8. Financial and other information

Instructions to complete your financial and other information.

N – Functional currency translation rate

Complete item 8 – label N if the company keeps its accounts solely or predominantly in a foreign currency (its applicable functional currency) and has chosen to use that currency as its applicable functional currency to work out its taxable income or tax loss. If the company is using a functional currency, see the Guide to functional currency rules.

Do not complete label N if the company has chosen to use a non-A$ functional currency only to calculate the net income attributable to the activities of an overseas permanent establishment, or the attributable income of a controlled foreign company, offshore banking unit or transferor trust. For more information, see the Foreign income return form guide.

Write at label N the exchange rate employed to translate the net taxable income figure from the applicable functional currency into A$. The translation rate is the amount by which the functional currency amount must be divided in order to reflect an equivalent amount of A$, that is, the number of non-A$ currency units that equal one A$, rounded to 4 significant figures.

If label N is completed, also complete item 8 – label O Functional currency chosen.

O – Functional currency chosen

Complete item 8 – label O if item 8 – label N Functional currency translation rate has been completed.

Print at label O the functional currency code that corresponds to the functional currency chosen by the company. See the Guide to functional currency rules for Currency codes for item 8 – label O.

Show amounts calculated for tax purposes at item 8 – labels:

• A Opening stock
• S Purchases and other costs
• B Closing stock
• J Total debt
• K Commercial debt forgiveness.

A – Opening stock

Write at item 8 – label A the total value of all trading stock on hand at the beginning of the income year or accounting period for which the company tax return is being prepared. The amount shown by the company at label A is the value for income tax purposes under section 70-40 of the ITAA 1997 or, for small business entities using the simplified trading stock rules, subsection 328-295(1) of the ITAA 1997. The opening value of an item of stock must equal its closing value in the previous income year.

If a taxpayer did not have any trading stock in the previous year, the value of trading stock at the start of the year is zero. This might occur in the case of a new business, in the first year a taxpayer has trading stock. It might also occur where the trading stock rules for small business entities cease to apply either because the entity is no longer eligible to be a small business entity, or because the entity chooses to account for changes to trading stock.

Include motor vehicle floor plan stock and work in progress of manufactured goods.

Do not include any amount that represents opening stock of a business that commenced operations during the income year. Include this amount at item 8 – label S Purchases and other costs.

For more information, see General trading stock rules

S – Purchases and other costs

Write at item 8 – label S the cost of direct materials used for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. This amount includes freight inwards.

Former STS taxpayers

If the company is eligible and continuing to use the STS accounting method, only write at label S the costs that the company has paid. (See Former STS taxpayers).

For information on GST and input tax credits, see item 6. Calculation of total profit or loss.

B – Closing stock

If the company is an eligible small business entity, see Small business entities. Otherwise, see All companies.

Small business entities

The company must account for changes in the value of its trading stock only if the difference between the following 2 amounts is more than $5,000:

• The value of the company’s stock on hand at the start of the income year as shown at item 8 – label A Opening stock.
• A reasonable estimate of the value of the company’s stock on hand at the end of the income year.

For more information relating to ‘reasonable estimate’, phone us on 13 28 66.

If the difference is $5,000 or less, the company can still choose to conduct a stocktake and account for changes in the value of trading stock.

If the difference between the value of the opening stock and a reasonable estimate of its closing stock is more than $5,000, the company must account for changes in the value of its trading stock. Go to step 2 if the difference is more than $5,000 or the company wishes to account for changes in the value. Otherwise, go to step 1.

Step 1

If the difference referred to above is $5,000 or less and the company chooses not to account for this difference, the closing stock value written at item 8 – label B Closing stock is the same value that the company wrote for item 8 – label A Opening stock. Do not put the company’s reasonable estimate at label B Closing stock.

Print in the CODE box at label B Closing stock the code from table 5 that matches the code the company used to value closing stock in the previous year.

If this is the company’s first year in business, the value of its closing stock will be zero. Print code C in the CODE box.

Table 5: Valuation method codes

Code	Valuation method
C	Cost
M	Market selling value
R	Replacement value

Step 2

If the difference referred to above is more than $5,000 or the company chooses 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.

Include in closing stock value at label B Closing stock the value of all stock on hand, regardless of whether the company has paid for the stock.

For more information see Valuing trading stock

All other companies

Write at item 8 – label B the total value of all trading stock on hand at the end of the income year or accounting period for which the company tax return is being prepared. The amount at label B is the value calculated for income tax purposes under section 70-45 of the ITAA 1997.

If the company is registered or required to be registered for GST, the value of closing stock should not include an amount equal to the input tax credit that the company has claimed or is entitled to claim. Some items of trading stock, such as shares, are not subject to GST meaning there will be no input tax credits to consider.

Include floor plan stock and work in progress of manufactured goods.

Do not include any amount that represents closing stock of a business that ceased operations during the income year. Include this amount at item 6 Income, R Other gross income.

Print in the CODE box the code from table 5 indicating the method used to value closing stock for income tax purposes. If more than one method is used, use the code applicable to the method representing the highest value.

Different methods of valuation may be used to value the same item of trading stock in different income years, and similar items may be valued using different methods in the same income year.

However, the opening value of an item in a particular income year must equal the closing value for that item in the previous income year. The company cannot reduce the value of stock on hand by creating reserves to offset future reduction of the value of stock, or any other factors. Keep records showing how each item was valued.

If incorrect trading stock information has been included on a tax return, advise us by submitting a full statement of the facts, accompanied by a reconciliation of the value of stock as returned for each income year with the values permissible under the law.

Companies engaged in manufacturing include the value of partly manufactured goods as part of their stock and materials on hand at the end of the income year.

For more information on the circumstances in which packaging items held by a manufacturer, wholesaler or retailer are ‘trading stock’ as defined in section 70-10 of the ITAA 1997, see:

• TR 98/7 Income tax: whether packaging items (i.e. containers, labels, etc) held by a manufacturer, wholesaler or retailer are trading stock
• TR 98/8 Income tax: whether materials and spare parts held by a taxpayer supplying services are trading stock.

Consolidated or MEC groups

If the company was a subsidiary member of a consolidated or MEC group at the end of the income year and is completing a tax return because of any non-membership periods, write at item 8 – label B the value for trading stock on hand as at the end of the latest non-membership period. The amount at label B is generally a tax-neutral value. This may not be the case if the company was a continuing majority-owned entity when it became a member of the group.

Trading stock election

A company may elect to value an item of trading stock below the lowest value of cost, market selling value or replacement value because of obsolescence or any other special circumstances. The value that is elected must be reasonable.

For guidelines on trading stock valuations where obsolescence or other special circumstances exist, see TR 93/23 Income tax: valuation of trading stock subject to obsolescence or other special circumstances.

If an election is made, print X in the Yes box at this item.

Otherwise print X in the No box.

Include amounts taken from the company’s financial statements at item 8 – labels C Trade debtors to H Total liabilities, and label N Loans to shareholders and their associates as these amounts relate to accounting values.

C – Trade debtors

Write at item 8 – label C the total amounts owing to the company at year end for goods and services provided during the income year, that is, the gross amount of current trade debtors from the company’s accounts. Also include this amount at item 8 – label D All current assets.

If the company was a subsidiary member of a consolidated or MEC group at the end of the income year and is completing a tax return because of any non-membership periods, write at label C the relevant amount as at the end of the latest non-membership period.

D – All current assets

Write at item 8 – label D all current assets of the company, including cash on hand, short-term bills receivable, inventories and trade debtors as written at item 8 – label C Trade debtors.

If the company was a subsidiary member of a consolidated or MEC group at the end of the income year and is completing a tax return because of any non-membership periods, write at label D the relevant amount as at the end of the latest non-membership period.

E – Total assets

Write at item 8 – label E all assets of the company, including fixed, tangible and intangible assets and all current assets as written at item 8 – label D All current assets.

For a consolidated or MEC group include all the assets of the group as disclosed in the financial accounts and not the amounts that are calculated by way of the allocable cost amount.

If the company was a subsidiary member of a consolidated or MEC group at the end of the income year and is completing a tax return because of any non-membership periods, write at label E the relevant amount as at the end of the latest non-membership period.

F – Trade creditors

Write at item 8 – label F the total amounts owed by the company at year end for goods and services received during the income year, that is, current trade creditors. Also include this amount at item 8 – label G All current liabilities.

If the company was a subsidiary member of a consolidated or MEC group at the end of the income year and is completing a tax return because of any non-membership periods, write at label F the relevant amount as at the end of the latest non-membership period.

G – All current liabilities

Write at item 8 – label G the total obligations payable by the company within the coming year. Also include the amount written at item 8 – label F Trade creditors.

If the company was a subsidiary member of a consolidated or MEC group at the end of the income year and is completing a tax return because of any non-membership periods, write at label G the relevant amount as at the end of the latest non-membership period.

H – Total liabilities

Write at item 8 – label H, all liabilities of the company, including other creditors and deferred liabilities such as loans secured by mortgage and long-term loans. Also include the amount shown at item 8 – label G All current liabilities.

If the company was a subsidiary member of a consolidated or MEC group at the end of the income year and is completing a tax return because of any non-membership periods, write at label H the relevant amount as at the end of the latest non-membership period.

J – Total debt

Write at item 8 – label J the average total debt of the company for the income year. Calculate the average total debt by adding the opening and closing balances of the total debt of the company for the income year, and dividing this sum by 2.

The total debt of a company includes all financial instruments and arrangements that were used by the company to provide funds for their operations and investments. The instruments and arrangements that are shown at label J include all loans, securities and instruments that give rise to deductible finance expenses, which include any of the following:

• interest, a payment in the nature of interest, or a payment in substitution for interest
• payments made for assignments of the right to interest
• a discount on a security for a finance arrangement
• an amount that is taken under a tax law to be an amount of interest for a lease, a hire-purchase arrangement or any other financial instrument specified by that law
• any application or processing fee for a finance arrangement
• any finance expense for a repurchase agreement or securities lending arrangement
• any other form of yield associated with a finance arrangement
• any such amount that, instead of being paid to a party to the arrangement, is dealt with in any way on behalf of that party.

Accordingly, there is no requirement that amounts included at label J satisfy the definition of ‘debt interest’ for the purposes of Division 974 of the ITAA 1997 (the debt and equity rules).

For an overview of the debt and equity rules, see Guide to the debt and equity tests.

If the company was a subsidiary member of a consolidated or MEC group at the end of the income year and is completing a tax return because of any non-membership periods, write at label J the relevant amount calculated as at the end of the latest non-membership period.

K – Commercial debt forgiveness

Write at item 8 – label K the net amount of commercial debts owed by the company that were forgiven during the income year, see Division 245 of the ITAA 1997. Broadly, a debt is a commercial debt if any part of the interest payable on the debt is, or would be, an allowable deduction. A debt is forgiven if the company’s obligation to pay the debt is released, waived or otherwise extinguished.

The net amount of commercial debts forgiven must be applied to reduce the company’s deductible revenue losses, net capital losses, certain undeducted revenue or capital expenditure and the cost base of certain CGT assets, in that order.

For more information, see Appendix 5.

Show at labels J to H and D to V amounts calculated for tax purposes.

J – Franked dividends paid

Write at item 8 – label J the amount of fully franked dividends paid or credited during the income year, including non-share dividends or deemed dividends that are fully franked, and the franked deemed dividend component of any off-market share buy-back price under section 159GZZZP of the ITAA 1936. From 7:30 pm (AEDT) on 25 October 2022, only a company that is not a listed public company could announce and undertake an off-market share buy-back with a dividend as part of the buy-back price. If a partly franked dividend has been paid during the income year, include the franked portion at label J and the unfranked portion at item 8 – label K Unfranked dividends paid.

Do not include dividends paid by one member to another within a consolidated or MEC group.

Record keeping

Keep a record of the following:

• dividends or non-share dividends paid
• recipients
• dates paid
• amounts paid.

K – Unfranked dividends paid

Write at item 8 – label K the amount of unfranked dividends paid or credited during the income year, including amounts deemed to be dividends by various sections of the ITAA 1936 and the ITAA 1997. Include unfranked non-share dividends, unfranked deemed dividends under Division 7A of Part III of the ITAA 1936, and the unfranked deemed dividend component of any off-market share buy-back price under section 159GZZZP of the ITAA 1936. From 7:30 pm (AEDT) on 25 October 2022, only a company that is not a listed public company could announce and undertake an off-market share buy-back with a dividend as part of the buy-back price.

Consolidated and MEC groups do not include:

• dividends paid by one member to another within a consolidated or MEC group
• a dividend paid under a demerger unless the head entity of the demerger group has elected under subsection 44(2) of the ITAA 1936 that it be treated as an assessable dividend.

Under Division 7A of Part III of the ITAA 1936, payments, loans and debts forgiven (unless they come within specified exclusions) by a private company to a shareholder or associates of a shareholder are treated as assessable dividends to the extent of the private company’s distributable surplus as defined in Division 7A.

The provision of a private company owned asset for the use by a shareholder (or associate of a shareholder) is to be treated as a payment. This includes provisions provided under a lease or licence arrangement.

A payment made in 2022–23 by a private company to a shareholder (or associate of a shareholder) can be converted into a loan before the end of the private company’s lodgment day that is defined to be the earlier of the due date for lodgment or the date of lodgment of the company’s tax return for the year in which the loan is made.

Loans, and payments converted to loans in 2022–23, made by a private company to a shareholder (or associate of a shareholder) that are not repaid, may be put on a commercial footing before the private company’s lodgment day. This will prevent the loan from being treated as a deemed dividend.

Record keeping

Keep a record of the following:

• dividends or non-share dividends paid
• recipients
• dates paid
• amounts paid.

Cooperatives – option to frank dividends

Cooperative companies may frank distributions made to members from assessable income.

Cooperative companies that do not choose to frank distributions made to members are entitled to claim a deduction to the extent that a distribution of assessable income is not franked.

P – Opening franking account balance

Write at item 8 – label P the balance of the franking account at the beginning of 2022–23.

If you are claiming the loss carry back tax offset, you must provide the franking account balance at the beginning of 2022–23.

• If you are a foreign resident (other than a New Zealand franking company) without a franking account balance, write zero (write 0) at label P.
• If your franking account shows a deficit balance at the beginning of 2022–23, you will need to write zero (write 0) at label P to allow you to complete the loss carry back labels. You can only claim the loss carry back tax offset if you have a surplus franking account balance at the end of 2022–23.

If you are not claiming the loss carry back tax offset:

• provide the balance of the franking account at the beginning of 2022–23 (the balance can be zero), and
• if you have a deficit balance at the beginning of 2022–23 leave Opening franking account balance at label P blank.

If you have a deficit balance at the beginning of 2022-23 you must have lodged a franking account tax return for 2021–22 and have paid franking deficit tax (FDT) for that income year.

M – Closing franking account balance

Show at item 8 – label M the balance of the franking account at the end of 2022–23.

If the company is a resident and claiming the loss carry back tax offset, the Closing franking account balance must be greater than zero, otherwise the offset cannot be claimed.

To claim a loss carry back tax offset, you must provide the franking account balance at the end of 2022–23 unless you are a foreign resident (other than a New Zealand franking company) without a franking account balance.

The franking account balance limit does not apply if you were a foreign resident (other than a New Zealand franking company).

If the company is not claiming the loss carry back tax offset, enter the franking account balance at the end of 2022–23 (the balance can be zero).

If there is a deficit balance in the franking account at the end of the income year:

• leave the Closing franking account balance blank
• the company must lodge a Franking account tax return 2023, and
• pay FDT by the last day of the month following the end of the income year. If the company is a late balancing company that has elected to have its FDT liability determined on 30 June 2023, it must lodge its franking account tax return on or before 31 July 2023.

If the company is a pooled development fund (PDF) and its venture capital sub-account is in deficit at the end of the PDF’s income year or immediately before it ceases to be a PDF, the company is liable to pay venture capital deficit tax. If the PDF has a liability to venture capital deficit tax, a Venture capital deficit tax return must be lodged.

Shareholder loans and other advances made by private companies that are deemed dividends are not frankable unless a section in the ITAA 1936 or ITAA 1997 provides that the dividend can be franked, for example, where the Commissioner exercises a limited power to permit the deemed dividend to be franked, or where the deemed dividend is paid in connection with a relationship breakdown.

Deemed dividends may also arise when a shareholder (or associate of such shareholder) of a private company that has (or will have by a certain time) an unpaid present entitlement from a trust estate receives a payment or loan or has a debt forgiven in their favour by the trustee of the trust estate. However, this will not result in a debit to the franking account of the private company with the unpaid present entitlement.

A company needs to determine whether its franking account needs adjustment, because these measures may affect imputation benefits available to shareholders, deny franking credits, or give rise to additional franking debits.

If you are a company that receives a R&D refundable tax offset, then only include franking credits arising from either payments of PAYG instalments or income tax after all deferred franking debits have been utilised. For more information on how a R&D tax offset affects your franking account, see the Franking account tax return and instructions 2023.

For more information see Imputation.

Franking account tax return

Corporate tax entities may be entitled to claim a Franking deficit tax (FDT) offset. In certain circumstances, the FDT offset reduction rule reduces the amount of FDT that can be offset against future income tax liabilities. For more information, see Franking deficit tax offset.

As a result of these rules, you must complete label C Offsetable portion of current year FDT in the Franking account tax return 2023.

Complete a franking account tax return for all Australian corporate tax entities (including head companies of consolidated or MEC groups, corporate limited partnerships, corporate unit trusts and public trading trusts) and New Zealand franking companies that have:

• a liability to pay FDT
• a liability to pay OFT, or
• an obligation to disclose information to the Commissioner for their benchmark franking percentage.

Lodge the franking account tax return separately from your company tax return. If you lodge your franking account tax return at the time your company tax return is due, your franking account tax return may be late and an interest charge may apply to any outstanding tax amounts. Your franking account tax return is generally due one month after the end of your income year.

For more information on completing this tax return, see Franking account tax return and instructions 2023.

Consolidated and MEC groups

If the company was a subsidiary member of a consolidated or MEC group at the end of the income year and is completing a tax return because of any non-membership periods, write at label M its franking account balance as at the end of the latest non-membership period if it is a surplus balance. If there is a deficit balance at the end of any non-membership period, the company must lodge a franking account tax return and pay the franking deficit tax.

X– Select your aggregated turnover range

You must complete item 8 – label X if you are making a claim in your tax return for any of the following:

• temporary full expensing (if you are using the alternative income test, also complete item 9 – label U Are you using the alternative income test?)
• loss carry back if you are carrying back a tax loss from 2022–23
• any of the small business entity concessions.

Select a category below based on your aggregated turnover range and write the category code at label X.

Your aggregated turnover range selected can be either your 2022–23 aggregated turnover or your 2021–22 aggregated turnover.

Table: Category of aggregated annual turnover ranges

Category	Aggregated annual turnover ranges
A	$0 to less than $7.5 million
B	$7.5 million to less than $10 million
C	$10 million to less than $20 million
D	$20 million to less than $40 million
E	$40 million to less than $50 million
F	$50 million to less than $100 million
G	$100 million to less than $200 million
H	$200 million to less than $300 million
I	$300 million to less than $400 million
J	$400 million to less than $500 million
K	$500 million to less than $600 million
L	$600 million to less than $700 million
M	$700 million to less than $800 million
N	$800 million to less than $900 million
O	$900 million to less than $1 billion
P	$1 billion or over

If you have selected category P, or are a significant global entity and completed label X, you must also complete label Y Aggregated turnover.

You will not be penalised for specifying an incorrect category where you make your best attempt to calculate your aggregated turnover.

For information about calculating your aggregated turnover, see Aggregation.

Y – Aggregated turnover

This question is mandatory where you have selected category P at label X, or are a significant global entity and completed label X.

Write at item 8 – label Y your actual aggregated turnover rounded to the nearest $100 million. Your actual aggregated turnover specified can be either your aggregated turnover for 2022–23 or your 2021–22 aggregated turnover. For further information, see Satisfying the aggregated turnover threshold.

You will not be penalised for specifying an incorrect amount where you make your best attempt to calculate your aggregated turnover.

H – Excess franking offsets

Write at item 8 – label H any excess franking offset calculated as follows.

Step 1: Calculate the amount of franking tax offsets that the company is entitled to

Franking tax offsets are available under Division 207 of the ITAA 1997 as a result of receiving a franked distribution, and Subdivision 210-H of the ITAA 1997 as a result of receiving a franked distribution franked with a venture capital credit. The amount of franking tax offset that a company is entitled to is equal to the share of franking credits included in distributions received from partnerships and trusts, the amount of franking credits included at item 7 – labels J Franking credits and C Australian franking credits from a New Zealand company.

Do not include any franking tax offsets that are subject to the refundable tax offset rules under Division 67 of the ITAA 1997, for example, franking tax offsets of a life insurance company are generally subject to the refundable tax offset rules to the extent that they relate to distributions paid on shares and other membership interests held on behalf of policy holders. Do not include these amounts. Generally, the franking tax offsets of other companies are not subject to the refundable tax offset rules.

Step 2: Calculate the amount of income tax that would be payable

Calculate the amount of income tax that would be payable, taking into account all tax offsets (including its foreign income tax offset) with the exception of the following tax offsets:

• any franking tax offsets
• any tax offsets subject to the tax offset carry forward rules or the refundable tax offset rules, and
• any tax offset arising from an FDT liability.

Step 3: Calculate the amount of excess franking offsets

If the amount of franking tax offsets from step 1 exceeds the amount of hypothetical tax calculated at step 2, the excess is the amount of excess franking offset which should be written at item 8 – label H.

Excess franking offsets can affect the choice a company can make in how much of any prior year tax loss it can deduct this year. For more information, see item 7 – label R – Tax losses deducted.

If the company has excess franking offsets, it may convert the excess franking offsets into an amount of tax loss to carry forward to later income years. For more information, see item 13 – label U – Tax losses carried forward to later income years.

N – Loans to shareholders and their associates

Complete item 8 – label N only if:

• the company is a private company or a closely held corporate limited partnership
• the company or closely held corporate limited partnership has a loan to a shareholder or an associate of a shareholder that has a debit balance at the end of the income year, and
• the recipient of the loan was a natural person, partnership or trust.

Division 7A of Part III of the ITAA 1936 also applies to closely held corporate limited partnerships. A closely held corporate limited partnership is a corporate limited partnership that has fewer than 50 members or an entity has, directly or indirectly and for the entity’s own benefit, an entitlement to a 75% or greater share of the income or capital of the partnership.

For the purposes of completing label N all references to shareholders include partners in a closely held corporate limited partnership.

Write at label N the sum of all such loans that have a debit balance at the end of the income year. Write the sum in whole figures only.

Print the relevant code from table 6 in the CODE box at label N.

Table 6: Loan codes

Code	Description
A	All loans were made on or after 4 December 1997.
B	All loans were made before 4 December 1997.
M	Some loans were made before 4 December 1997 and some loans were made on or after 4 December 1997.

Under Division 7A of Part III of the ITAA 1936, loans by a private company or a closely held corporate limited partnership to a shareholder or associates of a shareholder (unless the loans come within specified exclusions) are treated as assessable dividends to the extent of the distributable surplus including realised and unrealised profit. Advances or loans to shareholders or associates may represent a distribution of profits and may be assessed to the recipient as unfranked dividends.

A loan made in 2022–23 by a private company or closely held corporate limited partnership to a shareholder (or associate) may be repaid or put on a commercial footing before the end of the entity’s lodgment day in order to prevent the loan from being treated as a dividend. The lodgment day is the earlier of the due date for lodgment or the date of lodgment of the private company’s or closely held corporate limited partnership’s tax return for the year in which the loan is made.

For loans made in an earlier income year that have not been fully repaid by the end of 2022–23, a deemed dividend may arise if the Division 7A minimum yearly repayment has not been made to the company or the closely held corporate limited partnership by the end of 2022–23.

D – Total salary and wage expenses

Write at item 8 – label D the total salary, wage and other labour costs incurred, including directors’ remuneration, as per income statements.

These expenses include any salary and wage component of item 6 – label A Cost of sales, that is, allowances, bonuses, casual labour, retainers and commissions paid to people who received a retainer, and workers compensation paid through the payroll.

Also included are direct and indirect labour costs, directors’ fees, 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. Any salary and wages paid by a private company to a current or former shareholder or director of the company, or to an associate of such a person, is included here and at item 8 – label Q Payments to associated persons.

However, do not include agency fees, contract payments, sub-contract payments, service fees, superannuation, reimbursements or allowances for travel, management fees, consultant fees, and wages or salaries reimbursed under a government program.

Salary and wage expenses cannot be deducted where you have not complied with your pay as you go (PAYG) withholding obligations. See Removing tax deductibility of non-compliant payments.

Print in the CODE box at label D the code from table 7 that matches the description of the expense component where salary and wage expenses have been wholly or predominantly reported at item 6.

Table 7: Salary and wage expenses codes

Code	Salary and wage expenses included in:
C	Cost of sales
A	All other expenses
B	Cost of sales and All other expenses
O	Other than Cost of sales and/or All other expenses

Q – Payments to associated persons

Write at item 8 – label Q the amounts, including salaries, wages, commissions, superannuation contributions, allowances and payments in consequence of retirement or termination of employment, paid by a private company to associated persons. An associated person is a current or former shareholder or director of the company, or an associate of such a person.

Also include the amounts of salaries and wages paid to associated persons at item 8 – label D Total salary and wage expenses.

Record keeping

Excessive remuneration paid to an associated person may not be deductible and could be treated as an unfranked dividend (see section 109 of the ITAA 1936). Records to establish the reasonableness of remuneration include:

• age, if under 18
• hours worked
• nature of duties performed
• other amounts paid, for example, retiring gratuities, bonuses and commissions
• total remuneration.

G – Gross foreign income

Write at item 8 – label G assessable income derived by the company from foreign sources, grossed up by the amount of the foreign tax withheld or paid at source on that income.

R – Net foreign income

Write at item 8 – label R assessable income derived by the company from foreign sources grossed up by the amount of the foreign tax, but net of expenses. This amount includes:

• foreign source capital gains, after offsetting any unapplied capital losses
• assessable dividends paid by a New Zealand company
• income attributable to a dividend from a New Zealand company received from a partnership or trust.

Do not write at label R:

• attributed foreign income (such as attributed income from a CFC)
• any amount of Australian franking credits attached to franked distributions received from a New Zealand franking company. Include these amounts at item 7 – label C Australian franking credits from a New Zealand company.

If the amount at label R is a loss, print L in the CODE box at the right of the amount.

Foreign losses are not quarantined from domestic assessable income (or from assessable foreign income of a different class) from the first income year starting on or after 1 July 2008.

Foreign source capital gains are made by an Australian resident company if a CGT event happens to any of its overseas CGT assets unless the gains are excluded from assessable income.

Any foreign source capital gains made during the income year should be reported at label R and should also be included as part of the company’s total capital gain which is reported at item 7 – label A Net capital gain. For more information on CGT, see the Guide to capital gains tax 2023.

Do not apply debt deductions other than those attributable to an overseas PE of the taxpayer against foreign source income for the purpose of calculating net foreign income or loss.

The company may need to complete either a:

• Consolidated groups losses schedule
• Losses schedule.

Attributed foreign income

Complete item 8 – labels B, U and V to report attributed foreign income.

B – Listed country

Write at item 8 – label B the amount of attributed foreign income from controlled foreign entities in listed countries. Listed countries are included in Regulation 19 of the Income Tax Assessment (1936 Act) Regulation 2015.

Do not include amounts attributed from transferor trusts, see item 8 – label V – Transferor trust.

U – Unlisted country

Write at item 8 – label U the amount of attributed foreign income from controlled foreign entities in unlisted countries. Unlisted countries are countries that are not listed countries in Regulation 19 of the Income Tax Assessment (1936 Act) Regulation 2015.

Do not include amounts attributed from transferor trusts, see item 8 – label V Transferor trust below.

V – Transferor trust

Write at item 8 – label V the amount of attributed foreign income from transferor trusts. A company has an interest in a transferor trust if the company has ever made, or caused to be made, a transfer of property or services to a non-resident trust. ‘Transfer’, ‘property’ and ‘services’ are defined in section 102AAB of the ITAA 1936. Sections 102AAJ and 102AAK of the ITAA 1936 provide guidance on whether there has been a transfer or deemed transfer of property or services to a non-resident trust.

Taxation of financial arrangements (TOFA)

Complete the TOFA labels T, U and S.

Taxation of financial arrangements (TOFA) rules

For the purposes of these instructions, 'TOFA rules' is a reference to the TOFA rules contained in Division 230 of the ITAA 1997, and not to the 'foreign exchange gains or losses' rules contained in Division 775 of the ITAA 1997.

The TOFA rules found in Division 230 of the ITAA 1997 generally provide for:

• methods of taking into account gains and losses from financial arrangements, being accruals and realisation, fair value, foreign exchange retranslation, hedging, and reliance on financial reports and balancing adjustment
• the time when the gains and losses from financial arrangements will be brought to account.

The TOFA rules will apply to the following entities:

• authorised deposit-taking institutions, securitisation vehicles and financial sector entities with an aggregated turnover of $20 million or more
• superannuation entities, managed investment schemes or entities with a similar status to a managed investment scheme under foreign law relating to corporate regulation with assets of $100 million or more
• any other entity (excluding individuals) which satisfies one or more of the following  
  • an aggregated turnover of $100 million or more
  • assets of $300 million or more
  • financial assets of $100 million or more.

Once the TOFA rules apply to a company, they will continue to apply to that company, even if its aggregated turnover, value of assets or value of financial assets subsequently falls below the requisite threshold.

A company that does not meet these requirements can elect to have the TOFA rules apply to it.

The aggregated turnover tests may mean that the TOFA rules will apply to companies that do not meet the turnover thresholds in their own right. Aggregated turnover includes the annual turnover of any entity a company is connected with, or any affiliate of the company, including overseas entities.

There are a number of elections available to companies under the TOFA rules. Elections under the TOFA rules are irrevocable and should be carefully considered before being made.

For more information about completing the TOFA labels, including at T, U and S, see:

• TOFA tax return labels
• Guide to the taxation of financial arrangements (TOFA).

T – Total TOFA gains

Write at item 8 – label T the total of all assessable TOFA gains from financial arrangements recognised at item 6 and item 7.

In working out a company’s total TOFA gains, take into account the company’s assessable TOFA gains from financial arrangements included in any of the following:

• item 6 – label D Gross distribution from partnerships
• item 6 – label E Gross distribution from trusts
• item 6 – label F Gross interest
• item 6 – label H Total dividends
• item 6 – label J Unrealised gains on revaluation of assets to fair value
• item 6 – label R Other gross income
• item 7 – label E TOFA income from financial arrangements not included in item 6.

U – Total TOFA losses

Write at item 8 – label U the total of all allowable TOFA losses from financial arrangements recognised at item 6 and item 7.

In working out a company’s total TOFA losses, take into account the company’s allowable TOFA losses from financial arrangements included in any of the following:

• item 6 – label D Gross distribution from partnerships
• item 6 – label E Bad debts
• item 6 – label V Interest expenses within Australia
• item 6 – label J Interest expenses overseas
• item 6 – label G Unrealised losses on revaluation of assets to fair value
• item 6 – label S All other expenses
• item 7 – label W TOFA deductions from financial arrangements not included in item 6.

S – TOFA gains from unrealised movements in the value of financial arrangements

Write at item 8 – label S the total of all TOFA gains recognised at item 6 as a result of unrealised movements in the value of financial arrangements. A company may have TOFA gains from unrealised movements in the value of financial arrangements as a result of making certain TOFA rules tax-timing method elections.

For more information, see:

• TOFA elections
• Guide to the taxation of financial arrangements (TOFA).

Continue to: 9. Capital allowances