rights of the creditor as against the debtor, in the event of default in payment of the debt or of interest, are limited wholly or predominantly to the property which has been financed by the debt or is security for the debt, or rights in relation to such property. A debt is also a limited recourse debt if, notwithstanding that there may be no specific conditions to that effect, it is reasonable to conclude that the creditor’s rights as against the debtor’s are capable of being so limited.
A limited recourse debt includes a notional loan under a hire-purchase or instalment sale agreement of goods to which Division 240 of the ITAA 1997 applies, see section 243-20.
The amount that is included within assessable income as a result of these provisions forms part of your income reconciliation adjustments at X item P8 on your schedule. Include the amount at (b) on worksheet 4.
WORKSHEET 4: Reconciliation statement
Reconcile your primary production and non-primary production items separately.
Income reconciliation adjustments
|
Primary production
|
|
Non-primary production
|
|
Additions
|
Assessable balancing adjustment amounts on disposal of depreciating assets
|
$
|
|
$
|
(a)
|
Assessable business income not included in the profit and loss statement
|
$
|
|
$
|
(b)
|
Subtotal: add (a) and (b).
|
$
|
|
$
|
(c)
|
Subtractions
|
Net exempt income (gross exempt income less expenses relating to that exempt income)
|
$
|
|
$
|
(d)
|
Profit on sale of depreciating assets included in accounts
|
$
|
|
$
|
(e)
|
Other non-assessable income included in the profit and loss statement
|
$
|
|
$
|
(f)
|
Subtotal: add (d), (e) and (f).
|
$
|
|
$
|
(g)
|
Income reconciliation adjustments: take (g) away from (c).
|
$
|
|
$
|
|
Expense reconciliation adjustments
|
Primary production
|
|
Non-primary production
|
|
Additions
|
Depreciation charged in accounts
|
$
|
|
$
|
(h)
|
Lease payments for luxury cars
|
$
|
|
$
|
(i)
|
Loss on sale of depreciating assets included in accounts
|
$
|
|
$
|
(j)
|
Part of prepaid expenses not deductible this year
|
$
|
|
$
|
(k)
|
Items not allowable as deductions:
|
|
|
|
|
capital expenditure
|
$
|
|
$
|
(l)
|
additions to provisions and reserves
|
$
|
|
$
|
(m)
|
Other non-deductible items, including income tax
|
$
|
|
$
|
(n)
|
Subtotal: add (h), (i), (j), (k), (l), (m) and (n).
|
$
|
|
$
|
(o)
|
Subtractions
|
Accrual amount deduction for lessee of luxury cars
|
$
|
|
$
|
(p)
|
Deductible balancing adjustment amounts on disposal of depreciating assets
|
$
|
|
$
|
(q)
|
Deduction for decline in value of depreciating assets
|
$
|
|
$
|
(r)
|
Part of prepaid expenses deductible this year but not included elsewhere
|
$
|
|
$
|
(s)
|
Other items deductible for tax purposes not included in the profit and loss statement
|
$
|
|
$
|
(t)
|
Subtotal: add (p), (q), (r), (s) and (t).
|
$
|
|
$
|
(u)
|
Expense reconciliation adjustments: take (u) away from (o).
|
$
|
|
$
|
|
Note 1
|
Include amounts at (h) only if you are not using the simplified depreciation rules. However, exclude any pool deductions which you have included at M item P8 which relate to a continuing small business pool.
|
Note 2
|
See the Guide to depreciating assets 2013 for an explanation of depreciating assets.
|
Note 3
|
If you have included an amount of capital expenditure incurred to terminate a lease or licence at J Lease expenses item P8, make a reconciliation adjustment at H Expense reconciliation adjustments by including the amount of capital expenditure as an expense add back and taking away that part of the expense which is allowed as a tax deduction.
|
Completing this item
STEP 1 Complete worksheet 4 using the explanations provided. This will give you your total income and expense reconciliation amounts (primary and non-primary production) that you need for your schedule.
STEP 2 Transfer the totals in the yellow rows on the worksheet to the appropriate boxes on page 3 of your schedule. Do not show cents.
STEP 3 If any of the reconciliation adjustment amounts
is negative, print L in the box at the right of the amount.
STEP 4 Add up your primary production and non-primary production income reconciliation adjustments and write the total at X.
STEP 5 Add up your primary production and non-primary production expense reconciliation adjustments and write the total at H.
STEP 6 If the total income reconciliation adjustment amount is negative, print L in the box at the right of the amount at X. If the total expense reconciliation adjustment amount is negative, print L in the box at the right of H.
Do not include in the amount at (t) on worksheet 4:
- section 40-880 deductions
- business deductions for project pools
- deductions for landcare operations and water facilities.
Reconciliation adjustments for these amounts are shown separately at A, L and W on your schedule.
WORKSHEET 5: Working out your net income or loss from primary production business this year
Write your primary production total business income shown in the Primary production column at TOTAL BUSINESS INCOME item P8.
|
$
|
|
(a)
|
Write your primary production total business expenses shown at S item P8.
|
$
|
|
(b)
|
Add up the amounts of any deductions for section 40-880 expenditure, project pool and landcare operations and water facilities and write the total at (c).
|
$
|
|
(c)
|
Add the amount at (b) to the amount at (c).
|
$
|
|
(d)
|
Take the amount at (d) away from the amount at (a).
|
$
|
|
(e)
|
Write your primary production income reconciliation adjustment (if any).
|
$
|
|
(f)
|
Write your primary production expense reconciliation adjustment (if any).
|
$
|
|
(g)
|
Your net income or loss from your primary production business: add (e), (f) and (g).
|
$
|
|
(h)
|
If the amount at (d) is more than the amount at (a), the amount at (e) is a loss. If it is, or if you have a negative amount at (f) or (g), the examples below will help you to work out your loss from primary production business.
WORKSHEET 6: Working out your net income or loss from non-primary production business this year
Write your non-primary production total business income shown in the Non-primary production column at TOTAL BUSINESS INCOME item P8.
|
$
|
|
(i)
|
Write your non-primary production total business expenses shown at T item P8.
|
$
|
|
(j)
|
Add up the amounts of any deductions for non-primary production section 40-880 expenditure, project pool and landcare operations and write the total at (k).
|
$
|
|
(k)
|
Add the amount at (j) to the amount at (k).
|
$
|
|
(l)
|
Take away the amount at (l) from the amount at (i).
|
$
|
|
(m)
|
Write your non-primary production income reconciliation adjustment (if any).
|
$
|
|
(n)
|
Write your non-primary production expense reconciliation adjustment (if any).
|
$
|
|
(o)
|
Your net income or loss from your non-primary production business: add (m), (n) and (o).
|
$
|
|
(p)
|
If the amount at (l) is more than the amount at (i), the amount at (m) is a loss. If it is, or if you have a negative amount at (n) or (o), the examples below will help you to work out your loss from non-primary production business.
Examples
If the amount at (e) is a $5,000 loss, the amount at (f) is $12,000 income and the amount at (g) is a $1,000 loss, the net income from the primary production business at (h) is $6,000.
If the amount at (e) is $5,000 profit, the amount at (f) is $2,000 income and the amount at (g) is an $8,000 loss, the loss from the primary production business at (h) is $1,000.
If the amount at (m) is a $5,000 loss, the amount at (n) is a $4,000 loss and the amount at (o) is a $1,000 loss, the loss from the non-primary production business at (p) is $10,000.
End of exampleNet income or loss from business this year
Use worksheet 5 and worksheet 6 to work out your net income or loss from your primary and non-primary production businesses this year, not including any non-commercial business losses deferred from a prior year.
Completing this item
STEP 1 Transfer the amount at (h) on worksheet 5 to B item P8 on page 3 of your schedule. Do not show cents. If the amount is a loss, print L in the box at the right of this amount.
STEP 2 Transfer the amount at (p) on worksheet 6 to C item P8 on page 3 of your schedule. Do not show cents. If the amount is a loss, print L in the box at the right of this amount.
STEP 3 Add B and C and write the total in the adjacent Totals column. The amount shown should not include any non-commercial business losses deferred from a prior year (which are shown at D or E, see Deferred non-commercial business losses from a prior year).
If you made a loss from your business, print L in the box at the right of this amount.
If the amount at B or C includes details from more than one business activity, and any one of these activities resulted in a net loss, you also need to complete items P3 and P9 on your schedule.
Deferred non-commercial business losses from a prior year
Do you have any deferred non-commercial business losses from a prior year?
You need to know
A deferred non-commercial business loss is a loss you incurred in a prior year which you were unable to claim against other income. If your activity is carried on partly in Australia and partly overseas please phone 13 28 66 or see Losses under the heading Foreign business losses.
The non-commercial business loss may be reduced if you:
- earned net exempt income in this income year, or
- became bankrupt or were released from any debts by the operation of an Act relating to bankruptcy.
For more information, phone 13 28 66.
Completing this item
STEP 1 At D item P8 on page 3 of your schedule write the amount of any primary production losses you deferred in a prior year from activities that are the same or similar to your current year activity. Do not show cents.
STEP 2 At E write the amount of any non-primary production losses you deferred in a prior year from activities that are the same or similar to your current year activity. Do not show cents.
STEP 3 Add up your primary and non-primary production deferred non-commercial business losses. Write the total at Deferred non-commercial business losses from a prior year in the Totals column.
Net income or loss from business
This amount takes into account non-commercial losses deferred from a prior year.
Completing this item
STEP 1 If you have net income from primary production business this year at B, take away from it the amount of your deferred non-commercial primary production business losses from a prior year shown at D. Write the answer at Y Net income or loss from business item P8 on page 3 of your schedule.
If the amount at Y is negative, print L in the box at the right of the amount.
If you have a loss from primary production business this year at B, add it to the amount of your deferred non-commercial primary production business losses from a prior year shown at D. Write the total at Y Net income or loss from business item P8 on your schedule and print L in the box at the right of the amount.
If you have printed L in the box at the right of the amount at Y, you also need to complete items P3 and P9 on your schedule.
STEP 2 If you have net income from non-primary production business this year at C, take away from it the amount of your deferred non-commercial non-primary production business losses from a prior year shown at E. Write the answer at Z Net income or loss from business item P8 on page 3 of your schedule.
If the amount at Z is negative, print L in the box at the right of the amount.
If you have a loss from non-primary production business this year at C, add it to the amount of your deferred non-commercial non-primary production business losses from a prior year shown at E. Write the total at Z Net income or loss from business item P8 on your schedule and print L in the box at the right of the amount.
If you have printed L in the box at the right of the amount at Z, you also need to complete items P3 and P9 on your schedule.
STEP 3 Add up the amounts shown at Y and Z.
Write the answer at Net income or loss from business in the Totals column. If the total is negative, print L in the box at the right of the amount.
STEP 4 Transfer the amounts at Y and Z on your schedule to B and C (respectively) item 15 on your tax return (supplementary section).
P9 Business loss activity details
Did you have a loss from a business activity you carried on either as a sole trader or in partnership?
Business losses
You must read all the information in this question and complete Activity 1 and (if necessary) Activity 2 and Activity 3, before you complete item 16 on your tax return (supplementary section). Foreign business losses shown at M item 20 are to be included here. If your activity is carried on partly in Australia and partly overseas, you need to combine the results of both to see if you have an overall loss from the activity before completing this item.
You need to know
Under the rules for non-commercial business losses, you can use a 2012–13 loss from a business activity you conduct either as a sole trader or in partnership to calculate your 2012–13 taxable income only if it meets one of these conditions:
- an exception applies (see below)
- you meet the income requirement and one of the four tests is satisfied
- you meet the income requirement and none of the four tests is satisfied, but the Commissioner of Taxation has exercised his discretion, or ruled that it will be exercised, to allow you to claim the loss
- you do not meet the income requirement, but the Commissioner has exercised his discretion, or ruled that it will be exercised, to allow you to claim the loss.
You cannot claim losses arising from activities you conduct that are a private recreational pursuit or hobby, or if there is no likelihood of profit.
The rules for non-commercial business losses apply to both foreign and Australian business activities.
Keep records of each of the net losses deferred for your separate business activities.
The exceptions
If you operated a primary production business or a professional arts business and your assessable income for 2012–13 (except any net capital gain) from other sources that did not relate to that activity is less than $40,000, you may claim your business loss this year.
A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work, as a performing artist, or as a production associate.
GST excluded
Your assessable income excludes any goods and services tax (GST) on a taxable supply you make. You must be registered or required to be registered for GST to make a taxable supply.
The income requirement
You must meet the income requirement to continue to have access to the four tests to offset your loss from a business activity against other assessable income.
If you do not meet the income requirement, you may request that the Commissioner exercise his discretion to allow your loss, see The Commissioner’s discretion.
We will work out whether or not you meet the income requirement, based on information you provide at item P9 and at other labels on your tax return.
You will meet the income requirement and have access to the four tests if the total of the following amounts is less than $250,000:
- Taxable income – the amount shown on page 4 of your tax return. Any business losses you are claiming at item P9 will be ignored when working out this amount. If you had a loss, we will use zero for this calculation.
- Total reportable fringe benefits – shown on your payment summary and are totalled at W item IT1 on your tax return.
- Reportable superannuation contributions – your reportable employer superannuation contributions (shown on your payment summary and are totalled at T item IT2 on your tax return), plus any deductible personal superannuation contributions shown at item D12 on your tax return (Supplementary Section).
- Net investment losses – the total of your financial investment losses (shown at X item IT5 on your tax return) and rental properties losses (shown at Y item IT6 on your tax return).less a farm management repayment at item 17 (supplementary return) labels C, N and/or R where the repaid amount was from the same business activity that gave rise to the loss.
If you do not meet the income requirement, you will have to defer your loss unless the Commissioner has exercised his discretion or ruled that it will be exercised, or you satisfy another exception.
The four tests
You will not have to defer your loss from your business activity if you meet the income requirement and the activity satisfies at least one of the following four tests:
- There is at least $20,000 of assessable income from the business activity for this income year.
- The business activity has produced a profit for tax purposes in three out of the past five years, including the current year.
- The value of real property assets (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000.
- The value of certain other assets (except cars, motorcycles and similar vehicles) used on a continuing basis in carrying on the business activity is at least $100,000.
Special rules apply for these four tests if you are undertaking a business activity in partnership, see Partnerships or phone 13 28 66.
The Commissioner’s discretion
Where you meet the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity to be claimed in the year it arises, even though none of the four tests are satisfied, provided that either:
- the business activity has been affected by special circumstances outside the control of the operators of the business – for example, natural disasters – where the activity would have satisfied one of the four tests but for these special circumstances, or
- the business activity, because of its nature, has a lead time and, for this reason, does not or will not satisfy any of the four tests, but there is an objective expectation that within a period that is commercially viable for the industry either
- it will satisfy one of the four tests, or
- produce assessable income for an income year greater than the deduction attributable to that income for that year. ‘Commercial viability’ is measured against independent industry standards.
Where you exceed the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity in more limited circumstances. The Commissioner can exercise his discretion in this instance if:
- the business activity has been affected by special circumstances outside the control of the operators of the business – for example, natural disasters – where the activity was unable to produce a tax profit and would have satisfied one of the four tests but for these special circumstances, or
- the business activity, because of its nature, has a lead time and, for this reason, does not or will not produce assessable income greater than the deduction attributable to that income, but there is an objective expectation that it will do so within a period that is commercially viable for the industry concerned. ‘Commercial viability’ is measured against independent industry standards.
Applying for the Commissioner’s discretion
You must apply in writing for advice on whether the Commissioner will exercise his discretion. To do this, complete the Application for a private ruling on the exercise of the Commissioner’s discretion for non-commercial business losses (NAT 5806). For more details about these rules, phone 13 28 66 for assistance.
Deferring your loss
If you are unable to claim your loss this year because of these rules, you must defer the loss.
This deferred loss is not disallowed. Instead, you take it into account for the next income year in which you carry on this business activity, or one of a similar kind.
The deferred loss is a deduction when calculating any net profit or loss from the activity in that future year.
Whether any overall loss can be taken into account in your calculation of taxable income for that future year will depend on the application of the deferral rules for non-commercial business losses in that year.
If you are unable to claim your loss against other income this year because of these rules, you must defer your loss by showing the amount at item 16 on your tax return (supplementary section). The amount shown at item 16 cannot be used to reduce your 2012–13 taxable income.
Make sure you complete Activity 1, Activity 2 and Activity 3 on page 4 of your schedule before you complete item 16 on your tax return (supplementary section).
What you may need
If you are a partner in a partnership, you will need the following details for each business activity that you, as a partner, were involved in:
- the amount of assessable income earned by the partnership for the activity
- the share of the partnerships’ assessable income, real property and certain other assets, attributable to partners who are not individuals
- your share of income or loss from the partnership of the activity.
Activity 1
Description of activity
Completing this item
Describe the business activity from which you made the largest loss and print this at D item P9 on page 4 of your schedule. If your business activity is the result of an investment in a tax-effective arrangement, print the name of the project at D.
Partnership or sole trader
Completing this item
At F item P9, print either P in the box at Partnership (loss from a business activity carried on in partnership with others) or S in the box at Sole trader (loss from a business activity carried on as a sole trader).
Type of loss
Select the most appropriate number code from the following list and write it at G item P9 on page 4 of your schedule:
- Your assessable income from the business activity for this income year was at least $20,000 and you met the income requirement.
- The business activity produced a profit for tax purposes in three out of the past five years (including the current year) and you met the income requirement.
- The value of real property assets or interests in real property (excluding any private dwelling) used on a continuing basis in carrying on the business activity was at least $500,000 and you met the income requirement.
- The value of certain other assets (except cars, motor cycles or similar vehicles) used on a continuing basis in carrying on the business activity was at least $100,000 and you met the income requirement.
- We have advised you in writing that the Commissioner will exercise his discretion to allow you to claim a loss for that business activity for this income year. This is where the Commissioner has issued a product ruling or a private binding ruling allowing losses to be claimed from an activity you participated in. This code also applies where you have a farm management repayment that can be offset against a primary production loss so that you satisfy the income requirement for that loss.
- The loss was from a business activity you operated that was a professional arts business and your assessable income (excluding any net capital gain) from sources not related to that activity was less than $40,000. A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work, as a performing artist, or as a production associate.
- The loss is from a business activity you operated that is a primary production business and your assessable income (excluding any net capital gain) from sources not related to that activity was less than $40,000.
- The above loss codes don’t apply and the loss was not solely due to Division 41 deductions (see loss code 9). You must defer your loss and complete item 16 on your tax return (supplementary section).
Using loss code 5 - Commissioner's discretion
Some business activities may be covered by a product ruling or private ruling that does not relate to the current income year. Use loss code 5 only if you have advice in writing that the Commissioner’s discretion will be exercised for
2012–13. If you have applied for a private binding ruling about the exercise of the Commissioner’s discretion for 2012–13, but have not yet received the ruling, use loss code 8 unless another code applies.
Using loss code 8
If you wrote code 8 at G, M or S item P9, you must defer your loss. You must also complete item 16 on your tax return (supplementary section).
Electronic lodgments
For some tax returns lodged electronically:
- where there is a loss from a partnership from a passive investment, for example, from a rental property, you need to use code 0 at G item P9
- where you have correctly shown the relevant loss code, but an electronic edit prevents you from lodging your tax return electronically, phone 13 28 66.
Did you use loss code 5 at G item P9?
Reference for code 5
Completing this item
If your business activity is covered by a product ruling that includes advice that the Commissioner will exercise his discretion to allow a loss from that business activity:
- print PR at C in the Code section of Reference for code 5 item P9 on page 4 of your schedule
- write the year of the product ruling at Y in the Year section
- write the product ruling number at A in the Number section (do not include the year of the product ruling or the slash / at A).
If your business activity is covered by a private ruling that includes advice that the Commissioner will exercise his discretion to allow a loss from that business activity:
- print AN at C in the Code section of Reference for code 5 item P9 on page 4 of your schedule
- leave Y blank in the Year section
- write the authorisation number which was printed on the front page of your notice of private ruling at A in the Number section.
If you have a farm management deposit repayment that can be offset against a primary production loss so that you satisfy the income requirement for that loss:
- print AN at C in the Code section of Reference for code 5 item P9 on page 4 of your schedule
- leave Y blank in the Year section
- Print the number 200926 at A in the Number section.
Stop
You must provide one of these numbers if you used loss code 5 at G Type of loss. Using an invalid ruling or authorisation number, one which does not apply to you or one which does not apply for the 2012–13 income year, may result in an understatement of your tax payable. Penalties and interest may apply.
Deferred non-commercial business loss from a prior year
Completing this item
Write the amount of your deferred non-commercial business loss from a prior year for the business activity at H item P9 on page 4 of your schedule. Do not show cents.
Net loss
Completing this item
Write your net loss from the business activity for 2012–13 at I item P9 on page 4 of your schedule. Do not show cents. For partners in a partnership, this would be your share of the net loss from the business activity and includes any deferred non-commercial business losses from the prior year claimed at X or Y item 13 on your tax return (supplementary section).
The example below will help you work out what to include at item P9.
Activity 2 and Activity 3
Fill out details for the second- and third-largest losses (if applicable) in the same way you have done for Activity 1.
If you made a loss from more than three business activities, determine whether you need to defer the loss for each additional business activity. You will need the total amount of your deferred non-commercial business losses to complete item 16 on your tax return (supplementary section).
Example
The following example shows how to fill in items P8 and P9 on your schedule and how the amounts link to your tax return (supplementary section).
In 2012, Kieren had to defer his non-commercial business loss of $6,000 from his beef cattle primary production business activity. He also had to defer his non-commercial business loss of $3,000 from his retail (computer repairs) business activity. Because he operated the same activities in the 2013 income year, he can claim the $6,000 business loss from the beef cattle primary production business activity as a deduction for calculating any net profit or loss from that business activity for this income year, and the $3,000 business loss from the retail non-primary production business activity as a deduction for calculating any net profit or loss from that business activity for this income year. Kieren would show the amount of $6,000 as a deduction at D item P8, the amount of $3,000 as a deduction at E item P8, and $9,000 at Totals on his Business and professional items schedule for individuals 2013.
This year, Kieren made a loss of $4,000 from the beef cattle primary production business. After taking into account his deferred non-commercial primary production business loss of $6,000 from the prior year, he made a net loss of $10,000. He did not satisfy any of the non-commercial business loss criteria that allow a business loss to be used to reduce other income, so he must defer the $10,000 net loss this year.
Kieren would show the $6,000 deferred non-commercial business loss from the prior year at H item P9, and the net loss of $10,000 at I item P9 on his Business and professional items schedule for individuals 2013. As the loss is to be deferred, he would show loss code 8 at G item P9 in the Type of loss box, see Type of loss for a description of the loss codes.
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This year, Kieren made a loss of $5,000 from the computer repairs non-primary production business. After taking into account his deferred non-commercial non-primary production business loss of $3,000 from the prior year, he made a net loss of $8,000. He did not satisfy any of the
non-commercial business loss criteria that allow a business loss to be used to reduce other income, so he must defer the $8,000 net loss this year.
Kieren would show the $3,000 deferred non-commercial business loss from the prior year at N item P9, and the net loss of $8,000 at O item P9 on his Business and professional items schedule for individuals 2013. As the loss is to be deferred, he would show loss code 8 at M item P9 in the Type of loss box – see Type of loss for a description of the loss codes.
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Kieren would also need to complete G, I and J item 16 on his tax return (supplementary section), deferring his net losses of $10,000 from primary production and $8,000 from non-primary production, a total deferred net loss of $18,000. He would not be able to use this net loss to reduce his other income this year.
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End of exampleP10 Small business entity depreciating assets
Item P10 is only for small business entities using the simplified depreciation rules.
Completing this item
To complete this item, use the amounts you calculated for small business entity depreciation deductions in worksheet 2.
At A Deduction for certain assets (costing less than $6,500) item P10 on page 4 of your schedule, write the amount at (a) in the worksheet.
At B Deduction for general small business pool, write the total of the amounts at (b), (c) and (d) in the worksheet.
Stop
Remember: write the depreciation deductions, not the pool balances, at A and B.
Other business and professional items
For P11 to P19, you need to fill in all items relating to your business expenses.
If you have more than one business you must add the figures for all businesses, irrespective of whether they are primary or non-primary production, and write only one figure at each item.
P11 Trade debtors
Did you have any trade debtors?
You need to know
This is the total amount owing to the business at the end of the year for goods and services provided during the income year (that is, current trade and other debtors).
Completing this item
STEP 1 Work out the total amount owing from trade and other debtors. If you have more than one business, add up all trade and other debtor amounts.
STEP 2 Write the total at E item P11 on page 4 of your schedule. Do not show cents.
P12 Trade creditors
Did you have any trade creditors?
You need to know
This is the total amount owed by the business at the end of the year for goods and services received during the income year (that is, current trade and other creditors).
Completing this item
STEP 1 Work out the total amount owing to trade and other creditors. If you have more than one business, add up all trade and other creditor amounts.
STEP 2 Write the total at F item P12 on page 4 of your schedule. Do not show cents.
P13 Total salary and wage expenses
Did you pay salary and wages as a business expense?
You need to know
Salary, wages and other labour costs actually paid or payable to persons employed in your business (excluding those forming part of capital expenditure or paid for private domestic assistance) are usually deductible. However, you cannot be an employee of your business. Payments to you of salary are not allowable deductions in calculating your income or loss; treat these payments as an allocation of profits.
Include any salary and wage component of Cost of sales, such as allowances, bonuses, casual labour, retainers and commissions paid to people who received a retainer, and workers compensation paid through the payroll.
Also include direct and indirect labour, holiday pay, locums, long service leave, lump sum payments, other employee benefits, overtime, payments under an incentive or profit-sharing scheme, retiring allowances and sick pay. Include any salary or wages paid to relatives and other related entities both here and at H item P14 on your schedule. Exclude agency fees, contract payments,
sub-contract payments, service fees, superannuation, management fees and consultant fees.
Completing this item
STEP 1 Add up total salary and wage expenses from each business.
STEP 2 Write the total at G item P13 on page 4 of your schedule. Do not show cents.
STEP 3 Select from the following list the letter that matches the description of the expense component where the salary and wage expenses have been wholly or predominantly reported at item P8:
C All included in the expense component Cost of sales
A All included in the expense component All other expenses
B Included in the expense component of both Cost of sales and All other expenses
O Included in expense components other than Cost of sales and All other expenses.
STEP 4 Print the appropriate letter in the TYPE box at the right of the amount at G.
P14 Payments to associated persons
Did you make any payments to associated persons as a business expense?
You need to know
These are amounts, including salary, wages, commissions or allowances, paid to your relatives. These also include superannuation contributions paid for the benefit of your relatives.
You must also include amounts of salary or wages paid to your relatives and a partnership in which your relatives are partners at G item P13 on your schedule.
You need to keep the following records:
- full name of relatives or related partnerships
- age, if under 18 years old
- relationship
- nature of duties performed
- hours worked
- total remuneration
- salary or wages claimed as deductions, and
- other amounts paid, for example, retiring gratuities, bonuses and commissions.
Excessive or unreasonable payments to your relatives, or a partnership in which your relatives are partners, may not be deductible. The PSI rules (see P1 Personal services income (PSI)) also limit deductions for payments to associates.
Completing this item
STEP 1 Add up payments made to relatives and related partnerships from each business.
STEP 2 Write the total at H item P14 on page 4 of your schedule. Do not show cents.
P15 Intangible depreciating assets first deducted
Small business entities using the simplified depreciation rules: do not complete this item.
Did you start to deduct the decline in value of any intangible depreciating assets?
You need to know
The following intangible assets are regarded as depreciating assets (as long as they are not trading stock):
- certain items of intellectual property
- computer software (or a right to use computer software) that you acquire, develop or have someone else develop for your use for the purposes for which it is designed (in-house software)
- mining, quarrying or prospecting rights and information
- certain indefeasible rights to use a telecommunications cable system
- certain telecommunications site access rights
- spectrum licences
- datacasting transmitter licences.
A depreciating asset that you hold starts to decline in value from the time you use it or install it ready for use for any purpose, including a private purpose. However, you can only claim a deduction for the decline in value to the extent that you use the asset for a taxable purpose, such as for producing assessable income.
At item P15 you need to show the cost of all intangible depreciating assets for which you are claiming a business deduction for decline in value for the first time. If you have allocated any intangible depreciating assets with a cost of less than $1,000 to a low-value pool for the income year, you also need to include the cost of those assets at item P15. Do not reduce the cost for estimated non-taxable use.
Expenditure on in-house software that you allocated to a software development pool is not shown at item P15.
For more information on decline in value, cost, low-value pools, in-house software and software development pools, see Guide to depreciating assets 2013.
Completing this item
STEP 1 Add up the costs.
STEP 2 Write the total at I item P15 on page 4 of your schedule. Do not show cents.
P16 Other depreciating assets first deducted
Small business entities using the simplified depreciation rules: do not complete this item.
Did you start to deduct the decline in value of any other depreciating assets in 2012–13?
You need to know
A depreciating asset that you hold starts to decline in value from the time you use it or install it ready for use for any purpose, including a private purpose. However, you can claim a deduction for the decline in value only to the extent you use the asset for a taxable purpose, such as for producing assessable income.
At item P16 you need to include the cost of all depreciating assets (other than intangible depreciating assets) for which you are claiming a business deduction for the decline in value for the first time.
If you have allocated any depreciating assets with a cost of less than $1,000 to a low-value pool for the income year, you also need to include the cost of those assets at item P16. Do not reduce the cost for estimated non-taxable use.
For more information on decline in value, cost and low-value pools, see Guide to depreciating assets 2013.
Completing this item
STEP 1 Add up the costs.
STEP 2 Write the total at J item P16 on page 4 of your schedule. Do not show cents.
P17 Termination value of intangible depreciating assets
Small business entities using the simplified depreciation rules: do not complete this item.
Did you stop holding or using any intangible depreciating assets in
2012–13?
You need to know
Do not show at this item any consideration you received during the income year in relation to in-house software for which you have allocated expenditure to a software development pool.
For more information on termination value, in-house software and software development pools, see Guide to depreciating assets 2013.
See P15 Intangible depreciating assets first deducted for more information about intangible depreciating assets.
Include the termination values for intangible depreciating assets (including intangible assets allocated to a low-value pool) that you stopped holding or using during the year (for example, assets you sold, or that were lost or destroyed).
Generally, the termination value is the amount you received or are deemed to have received for the asset that you stopped holding or using. It includes the market value of any non-cash benefits, such as goods and services, you received for the asset.
Completing this item
STEP 1 Add up any amounts you received or are deemed to have received for all intangible depreciating assets that you stopped holding or using in your business, other than:
- assets allocated in a prior year to the general small business pool or the formerly available long-life small business pool
- low-cost assets for which an immediate deduction has been allowed under the simplified depreciation rules
- in-house software for which you allocated expenditure to a software development pool.
STEP 2 Write the total at D item P17 on page 4 of your schedule. Do not show cents.
P18 Termination value of other depreciating assets
Small business entities using the simplified depreciation rules: do not complete this item.
Did you stop holding or using any other depreciating assets in 2011–12?
You need to know
At item P18 you include the termination values for other depreciating assets (including assets allocated to a low-value pool) that you stopped holding or using during the income year (for example, assets you sold, or that were lost or destroyed).
Generally, the termination value is the amount you received or are deemed to have received for the asset that you stopped holding or using. It includes the market value of any non-cash benefits, such as goods and services, you received for the asset.
For more information on termination value, see Guide to depreciating assets 2013.
Completing this item
STEP 1 Add up the amounts you received or are deemed to have received for all depreciating assets that you stopped holding or using in your business other than:
- intangible depreciating assets
- assets allocated in a prior year to the general small business pool or the formerly available long-life small business pool
- low-cost assets for which an immediate deduction has been allowed under the simplified depreciation rules
- buildings or structures for which a deduction is available under the capital works provisions
- assets falling within the provisions relating to investments in Australian films.
STEP 2 Write the total at K item P18 on page 4 of your schedule. Do not show cents.
P19 Trading stock election
Have you made a trading stock election?
No
|
Go to Check that you have…
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Yes
|
Read on.
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You need to know
If you have valued trading stock on hand at the end of the income year at an amount that is less than the lowest amount available using one of the valuation methods at Closing stock, you must notify the Commissioner.
Completing this item
If you must notify the Commissioner about your trading stock election, print Y at P item P19 on page 4 of your schedule. Otherwise leave P blank.
Check that you have …
- written the correct amount on your schedule for each item that applies to you
- correctly transferred the amount at A Net PSI item P1 on your Business and professional items schedule for individuals 2013 to A item 14 on page 13 of your tax return (supplementary section)
- correctly transferred the amounts at Y and Z NET INCOME OR LOSS FROM BUSINESS item P8 on your Business and professional items schedule for individuals 2013 to B and C (respectively) item 15 on page 14 of your tax return (supplementary section)
- completed and attached the Individual PAYG payment summary schedule 2013 to page 3 of your tax return, if you received business income that was subject to withholding
- kept your records to prove your claims, where required.
More information
Warning:
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
End of attentionInternet
For general tax information and to download publications and rulings, go to ato.gov.au
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Use this guide to help you complete the business and professional items schedule for individuals on your 2013 tax return. NAT 2543-6.2013.