The amounts at item 6 Income and Expenses are accounting system amounts and correspond to the amounts in the company’s financial statements for the income year, except for the depreciation expenses of small business entities using the simplified depreciation rules. These are to be written as tax values at item 6 – label X Depreciation expenses (see Small business entities).
If you are lodging a company tax return as a head company for a consolidated or MEC group, the item 6 Income and item 6 Expenses amounts should reflect only the accounting system amounts for the consolidated or MEC group.
Gross income for accounting purposes may include all income which may be exempt income, other non-assessable income and foreign source income for tax purposes. Total profit or loss may include extraordinary revenue or expenses, such as net domestic or foreign source gains or losses from events that are outside the ordinary operations of the company.
Adjustments to the accounting amounts for tax purposes are made at item 7 Reconciliation to taxable income or loss to determine taxable income or loss. In some cases, it is necessary to make a reconciliation adjustment at item 7 to add back or subtract the whole of an amount shown at item 6 and to include the amount for income tax purposes at a specific label at item 7. For example, where a capital profit for accounting purposes is included at item 6, it should be included in full at item 7 – label Q Other income not included in assessable income. The company’s net capital gain for tax purposes should be written at item 7 – label A Net capital gain.
If GST is payable for income, exclude the GST from the income derived. Deductions are reduced by the input tax credit entitlement. If the company is not registered nor required to be registered for GST purposes or is not entitled to claim input tax credits, its deductions are not adjusted for GST. The company claims the GST-inclusive amount incurred on outgoings. Special rules apply to GST adjustments.
If the company is eligible and is continuing to use the simplified tax system (STS) accounting method, see Former STS taxpayers below.
Although the STS has now ceased, a transitional provision allows for limited continued use of the STS accounting method.
A company may continue using the STS accounting method if it:
- was an STS taxpayer and used the STS accounting method in 2006–07
- used the STS accounting method in each subsequent year, and
- is a small business entity for 2022–23.
If the company meets these 3 requirements, it can continue using the STS accounting method until it chooses not to, or is no longer a small business entity.
The STS accounting method does not apply to income or deductions that receive specific treatment in income tax law, for example, net capital gains, dividends, depreciation expenses, bad debts and borrowing expenses.
In addition, if another provision of the tax law apportions or alters the assessability or deductibility of a particular type of ordinary income or general deduction, the timing rule in that provision overrides the STS accounting method, for example, double wool clips or prepayment of a business expense for a period greater than 12 months. Because of these specific provisions you may need to make adjustments at item 7.
Amounts the company includes at item 6 should be based on the STS accounting method if that method is reflected in the company’s accounts. If the company is continuing to use the STS accounting method and its accounts do not reflect the STS accounting method rules, you may need to make additional adjustments at item 7.
If the company has stopped using the STS accounting method, business income and expenses that have not been accounted for (because they have not been received or paid) are accounted for in this income year. You may need to make additional reconciliation adjustments at item 7.
Continue to: 6. Income