Show at Q any deductible losses and outgoings not already claimed by the trust at any other items.
If the trust is registered for GST, exclude any input tax credit entitlements for expenses incurred by the trust from the amount shown at Q.
Former STS taxpayers still using the STS accounting method
If the trust is eligible and has chosen to continue using the STS accounting method, it can claim deductions for the following expenses only when they are paid:
- general deductions, for example interest expense
- tax-related expenses
- expenses for repairs.
For more information on the STS accounting method, see appendix 14.
Losses and outgoings
You can claim a deduction for losses and outgoings if they are incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing such income.
However, under section 25–90 of the ITAA 1997, a trust may be able to claim a deduction for costs incurred in obtaining or servicing debt interests (as defined in ITAA 1997) if the costs are incurred in earning foreign source income which is non-assessable non-exempt income under section 23AI or 23AK of the ITAA 1936. The amount of the deduction is subject to any reduction required by the thin capitalisation rules. Similar rules apply under subsection 230-15(3) of the ITAA 1997 in relation to your debt interest that is a financial arrangement covered by the TOFA rules.
Debt deductions (such as interest and borrowing costs) incurred in earning assessable foreign source income that are not attributable to an overseas permanent establishment of the taxpayer should be included at Q. You can deduct these expenses against assessable income of the trust, subject to any reduction required under the thin capitalisation rules. Do not include them in the calculation of the net foreign source income at item V in 23 Other assessable foreign source income or any other item.
You cannot claim a deduction for the following:
- losses or outgoings of capital or of a capital, private or domestic nature, except where special provision is made in the income tax law
- expenses incurred in gaining or producing exempt or non-assessable non-exempt income – except certain debt deductions under section 25–90 or subsection 230-15(3) of the ITAA 1997
- penalties or fines
- income tax liabilities
- entertainment, except in very limited circumstances
- costs associated with borrowing and servicing debt to the extent that a deduction is denied under the thin capitalisation rules.
For more information, see appendix 3. The disallowed amount reduces the amount that would otherwise be shown in Q.
If a trustee borrows money to pay distributions to a beneficiary, the trustee will only be able to take into account the interest expenses incurred on those borrowed funds when calculating the net income of a trust estate in certain circumstances, see TR 2005/12 Income tax: deductibility of interest expenses incurred by trustees on funds borrowed in connection with the payment of distributions to beneficiaries.
In order to be deductible, the interest expense must be sufficiently connected with the assessable income earning activity of the trust. There will be sufficient connection if the purpose of the trustee borrowing funds is to refinance a returnable amount. Trustees who have incurred interest expenses on monies borrowed to pay distributions to beneficiaries should seek advice either from their professional advisers or the ATO.
Show at Q any expenses incurred by the trust in the management of its tax affairs – these expenses include:
- the cost of attending an ATO audit
- tax planning
- expenditure on your income tax affairs – that is, a fee or commission for professional advice where the advice is provided by a registered tax agent, a barrister or solicitor
- an interest charge imposed by the ATO on taxes and penalties
- a penalty for underestimating a varied GST instalment or PAYG instalment.
Show a deduction for the decline in value of a depreciating asset used in managing the tax affairs of the trust at Q – for more information about working out decline in value, see appendix 6.
You cannot claim a deduction for costs for any offence-related matter, for example, the cost of defending a tax prosecution.
If expenditure allowed or allowable as a deduction is recouped, include the amount recouped in assessable income in the year of recoupment.
Losses on the disposal of traditional securities
Show at Q any non-capital losses incurred upon the disposal or redemption of a traditional security which are deductible under section 70B of the ITAA 1936. For more information about gains and losses on traditional securities, including traditional securities that are convertible notes or exchangeable notes, see You and your shares 2012-13.
TOFA amounts from financial arrangements
If the TOFA rules apply to calculate an assessable gain or deductible for loss on the trust’s financial arrangements, include at this item those deductible losses and any deductible TOFA transitional balancing adjustment relating to existing financial arrangements.
TOFA amounts that have been included elsewhere should not be included here, for example amounts that have already been included at:
- S Net income or loss from business item 5
- G Interest deductions item 9.
If what you show at Q includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).
For more information, see Guide to the taxation of financial arrangements (TOFA) rules.
Payment of premiums to a non-resident insurer
You can only claim a deduction for insurance premiums paid to a non-resident insurer for the insurance of property situated in Australia or of an event which can happen only in Australia where:
- the premium would otherwise be deductible to the trust, and
- arrangements have been made to the satisfaction of the ATO for the payment of any tax payable or which may become payable in relation to the premium.
Keep a record of the details supporting any claim for a deduction.
For more information about the tax obligations of non-resident insurers and their agents in Australia, see Insurance with foreign resident insurers.
In some trusts, the trustee may have the power to make gifts or donations from the trust fund.
The trust can only claim a deduction for gifts (including cash) made to an organisation which is a deductible gift recipient (DGR). DGRs are endorsed by the ATO or specifically named in income tax law. Some of the types of bodies that can be endorsed as DGRs are public benevolent institutions, school building funds and approved overseas aid funds.
Gifts of $2 or more of certain property, or money, may be deductible. This includes gifts of property valued by the ATO at more than $5,000, and property purchased by the donor during the 12 months before the gift was made, and shares valued at $5,000 or less acquired in an Australian publicly listed company at least 12 months before the gift was made.
If claiming a donation for property valued by the ATO at more than $5,000, or under the Cultural Gifts Program, or to National Trust bodies, keep the required valuation certificates.
A trust may elect to spread deductions over five income years or less, where the gift is money, or property valued by the ATO at more than $5,000. Special requirements apply for spreading deductions for certain environmental, heritage and cultural property gifts.
Deductions for political contributions and gifts
From 1 July 2008, only individuals can deduct contributions and gifts to political parties and independent members and candidates; and the individual claiming the deduction must not have made the gift or contribution in the course of carrying on a business.
Show at Q the deduction for gifts to DGRs. The deduction cannot add to or create a tax loss. You may need to reduce the claim where the amount at item 20 Net Australian income or loss is a loss.
Show at Q any expenses incurred for subscriptions paid to:
- trade, business or professional associations
- other organisations where the subscription expense is incurred in producing assessable income
- journals or magazines related to producing assessable income.
Do not claim for fees paid for membership of a sporting or social club, or a political party.
Deductions for depreciating assets in a low-value pool
If the trust has allocated depreciating assets used for different income-producing purposes to its low-value pool (for example, some assets are used for producing rental income, or carrying on a business) and it has not shown them at any other item show the low-value pool deduction at Q, for more information, see appendix 6.
Film industry incentives
The conditions under which concessions are available for the Australian film industry are explained in Film industry incentives 2012-13.
The law about claiming deductions for investments in Australian films has changed for 2009–10 and later income years. As a consequence of the introduction of the Australian screen production incentive, Division 10B and Division 10BA of Part III of the ITAA 1936 has been repealed with effect from 1 July 2010. The trust cannot claim a deduction under Division 10BA for the 2009–10 or later income years. The trust cannot claim a deduction under Division 10B for the 2010–11 or later income years.
If you wish to claim deductions for income years prior to 2009–10, or a Division 10B deduction for the 2009–10 income year, see the publication Australian film industry incentives 2008-09.