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  • Expenses

    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

    Do not include the following expenses on your schedule:

    • non-business interest and dividend income expenses; claim deductible expenses at Interest deductions and Dividend deductions on your tax return
    • farm management deposits; include them at Net farm management deposits or repayments on your tax return
    • non-business rental expenses; claim deductible expenses at Rent on your tax return
    • expenses and losses relating to foreign source income; take them into account as required at Foreign income, assets and entities, or in the case of certain debt deductions, claim them at Other deductions on your tax return
    • expenses relating to your personal services income shown at Personal services income
    • low-value pool deduction, where the pool contains assets used for work-related, self-education or non-business rental purposes at Low value pool deduction.

    Your expenses may include expenditure relating to the acquisition and disposal of cryptocurrency in the ordinary course of your business, or the arm’s length value of the business item (including trading stock) acquired using cryptocurrency.

    You need to complete all sections 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. 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 Cost of managing tax affairs on your tax return. Do not show the penalty in this section.

    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) after 30 June 2017, 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.

    Where expenses shown in this section include prepaid expenses that differ from the amounts allowable as deductions in 2017–18, then make an expense reconciliation adjustment at Expense reconciliation adjustment in the Business reconciliation items section.

    See also:

    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.

    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 2017–18, 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.

    See also:

      Last modified: 28 Jun 2018QC 55562