• Introduction

    Attention

    Warning:

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

    End of attention

    Who is this schedule for?

    If you complete items 14, 15 or 16 of your tax return (supplementary section), you must fill in the Business and professional items schedule for individuals 2015 and send it in with your tax return. These instructions will help you to fill in the schedule. If the business or professional items that apply to you are not filled in, your tax return may be sent back to you. We consider that your tax return has not been lodged until it is returned to us complete.

    We may apply a penalty if your tax return and completed schedule are lodged late. For information on the penalty for failing to lodge on time, see Individual tax return instructions 2015 (NAT 71050).

    If you have a net loss from a business activity carried on in partnership with others, you may need to complete items P3 and P9 of the schedule. See question 13 in Individual tax return instructions supplement 2015 (NAT 71051). Do not include your partnership details at any other item on your schedule.

    From 2013 onwards, if you are required to complete the Business and professional items schedule you cannot lodge a paper tax return. You must lodge your tax return online or using a registered tax agent.

    You will also need to complete the Individual PAYG payment summary schedule 2015 (NAT 3647) if you received any of the following:

    These instructions will also help you fill in the Individual PAYG payment summary schedule 2015.

    How long did it take you to complete this schedule?

    We are committed to reducing the costs involved in complying with your tax obligations. Your response to this item will help us monitor these costs as closely as possible.

    Enter the number of hours it took you to prepare and complete your Business and professional items schedule for individuals 2015 at S on page 4 of your schedule.

    When completing this item, consider the time, rounded up to the nearest hour, you spent:

    • reading the instructions
    • collecting the necessary information to complete this schedule
    • making any necessary calculations
    • completing the schedule
    • putting the tax affairs of your business in order so the information can be handed to your tax agent.

    Your answer should reflect the time your business spent preparing and completing your schedule and the time spent by your tax agent and any other person whose assistance you obtained.

    If you are a tax agent preparing this schedule on behalf of your client, include your time and a reliable estimate of their time.

    Records you need to keep

    You must keep records of most transactions in English for five years after you prepared or obtained them, or five years after you completed the transactions or acts to which they relate, whichever is the later. Taxation Ruling TR 96/7 Income tax: record keeping - section 262A - general principles clarifies the record-keeping obligations of small businesses, particularly for cash transactions.

    If you have losses, you should generally keep records for four years from the year of income when a tax loss is fully deducted or if you have applied a net capital loss, you should generally keep your records of the capital gains tax (CGT) event that resulted in the loss until the end of any period of review for the income year in which the capital loss is fully applied. Penalties can apply if you do not keep the records for the period required.

    We are helping small business operators to meet their record-keeping obligations by reviewing their record-keeping practices. These reviews start with a phone call or a brief visit to the business premises. You can ask questions and an interview is arranged for a later date.

    Some of the more significant record-keeping problems we have identified are failure to:

    • record cash income and expenditure
    • account for personal drawings
    • record goods for your own use
    • separate private expenses from business expenses
    • keep valid tax invoices for creditable acquisitions when registered for the goods and services tax (GST)
    • keep adequate stock records
    • keep adequate records to substantiate motor vehicle claims.

    See also:

    Choice of superannuation fund

    You must keep records that show you have met your choice of superannuation fund obligations.

    Find out about:

    Hobby or business

    It is important to determine whether you are carrying on a business or pursuing a hobby, sport or recreational activity that does not produce income.

    In general, you are considered to carry on a business if the activity:

    • has started
    • has a significant commercial purpose or character
    • has a purpose of profit as well as a prospect of profit
    • is carried out in a manner that is characteristic of the industry
    • is repeated, regular or continuous
    • cannot be more accurately described as a hobby, recreation or sporting activity.

    Find out about:

    Assets put to a tax-preferred use

    Division 250 of the Income Tax Assessment Act 1997 applies to the leasing of assets and other similar arrangements to tax-preferred end users (such as tax-exempt entities, non-residents, and permanent establishments of Australian residents that carry on business in a foreign country).

    If Division 250 applies to an arrangement, then capital allowance deductions will be denied for the asset and the arrangement will be treated as a deemed loan that is taxed as a financial arrangement on a compounding accruals basis. Division 250 applies to all relevant arrangements where the tax-preferred use of an asset starts on or after 1 July 2007. However, Division 250 does not apply if the use occurs under a legally enforceable arrangement that was entered into before 1 July 2007.

    Division 250 also does not apply if you are a small business entity for the income year in which the arrangement period for the tax-preferred use of the asset starts, and you choose to deduct amounts under Subdivision 328-D (capital allowances for small business entities) for the asset for that income year. Division 250 also does not apply to certain relatively short-term and lower-value arrangements.

    Concessions for small business entities

    Did you carry on a business at any time during the year and have an aggregated turnover of less than $2 million?

    No

    Go to P1 Personal services income (PSI)

    Yes

    Read on

    You need to know

    Small businesses with an aggregated turnover of less than $2 million are called ‘small business entities’ and may qualify for a range of tax concessions.

    Eligible businesses can choose to use the concessions that best suit their needs. It is not necessary to elect to be a small business entity each year in order to access the concessions, however businesses must review their eligibility each year.

    A small business entity may be eligible for the following concessions:

    • CGT 15-year asset exemption
    • CGT 50% active asset reduction
    • CGT retirement exemption
    • CGT small business rollover
    • simplified depreciation rules
    • simplified trading stock rules
    • deducting certain prepaid business expenses immediately
    • accounting for GST on a cash basis
    • annual apportionment of GST input tax credits
    • paying GST by quarterly instalments
    • fringe benefits tax car-parking exemption
    • pay as you go (PAYG) instalments based on gross domestic product adjusted notional tax.

    Eligibility

    You are a small business entity if you are carrying on a business and have an aggregated turnover of less than $2 million.

    Aggregated turnover is your annual turnover plus the annual turnovers of any entities that are connected with you or that are your affiliates (adjusted to ignore dealings between connected entities and affiliates). Using aggregated turnover prevents larger businesses from structuring or restructuring their affairs to take advantage of the small business entity concessions.

    You must review your eligibility each year.

    Find out about:

    Calculating your turnover

    Turnover includes all ordinary income earned in the ordinary course of business for the income year. The following are some examples of amounts included and not included in ordinary income of a business:

    Table: Calculating your turnover

    Include these amounts

    • sales of trading stock
    • fees for services provided
    • interest from business bank accounts
    • amounts received to replace something that would have had the character of business income.

    Do not include these amounts

    • GST charged on a transaction
    • proceeds from the sale of business assets
    • capital gains
    • insurance proceeds for the loss or destruction of a business asset
    • amounts received from repayments of farm management deposits.

    There are special rules for calculating your annual turnover if you have retail fuel sales or business dealings with associates.

    The business operated for only part of the year

    If you carried on a business for only part of the income year, your annual turnover is worked out using a reasonable estimate of what the turnover would have been if you had carried on the business for the whole of the income year. This includes winding up the business.

    Satisfying the aggregated turnover threshold

    Your business satisfies the $2 million aggregated turnover requirement if you meet one of the following:

    • your aggregated turnover for 2013–14 was less than $2 million
    • you estimate at the beginning of 2014–15 that your aggregated turnover for the year will be less than $2 million (and your aggregated turnover in 2012–13 or 2013–14 was less than $2 million)
    • your actual aggregated turnover, worked out at the end of 2014–15, was less than $2 million. You rely on this test only if you do not satisfy either of the other two tests above. If you satisfy this test only, you cannot use the GST and PAYG instalments concessions for 2014–15.

    Find out about:

    Former simplified tax system (STS) taxpayers

    Continued use of the STS accounting method

    Although the STS has now ceased, you may continue using the STS accounting method for 2014–15 if you:

    • were an STS taxpayer continuously from the income year that started before 1 July 2005 and until the end of 2006–07
    • used the STS accounting method from 2005–06 to 2013–14
    • are a small business entity for 2014–15.

    If you meet these three requirements, you can continue using the STS accounting method until you choose not to or you are no longer a small business entity.

    If you continue to use the STS accounting method, you base the amounts you include at item P8 on the STS accounting method. If your accounting system or financial statements do not reflect the STS accounting method, you may need to make additional reconciliation adjustments at Reconciliation items at P8.

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

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

    Ceasing use of the STS accounting method

    If you have discontinued using the STS accounting method, then business income and expenses that have not been accounted for (because they have not been received or paid) will be accounted for in this year. You may need to make additional reconciliation adjustments at Reconciliation items.

    There is also a special rule that applies if you are winding up a business this year that you previously carried on and you were an STS taxpayer in the income year you ceased business.

    Find out about:

    Completing the schedule

    P1 Personal services income (PSI)

    You do not have to complete item P1 if your PSI is gained as an employee. Item P1 concerns sole traders only.

    You also do not have to complete item P1 if your PSI was received through a company, partnership or trust.

    Did you receive any PSI?

    No

    Enter X in the No box at item P1 on your schedule. Go to P2 Description of main business or professional activity

    Yes

    Enter X in the Yes box at item P1 on your schedule. Read on

    You need to know

    PSI is income that is mainly a reward for an individual’s personal efforts or skills.

    Examples of PSI are:

    • income of a professional practitioner in a sole practice
    • income payable under a contract which is wholly or principally for the labour or services of a person
    • income derived by a professional sportsperson or entertainer from the exercise of professional skills
    • income derived by consultants from the exercise of personal expertise.

    PSI does not include income that is mainly:

    • for supplying or selling goods, for example, from retailing, wholesaling or manufacturing
    • generated by a significant income-producing asset, such as a bulldozer
    • for granting a right to use property, for example, the copyright to a computer program
    • generated by a business structure, for example, a large accounting firm.

    If you have earned PSI but not as an employee, you may not be able to claim certain deductions in relation to earning that income – for example, rent, mortgage interest, rates or land tax for your home, or payments to your spouse (or other associate) for support work, such as secretarial duties. This depends on whether:

    • you have a personal services business determination from the Commissioner of Taxation stating that your PSI was from conducting a personal services business for the whole of the period you earned PSI, or
    • you satisfied one of the four tests in Part A.

    If you earned PSI as a sole trader, you need to read on and answer one or more of the questions in part A to determine whether deductions in relation to your PSI are affected by the PSI rules.

    The PSI rules do not affect your legal, contractual or workplace arrangements; you won’t be treated as an employee as a result of the rules.

    Part A

    Did you satisfy the results test?

    If you earn PSI, you satisfy the results test in the income year if, in respect of at least 75% of this income, you can answer yes to all of the following three questions in relation to your work:

    • under your contract or arrangement, was the PSI paid to achieve a specified result or outcome?
    • did you have to provide the tools or equipment necessary (if any) to do your work? (If no tools or equipment were required, answer yes.)
    • were you liable for rectifying defects in your work?

    You are paid to achieve a result under your contract when your contract requires the production of a specified result or outcome, and payment is conditional upon that outcome being achieved. The essence of the contract is to achieve a result and not just do work as required.

    No

    Enter X in the No box at P item P1 on your schedule. Read on

    Yes

    Enter X in the Yes box at P item P1 on your schedule. Go to P2 Description of main business or professional activity

    Have you received a personal services business determination from the Commissioner that was in force for the whole of the period you earned PSI?

    This is a notice from the Commissioner stating that you are conducting a personal services business. If you have a personal services business determination from the Commissioner, the PSI rules do not apply to your PSI and any deductions.

    No

    Enter X in the No box at C item P1 on your schedule. Read on

    Yes

    Enter X in the Yes box at C item P1 on your schedule. Go to P2 Description of main business or professional activity

    Did you receive 80% or more of your PSI from one source?

    If you don’t satisfy the results test and 80% or more of your PSI in the income year came from one client and its associates, you cannot self-assess whether you satisfy the other personal services business tests. The PSI rules apply to you unless you get a determination from the Commissioner.

    If you don’t satisfy the results test, you can self-assess against the other tests only if less than 80% of your PSI came from each client.

    You should consider PSI obtained by merely putting your name with a labour hire firm, placement agency or similar organisation as income from one client.

    Commission agents

    Special rules apply to commission agents. For more information, phone 13 28 66.

    No

    Enter X in the No box at Q item P1 on your schedule. Read on

    Yes

    Enter X in the Yes box at Q item P1 on your schedule. Go to Part B

    Did you satisfy the unrelated clients test?

    You will satisfy the unrelated clients test in the income year if you can answer yes to the following question:

    • did you receive PSI from two or more clients who are not associated with each other or with you?

    You must also provide the personal services work as a direct result of making offers to the public, for example, by advertising. Do not count clients obtained by merely registering with a labour hire firm, placement agency or similar organisation.

    No

    Read on

    Yes

    Enter X in the box at D1 item P1 on your schedule. Read on

    Did you satisfy the employment test?

    You satisfy the employment test in the income year if you can answer yes to either of the following questions:

    • did you have one or more apprentices for at least half the income year?
    • did you have employees or did you engage subcontractors or entities who performed at least 20% (by market value) of your principal work?

    Principal work is the main work that generates the PSI and does not usually include support work, such as secretarial duties. You can count a spouse or family member who does principal work, but not companies, partnerships or trusts associated with you.

    No

    Read on

    Yes

    Enter X in the box at E1 item P1 on your schedule. Read on

    Did you satisfy the business premises test?

    You satisfy the business premises test if you can answer yes to all of the following questions.

    For the whole period during which you earned PSI, were your business premises:

    • maintained by you?
    • mainly used by you for work earning your PSI, for example, more than 50% of the use?
    • used exclusively by you?
    • physically separate from your private residence or the private residence of any of your associates?
    • physically separate from the business address of your clients or their associates?

    No

    Read on

    Yes

    Enter X in the box at F1 item P1 on your schedule. Read on

    If you entered X at D1, E1 or F1, go to P2 Description of main business or professional activity. Otherwise read on.

    Part B

    Do not show in part B PSI amounts that were subject to foreign resident withholding. Show these at item P8.

    You need to know

    You must complete part B of item P1 if you received PSI and you did not:

    • receive a personal services business determination in relation to your PSI
    • satisfy the results test, or
    • satisfy at least one of the other three personal services business tests (if less than 80% of your PSI came from each client).

    PSI is divided into:

    • income that was subject to a PAYG voluntary agreement to withhold tax
    • income from which tax has been withheld because you did not quote your Australian business number (ABN) to one of your payers
    • income received under a labour hire arrangement or from a specified payment
    • other PSI.

    Goods and services tax (GST)

    If you are registered or required to be registered for GST, do not include any GST amounts in your assessable income. Your deductions should not include any amounts that relate to input tax credit entitlements.

    Former STS taxpayers

    If you are eligible and are continuing to use the simplified tax system (STS) accounting method, you must complete the income and deduction parts of item P1 using the STS accounting method.

    See also:

    You may need to complete an Individual PAYG payment summary schedule

    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 2015 before completing the rest of item P1 if you received one of the following payment summaries:

    • PAYG payment summary – business and personal services income
    • PAYG payment summary – withholding where ABN not quoted.

    While the PAYG payment summary - business and personal services income allows reporting of different payment types (including labour hire or other specified payments and voluntary agreement) you must specify on the schedule the nature of the income and the payment type made to you.

    For further information, see the next section How to complete the Individual PAYG payment summary schedule 2015.

    A payer may issue a receipt, remittance advice or similar document in place of the PAYG payment summary – withholding where ABN not quoted. This document must contain the same details as the payment summary and be signed by the payer.

    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 2015

    Step 1  Enter your tax file number (TFN) and name in the appropriate boxes at the top of the schedule.

    Step 2  Nature of income, enter X in the Personal services income box.

    Step 3  For each payment summary, transfer the following information to the schedule:

    • the type of withholding (look at your payment summary to determine its type and complete the Type box, using the following key):
      V  voluntary agreement
      N  withholding where ABN not quoted
      S  labour hire or other specified payments
    • 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.

    You may need two payment summary schedules.

    If you have both PSI (item P1) and business income (item P8), you will need to complete an Individual PAYG payment summary schedule 2015 for each type of income.

    Income

    PSI – voluntary agreement

    Did you receive any PSI that was subject to a PAYG voluntary agreement?

    No

    Go to PSI – where Australian business number not quoted

    Yes

    Read on

    The amount you show at M is the total income you received that was subject to a PAYG voluntary agreement, including amounts of tax withheld. You will be able to calculate this amount from your completed payment summary schedule.

    Completing this item

    Add up all the Gross payment amounts on your completed payment summary schedule that have a V in the corresponding Type box. Enter the total at M item P1. Do not show cents.

    If you complete M item P1 you must also complete G item 14 on page 13 of your tax return (supplementary section).

    PSI – where Australian business number not quoted

    Did you have any amounts of tax withheld from your PSI for failure to quote your ABN?

    No

    Go to PSI – labour hire or other specified payments

    Yes

    Read on

    The amount you show at N is your total PSI from which an amount has been withheld because you did not quote your ABN, including the amounts of tax withheld. You will be able to calculate this amount from your completed payment summary schedule.

    Completing this item

    Add up all the Gross payment amounts on your completed payment summary schedule that have an N in the corresponding Type box. Enter the total at N item P1. Do not show cents.

    If you complete N item P1 you must also complete H item 14 on page 13 of your tax return (supplementary section).

    PSI – labour hire or other specified payments

    Did you receive any PSI under a labour hire arrangement or from a specified payment?

    Specified payments include:

    • income from tutorial services provided for the Indigenous Tutorial Assistance Scheme of the Department of the Prime Minister and Cabinet
    • income from translation and interpretation services for the Translating and Interpreting Service National of the Department of Immigration and Border Protection
    • income as a performing artist in a promotional activity.

    No

    Go to PSI – other

    Yes

    Read on

    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 you should show them at item 1 on page 2 of your tax return.

    The amount you show at O is the total income you received from labour hire or other specified payments, including amounts of tax withheld. You will be able to calculate this amount from your completed payment summary schedule.

    Completing this item

    Add up all the Gross payment amounts on your completed payment summary schedule that have an S in the corresponding Type box. Enter the total at O item P1. Do not show cents.

    If you complete O item P1 you must also complete J item 14 on page 13 of your tax return (supplementary section).

    PSI – other

    Did you receive any other PSI?

    No

    Go to Deductions

    Yes

    Read on

    Work out the total amount of other PSI and enter this amount at J item P1.

    If you are registered or required to be registered for GST, do not include any GST amounts in your assessable income.

    Deductions

    Limited deductions against PSI

    The PSI rules affect the deductions you can claim against your PSI. They do not affect your legal, contractual or workplace arrangements; you won’t be treated as an employee as a result of the PSI rules. The information on this page is a guide only. You may need further information to determine whether a deduction is available in your circumstances.

    See also:

    What deductions you may be able to claim

    Subject to specific exceptions, the general rule is that you may claim an amount that is incurred in gaining or producing your PSI if you could claim that amount if the income was payable to you as an employee.

    The following are examples of items you may be able to claim a deduction for:

    • premiums for workers compensation, public liability and professional indemnity insurance
    • bank and other account-keeping fees and charges
    • tax-related expenses, such as the cost of preparing and lodging a tax return or business activity statement (BAS)
    • registration or licensing fees
    • expenses for advertising, tendering and quoting for work
    • deduction for decline in value of depreciating assets
    • simplified depreciation (if you are a small business entity)
    • running expenses for your home office, such as heating and lighting for using a room in your house as a home office (not including rent, mortgage interest, rates or land taxes)
    • salary and wages for an arm’s length employee (not an associate)
    • contributions to a complying superannuation fund on behalf of an arm’s length employee (not an associate)
    • reasonable amounts paid to an associate for principal work
    • contributions to a complying superannuation fund or retirement savings account up to the superannuation guarantee amount for an associate doing solely principal work.

    Do not include any amount that was a superannuation contribution for yourself. Any 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 2015.

    What you cannot claim

    You cannot claim an amount for the following if it related to gaining your PSI:

    • rent, mortgage interest, rates or land tax for your residence (or the residence of an associate)
    • amounts paid to an associate for non-principal work, for example, support such as secretarial work
    • contributions to a superannuation fund for an associate doing solely non-principal work.

    Deductions for payments to associates for principal work

    Do you have deductions for payments to associates for principal work?

    No

    Go to Total amount of other deductions against PSI

    Yes

    Read on

    Add up the total amount of payments made to associates for principal work. Enter the total at K item P1.

    Total amount of other deductions against PSI

    Do you have other allowable deductions against your PSI?

    No

    Go to Net PSI

    Yes

    Read on

    You need to know

    In answering this question you include only non-commercial business losses deferred from a prior year if they relate to a business activity which is the same as, or similar to, one of your current year business activities. See P9 Business loss activity details for an explanation of how the non-commercial business loss rules work.

    Your non-commercial business loss deduction may be reduced if:

    • you earned net exempt income in this income year, or
    • you 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

    Add up the total amount of all other expenses (including non-commercial business losses deferred from a prior year) that you can deduct from your PSI. Enter the amount at L item P1.

    Do not include amounts already recorded at K item P1.

    If you are registered or required to be registered for GST, your deductions should not include the amount that relates to input tax credit entitlements.

    Net PSI

    Completing this item

    To work out your net PSI go through the following steps:

    Step 1  Add up the amounts shown at M, N, O and J item P1.

    Step 2  Add up the amounts shown at K and L item P1.

    Step 3  Take away the amount calculated at step 2 from the amount calculated at step 1. Enter your answer at A item P1.

    Step 4  Transfer the amount at A item P1 to A item 14 on page 13 of your tax return (supplementary section).

    If the amount is a loss, you must:

    • enter L in the Loss box at the right of A item P1
    • enter L in the Loss box at the right of A item 14 on your tax return (supplementary section).

    Other business income

    Did you have any business income other than PSI?

    Yes

    Go to P2 Description of main business or professional activity

    No

    Read on

    Finishing your schedule

    If the only income you need to show on your schedule is personal services income, you need to complete only:

    Check that you have:

    • transferred your net PSI amount from A item P1 to A item 14 on your tax return (supplementary section). If this amount is a loss, check that you entered L in the Loss box at the right of A
    • completed and attached your Individual PAYG payment summary schedule 2015 to page 3 of your tax return (if you received PSI that was subject to withholding).

    P2 Description of main business or professional activity

    Completing this item

    Describe as accurately as possible the main business or professional activity where your gross income comes from, for example, beef cattle breeder, vegetable grower, clothing manufacturer, confectionery wholesaler, or electrical goods retailer. Do not use general descriptions, such as farmer, manufacturer or wholesaler.

    Enter the description of your main business or professional activity at item P2 on page 2 of your schedule.

    P3 Number of business activities

    Completing this item

    Enter at B the number of separate and distinct business activities you operated as a sole trader and in partnership during 2014–15. If you operated only one business activity, enter 1. The number of business activities you show at B should not be less than the number you show at item P9 Business loss activity details.

    P4 Status of business

    Completing this item

    If you ceased your main business during 2014–15, enter X at C1 item P4 on page 2 of your schedule.

    If you commenced a new business during 2014–15, enter X at C2.

    If more than one option applies, select the first applicable option. If neither of them applies, leave the boxes blank.

    P5 Business name of main business and ABN

    The registered business name of the main business activity should be consistent from year to year, except in the year of a name change or when it is no longer the main business activity.

    If the business name is legally changed with the Australian Securities and Investments Commission (ASIC), advise us in writing at the time the change is made. The current business name should be shown on your tax return.

    Completing this item

    Enter the registered business name and Australian business number (ABN) of your main business at item P5 on page 2 of your schedule.

    P6 Business address of main business

    Completing this item

    Enter the street address of the place where most of your business operations are conducted at item P6 on page 2 of your schedule.

    Enter the postcode of this address at D item P6.

    P7 Did you sell goods or services using the internet?

    You need to know

    You must answer yes at this item if, in deriving income, you used the internet for one or more of the following:

    • to receive orders for goods or services, for example, you received orders by email or a web page form (rather than by conventional post, phone or facsimile)
    • to receive payment for goods or services, for example, you received:
      • credit card or charge card details by email or web page form (rather than by conventional post, phone or facsimile) or
      • digital cash
       
    • to deliver goods or services, for example, you:
      • used email, the world wide web or file transfer protocol (FTP) to deliver digitised music, news articles or software (rather than using conventional post to deliver software on a disk)
      • used email in conjunction with a website to give advice and received a payment in connection with this advice
      • advertised on the internet goods or services of other businesses for a fee, or
      • hosted internet sites or provided access to the internet.
       

    You must answer no at this item if none of the above applied, for example, if you only used the internet to:

    • advertise your goods and services
    • give support to your customers
    • buy your stock
    • do your banking online.

    Completing this item

    If your answer is yes, enter X in the Yes box at Q item P7 on page 2 of your schedule.

    If your answer is no, enter X in the No box at Q.

    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:

    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 and capital proceeds) and capital allowances (the cost and termination value of a depreciating asset).

    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.

    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 2015 (NAT 1712). Complete the worksheet before proceeding.
    • Individual PAYG payment summary schedule 2015 (NAT 3647).

    Did you have amounts withheld from your business income – other than PSI included at item P1?

    No

    Go to Assessable government industry payments

    Yes

    Read on

    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 2015 (NAT 3647) 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 2015.

    A payer may issue a receipt, remittance or similar document in place of the PAYG payment summary – withholding where ABN not quoted containing the same information as a payment summary.

    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 2015

    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 2015 for each type of income.

    Step 1  Enter your TFN and name in the appropriate boxes at the top of the schedule.

    Step 2  Nature of income, enter 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
       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?

    No

    Go to Gross payments subject to foreign resident withholding

    Yes

    Read on

    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 2015.

    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. Enter 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. Enter the total at D. Do not show cents.

    Step 3  Add up the amounts you have written at C and D and enter 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?

    No

    Go to Gross payments – voluntary agreement

    Yes

    Read on

    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 2015.

    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. Enter 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?

    No

    Go to Gross payments – labour hire or other specified payments

    Yes

    Read on

    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 2015.

    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. Enter 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. Enter the total at F. Do not show cents.

    Step 3  Add up the amounts you have written at E and F, and enter 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 Immigration and Border Protection, or
      • income as a performing artist in a promotional activity?
       

    No

    Go to Assessable government industry payments

    Yes

    Read on

    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 2015.

    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. Enter 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?

    No

    Go to Other business income

    Yes

    Read on

    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 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 tax credits
    • industry restructuring and adjustment payments
    • producer rebate (wine equalisation tax)
    • product stewardship (oil) benefit.

    Do not show ‘Medicare payments received by medical practices’ at this item. Show them at Other business income.

    Completing this item

    Step 1 Enter 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 2015, 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, enter D in the Type box at the right of the amount at G.

    Step 3  Enter 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, enter 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 enter the total in the adjacent Totals box.

    Find out about:

    • Taxation ruling TR 2006/3 Income tax government payments to industry to assist entities (including individuals) to continue, commence or cease business

    Other business income

    Did you receive any other business income?

    No

    Go to Total business income

    Yes

    Read on

    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, search ato.gov.au or see question 24 in Individual tax return instructions supplement 2015.

    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 2015. 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  Enter 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, enter L in the box at the right of the amount at I.

    Step 3  Enter 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, enter 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 enter the total in the adjacent Totals box.

    Step 6  If you made a loss, enter 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. Enter the total at TOTAL BUSINESS INCOME in the Primary production column. Remember that N will be blank.

    Step 2  If you made a loss, enter 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 . Enter the total at TOTAL BUSINESS INCOME in the Non-primary production column.

    Step 4  If you made a loss, enter 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 enter the total in the adjacent Totals box. If you made a loss, enter L in the box at the right of this amount.

    Expenses

    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 2015.

    You need to complete all items that relate to your business or businesses.

    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 2015. 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 2015. For more information, see Individual tax return instructions 2015.

    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 2015 (NAT 4170).

    Where expenses shown at item P8 include prepaid expenses that differ from the amounts allowable as deductions in 2014–15, 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 with operations or investments in Australia and you are claiming debt deductions.

    The thin capitalisation rules will not affect you if:

    • your debt deductions (combined with the debt deductions of your associate entities) do not exceed $2,000,000 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 affect 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?

    No

    Go to Purchases and other costs

    Yes

    Read on

    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 2014 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  Enter 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  Enter 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 enter the total at K.

    Purchases and other costs

    Did you have purchases and other costs?

    No

    Go to Closing stock

    Yes

    Read on

    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  Enter 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  Enter 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 enter 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?

    No

    Go to Cost of sales

    Yes

    Read on

    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 enter 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. Enter 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  Enter 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  Enter 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 enter 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  Enter the letter from step 6 in the Type box at the right of the amount at M.

    Cost of sales

    Did you have any cost of sales?

    No

    Go to Foreign resident withholding expenses

    Yes

    Read on

    You need to know

    Goods taken for your own use should not be accounted for as stock on hand at 30 June 2015. 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 2014

    $

    $

    (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 2015

    $

    $

    (f)

    Your cost of sales
    Take away (f) from (e).

    $

    $

     

    For further information on stock on hand at 1 July 2014, see Opening stock. For information on stock on hand at 30 June 2015, see Closing stock.

    Completing this item

    Step 1  Enter 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, enter L in the box at the right of this amount.

    Step 3  Enter 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 away (f) from (e), is a negative amount, enter 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 enter the total at Cost of sales in the Totals column.

    Step 6  If your total cost of sales is a negative amount, enter 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?

    No

    Go to Contractor, sub-contractor and commission expenses

    Yes

    Read on

    Completing this item

    Step 1  Enter 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?

    No

    Go to Superannuation expenses

    Yes

    Read on

    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  Enter 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  Enter 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 enter the total at F.

    Superannuation expenses

    Did you make any superannuation contributions on behalf of eligible employees or their dependants as a business expense?

    No

    Go to Bad debts

    Yes

    Read on

    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 2015.

    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.

    If you made contributions to a non-complying fund without having reasonable grounds to believe it was a complying fund, those contributions:

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

    You can check the compliance status of superannuation funds at superfundlookup.gov.auExternal Link You will need the fund's ABN.

    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 a temporary resident) and may be subject to tax under the Fringe Benefits Tax Assessment Act 1986.

    There is no age-related limit on deductions for contributions made on or before the 28th day following the end of the month in which the employee turns 75.. However, the employee may be liable to pay additional tax if their concessional contributions exceed their concessional contributions cap. You can go to ato.gov.au/supercaps for more information.

    For contributions made after the 28th day following the end of the month of 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, or
    • the amount of the contribution that reduces an employer's charge percentage under the Superannuation Guarantee (Administration) Act 1992 in respect of the employee, or
    • where both amounts are applicable - the greater amount (or one of them if they are equal).

    Completing this item

    Step 1  Enter 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  Enter 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 enter the total at G.

    Bad debts

    Did you write off any bad debts in your business?

    No

    Go to Lease expenses

    Yes

    Read on

    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 and it relates to money you lent in the ordinary course of a money-lending business or it represents a business loss or outgoing of a revenue nature.

    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.

    Find out about:

    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 for debt written off under a debt-for-equity swap where you discharge, release or otherwise extinguish the whole or part of a debt owed to you in return for equity in the debtor.

    In the case of a debt-for-equity swap, 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.

    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
    • where applicable, the year that you returned the amount as income.

    Completing this item

    Step 1  Enter 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  Enter 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 enter the total at I.

    Lease expenses

    Did you have lease expenses in your business?

    No

    Go to Rent expenses

    Yes

    Read on

    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).

    If you include capital expenditure incurred to terminate a lease or licence you will need to add back the amount at H Expense reconciliation adjustments. Although capital expenditure to terminate a lease or licence is not deductible in one year, a five-year straight-line write-off may be allowable (see section 25–110 of the ITAA 1997) for certain capital expenditure incurred to terminate a lease or licence if the expenditure is incurred in the course of carrying on a business, or in connection with ceasing to carry on a business, See worksheet 4 and note 3 and the details under Change 3 in the fact sheet: Other-capital-expenses: business-related expenses.

    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 2014–15 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  Enter 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  Enter 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 enter the total at J.

    Rent expenses

    Did you have rent as a business expense?

    No

    Go to Interest expenses within Australia

    Yes

    Read on

    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  Enter 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  Enter 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?

    No

    Go to Interest expenses overseas

    Yes

    Read on

    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  Enter 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  Enter 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 enter the total at Q.

    Interest expenses overseas

    Did you incur interest as a business expense on money borrowed overseas?

    No

    Go to Depreciation expenses

    Yes

    Read on

    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. Enter 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. Enter X in the Yes box at Taxpayer’s declaration on your tax return. Attach the schedule to page 3 of your tax return.

    For 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  Enter 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  Enter 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 enter the total at R.

    Depreciation expenses

    Did you have depreciation as a business expense?

    No

    Go to Motor vehicle expenses

    Yes

    If you are a small business entity and are choosing to use the simplified depreciation rules, read on. Otherwise go to Other businesses

    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 the threshold (excluding input tax credit entitlements) and can pool most of their other depreciating assets in a general small business pool.

    The thresholds for this deduction over the 2014-15 year are:

    • $1,000 if the asset was acquired and installed ready for use between 1 July 2014 and 7.30pm AEST 12 May 2015
    • $20,000 if the asset was acquired and installed ready for use from 7.30pm AEST 12 May 2015

    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.

    Find out about:

    If your accounting system or financial statements provide you with the amounts to complete worksheet 2, enter these amounts in the worksheet. Otherwise, use calculations 1 to 5 to calculate your depreciation deductions.

    The amounts you enter in worksheet 2 must be tax values and not accounting values.

    Calculation 1: Deduction for certain assets An immediate deduction is available for certain depreciating assets:

    • which you started to use, or have installed ready for use during the income year
    • whose cost at the end of the year is less than the threshold (excluding input tax credit entitlements)
    • that qualify for a deduction under the small business entity depreciation rules.

    The thresholds for this deduction over the 2014–15 year are:

    • $1,000 if the asset was acquired and installed ready for use between 1 July 2014 and 7.30pm AEST 12 May 2015
    • $20,000 if the asset was acquired and installed ready for use from 7.30pm AEST 12 May 2015

    Work out the taxable purpose proportion of each of these types of asset. You calculate the deduction for each eligible asset as follows:

    • asset's adjustable value x taxable purpose proportion
    • add up these results and enter the total at (a) in worksheet 2.

    For example, for a computer bought on 1 December at a cost of $990 (excluding input tax credit entitlements) and used for producing assessable income from that date at an estimated 70% of the time, the immediate deduction would be $693 ($990  x  70%).

    Do not include the following amounts in this calculation; allocate these assets to the general small business pool (see calculation 2).

    • depreciating assets costing less than the threshold which you held prior to using the simplified depreciation rules
    • depreciating assets that cost more than the threshold. Such assets must be allocated to the general small business pool (see calculation 2) even if the taxable purpose proportion is less than the threshold. For example, if the computer above cost $1,200, the taxable purpose proportion is $840 ($1,200 x 70%). However, you cannot obtain an instant deduction and the computer must still be allocated to the general small business pool because its cost is not less than $1,000.

    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 2014–15 was the first income year for which you were a small business entity and chose to apply the simplified depreciation rules , 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 2014–15
    • 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.

    Example

    Chantal's Café is a small business and at the end of the 2013–14 income year the closing balance of its general small business pool was $18,000. This becomes the opening balance of the pool for the 2014–15 year.

    End of example

    Calculate your deduction for the general small business pool in 2014–15 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
    • enter 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 the deduction for certain assets threshold,, you instead work out the deduction for the pool using calculation 5.

    Calculation 3: Depreciating assets including motor vehicles first used for a taxable purpose during 2014–15 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 that you first used or installed ready for use for a taxable purpose during the year
    • 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%.

    Enter the total deduction for general small business pool assets at (c) in worksheet 2.

    Calculation 4: 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 3.

    See the Guide to depreciating assets 2015 (NAT 1996) for information on how to calculate the decline in value of these assets.

    Enter 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 5: Disposal of depreciating assets

    (a) Certain assets and low-cost assets claimed in previous years

    If you have disposed of a depreciating asset (costing less than the deduction for certain assets threshold) 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 the deduction for certain assets threshold 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. Enter 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

    Next step:

    See the Guide to depreciating assets 2015 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 What are income reconciliation adjustments? 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 5) 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 any cost addition amounts for pooled assets during the year (see calculation 3).

    If your closing pool balance is less than zero, see calculation 5.

    The closing pool balance for this year becomes the opening pool balance for 2015–16 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 enter 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

     

     

     

    (a)

    General small business pool

     

     

     

    (b)

    General small business pool (1/2 rate)

     

     

     

    (c)

    Other assets

     

     

     

    (d)

    Depreciation
    expenses: add (a), (b), (c) and (d).

     

     

     

    (e)

    Completing this item

    Step 1  Enter 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  Enter 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 (e) 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) and (c) in worksheet 2 and enter 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 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.

    Work it out

    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 2015 for more information on how to calculate decline in value.

    Is expenditure revenue or capital in nature?

    The 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  Enter 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  Enter 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 enter the total at M Depreciation expenses.

    Find out about:

    Motor vehicle expenses

    Did you have motor vehicle expenses in your business?

    No

    Go to Repairs and maintenance

    Yes

    Read on

    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 and fewer than nine passengers. For an explanation of these methods, see question D1 in Individual tax return instructions 2015.

    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  Enter 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  Enter 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 enter 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 2015, find the code letter that identifies the method you used and enter 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.

    Enter 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 2015.

    If you have more than one code, enter the code that applies to the largest claim.

    Repairs and maintenance

    Did you have repairs and maintenance as a business expense?

    No

    Go to All other expenses

    Yes

    Read on

    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.

    See also:

    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  Enter 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  Enter 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 enter the total at O. Do not show cents.

    All other expenses

    Did you have any other business expenses?

    No

    Go to Total expenses

    Yes

    Read on

    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.

    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.

    See also:

    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.

    Find out about:

    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  Enter 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  Enter 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 enter 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. Enter 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, enter 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. Enter the total at T. Do not show cents.

    Step 4  If your total of non-primary production expenses is a negative amount, enter L in the box at the right of the amount at T.

    Step 5  Add up your primary production and non-primary production expenses. Enter the total at TOTAL EXPENSES in the Totals column.

    Step 6  If your total expenses is a negative amount, enter 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?

    No

    Go to Business deduction for project pool

    Yes

    Read on

    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
    • 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 1 July 2015, you 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 the amounts deferred for this item in the year the business commences. However, these claims may be subject to further deferral to the extent that they would otherwise give rise to a business loss in the current year.

    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  Enter 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   Enter 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 enter the total at A.

    See also:

    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 2015.

    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 2015. This is the closing pool value for 2013–14 (if any) plus the sum of the project amounts you allocated to the pool in 2014–15.

    $

    (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 2014–15 deduction for the project pool.

    $

    (d)

    Your deduction at (d) must not be more than the amount at (a).

    If a project operated in 2014–15 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 2015. This is the closing pool value for 2013–14 (if any) plus the sum of the project amounts you allocated to the pool in 2014–15.

    $

    (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 2014–15 deduction for the project pool.

    $

    (d)

    Your deduction at (d) must not be more than the amount at (a).

    If a project operated in 2014–15 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 2014–15

    This is (a) minus (d) in worksheet 3A and worksheet 3B. You will need the closing pool value for 2014–15 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 2014–15

    In this case, whether or not the project had begun to operate, you can claim a deduction for the 2013–14 closing pool value (if any) plus any project amounts allocated to the pool in the 2014–15 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  Enter 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  Enter 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 enter 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?

    No

    Go to Income and expense reconciliation adjustments

    Yes

    Read on

    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 the water facilities and landcare operation rules both apply, you can only deduct the expenditure as expenditure on a water facility; see Water conservation and conveyance facilities. If the carbon sink forest and landcare operation rules both apply, 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:

    1. erecting fences to separate different land classes in accordance with an approved land management plan
    2. 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
    3. constructing a levee or similar improvements
    4. constructing drainage works, other than the draining of swamps or low-lying land, primarily and principally to control salinity or assist in drainage control
    5. an operation primarily and principally for eradicating or exterminating animal pests from the land
    6. an operation primarily and principally for eradicating, exterminating or destroying plant growth detrimental to the land
    7. an operation primarily and principally for preventing or fighting land degradation other than by erecting fences
    8. 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 2015 or phone 13 28 66.

    Water conservation and conveyance facilities

    In the 2015 Budget, the government announced its intention to allow primary producers to:

    • immediately deduct the cost of fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills
    • depreciate over three years the cost of fodder storage assets such as silos and tanks used to store grain and other animal feed.

    At the time of publishing, these changes had not yet become law. For more information, go to ato.gov.au and search for 'accelerated depreciation for primary producers'.

    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 2015 or phone 13 28 66.

    Small business entities

    The law changed with effect from 1 January 2014 to reduce the instant asset write-off threshold from $6,500 to $1,000. In the 2015 Budget, the government announced its intention to increase this threshold to $20,000 for assets acquired and installed ready for use from 7.30pm (AEST) 12 May 2015. At the time of publishing, that proposal had not yet become law. For more information, search ato.gov.au for 'expanding accelerated depreciation'.

    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  Enter 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  Enter 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 enter the total at W.

    Income and expense reconciliation adjustments

    Do you need to make any income or expense reconciliation adjustments?

    No

    Go to Net income or loss from business this year

    Yes

    Read on

    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
      • 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
      • 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 less 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 enter 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, enter L in the box at the right of the amount.

    What are expense reconciliation adjustments?

    Expense reconciliation adjustments include:

    • expense add backs; these are expenses shown in the accounts which are not tax deductible, such as:
      • prepaid expenses not deductible in this year
      • depreciation
      • loss on sale of a depreciating asset
      • 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; these are items not shown as expenses 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
      • other items deductible for tax purposes.
       

    Your expense reconciliation adjustment is your total expense add-backs less 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 enter 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, enter 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
    • stopped using the STS accounting method in the 2014-15 income year.

    These adjustments are explained in more detail at Adjustments when ceasing to use the STS accounting method.

    Worksheet 4 will assist you with your calculations.

    Income derived but not received as at 30 June 2015 and expenses incurred but not paid as at 30 June 2015

    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 2014–15, the amounts not received are not assessable this year, for example, trade debtors as at 30 June 2015.

    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 2014–15, the amounts not paid are not deductible this year, for example, trade creditors as at 30 June 2015.

    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 2014.

    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 2014.

    Include these amounts (other than tax-related expenses) at (t) on worksheet 4. Enter 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 either this year or in a prior year
    • if the closing pool balance of a general small business pool is less than zero, the amount below zero
    • 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.

    See also:

    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.

    Find out about:

    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 2014–15 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.

    Work it out

    To help you calculate your deduction for decline in value, see the Guide to depreciating assets 2015, 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 2015. 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 2014–15 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.

    In summary, the lessee is entitled to deductions equal to:

    • the accrual amount
    • 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 4 for small business entities.

    See also:

    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
    • 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 rights 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 2015 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, enter 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 enter the total at X.

    Step 5  Add up your primary production and non-primary production expense reconciliation adjustments and enter the total at H.

    Step 6  If the total income reconciliation adjustment amount is negative, enter L in the box at the right of the amount at X. If the total expense reconciliation adjustment amount is negative, enter 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

    Enter your primary production total business income shown in the Primary production column at TOTAL BUSINESS INCOME item P8.

    $

     

    (a)

    Enter 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 enter 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)

    Enter 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

    Enter your non-primary production total business income shown in the Non-primary production column at TOTAL BUSINESS INCOME item P8.

    $

     

    (i)

    Enter 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)

    Enter your non-primary production income reconciliation adjustment (if any).

    $

     

    (n)

    Enter 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.

    Example

    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 example

    Net 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, enter 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, enter L in the box at the right of this amount.

    Step 3  Add B and C and enter 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, enter 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?

    No

    Go to Net income or loss from business this year

    Yes

    Read on

    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 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.

    Completing this item

    Step 1  At D item P8 on page 3 of your schedule enter 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 enter 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. Enter 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. Enter 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, enter 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. Enter the total at Y Net income or loss from business item P8 on your schedule and enter L in the box at the right of the amount.

    If you have entered 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. Enter 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, enter 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. Enter the total at Z Net income or loss from business item P8 on your schedule and enter L in the box at the right of the amount.

    If you have entered 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.

    Enter the answer at Net income or loss from business in the Totals column. If the total is negative, enter 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?

    No

    If you are a small business entity using the simplified depreciation rules, go to P10 Small business entity simplified depreciation. Otherwise, go to Other business and professional items

    Yes

    Read on

    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 2014–15 loss from a business activity you conduct either as a sole trader or in partnership to calculate your 2014–15 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 2014–15 (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 is 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 amounts are shown on your payment summary and are totalled at W item IT1 on your tax return.
    • Reportable superannuation contributions are your reportable employer superannuation contributions (shown on your payment summary and 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 are 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 N or R item 17 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.

    Find out about:

    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
      • produce assessable income for an income year greater than the tax 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 tax 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.

    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 2014-15 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 partnership's assessable income, real property and certain other assets, attributable to partners who are not individuals
    • your share of income or loss of the partnership from the activity.

    Activity 1

    Description of business activity

    Completing this item

    Describe the business activity from which you made the largest loss and enter 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, enter the name of the project at D.

    Partnership or sole trader

    Completing this item

    At F item P9, enter 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 enter it at G item P9 on page 4 of your schedule:

    1. Your assessable income from the business activity for this income year was at least $20,000 and you met the income requirement.
    2. 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.
    3. 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.
    4. 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.
    5. 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 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.
    6. 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.
    7. 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.
    8. The above loss codes don’t apply. 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 2014–15. If you have applied for a private ruling about the exercise of the Commissioner’s discretion for 2014–15, 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?

    No

    Go to Deferred non-commercial business losses from a prior year

    Yes

    You must complete Reference for code 5 at C item P9 on page 4 of your schedule. Read on.

    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:

    • enter PR at C in the Code section of Reference for code 5 item P9 on page 4 of your schedule
    • enter the year of the product ruling at Y in the Year section
    • enter 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:

    • enter 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
    • enter 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:

    • enter 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
    • enter 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 2014–15 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

    Enter 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

    Enter your net loss from the business activity for 2014–15 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 complete items P8 and P9 on your schedule and how the amounts link to your tax return (supplementary section).

    In 2014, 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 2015 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 2015.

     39801_p8

     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 2015. 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.

     39801_p9

    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 2015. 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.

     39801_ac2

    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.

     39801_16

    End of example

    P10 Small business entity simplified depreciation

    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 item P10 on page 4 of your schedule, enter the amount at (a) in the worksheet.

    At B Deduction for general small business pool, enter the total of the amounts at (b) and (c) in the worksheet.

    Remember: enter 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 enter only one figure at each item.

    P11 Trade debtors

    Did you have any trade debtors?

    No

    Go to P12 Trade creditors

    Yes

    Read on

    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  Enter 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?

    No

    Go to P13 Total salary and wage expenses

    Yes

    Read on

    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  Enter 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?

    No

    Go to P14 Payments to associated persons.

    Yes

    Read on

    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  Enter 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  Enter 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?

    No

    Go to P15 Intangible depreciating assets first deducted

    Yes

    Read on

    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
    • 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  Enter 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?

    No

    Go to P16 Other depreciating assets first deducted

    Yes

    Read on

    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.

    Completing this item

    Step 1  Add up the costs.

    Step 2  Enter 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 2014–15?

    No

    Go to P17 Termination value of intangible depreciating assets

    Yes

    Read on

    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.

    Completing this item

    Step 1  Add up the costs.

    Step 2  Enter the total at J item P16 on page 4 of your schedule. Do not show cents.

    See also:

    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
    2014–15?

    No

    Go to P18 Termination value of other depreciating assets

    Yes

    Read on

    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.

    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  Enter the total at D item P17 on page 4 of your schedule. Do not show cents.

    See also:

    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 2014–15?

    No

    Go to P19 Trading stock election

    Yes

    Read on

    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.

    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  Enter the total at K item P18 on page 4 of your schedule. Do not show cents.

    See also:

    P19 Trading stock election

    Have you made a trading stock election?

    No

    Go to Check that you have…

    Yes

    Read on

    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, enter 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 2015 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 2015 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 2015 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

    Internet

    For general tax information and to download publications and rulings, search ato.gov.au

    Publications

    Publications referred to in this guide:

    Phone

    We can offer a more personalised service if you provide your tax file number (TFN) when you phone us.

    • Business 13 28 66
      Information about business income tax, fringe benefits tax (FBT), fuel tax credits (FTC), goods and services tax (GST), pay as you go (PAYG) and activity statements, including lodgment and payment, accounts and business registration (including Australian business number and tax file number), and dividend and royalty withholding tax.
    • Individual 13 28 61
      Individual income tax and general personal tax enquiries
    • Superannuation 13 10 20
    • Tax agents 13 72 86

    Other services

    If you do not speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service (TIS) on 13 14 50 for help with your call.

    If you are deaf or have a hearing or speech impairment, contact us through the National Relay Service (NRS). For more information, go to relayservice.gov.auExternal Link

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      Last modified: 19 Nov 2015QC 44179