Income excluding foreign income – item 5

Business income and expenses – item 5

The amounts you include here, at Income (label C to G and label D to H) and Expenses (label P to N), are generally accounting system amounts (which may require specific adjustment, for example to exclude goods and services tax (GST)) subject to 2 exceptions for small business entities.

Small business entities choosing to use:

• the simplified trading stock rules should use tax values for their closing stock in calculating Expenses – label E Cost of sales
• the simplified depreciation rules should use tax values for Expenses – label K Depreciation expenses.

For more information, see Appendix 13.

The accounting system amounts are included on the business profit and loss statements and form the basis of the calculation of the trust's business net income or loss for tax purposes. Make adjustments to these accounting amounts for tax purposes at item 5 Reconciliation items.

GST is payable by entities that are registered, or required to be registered, for GST. If GST is payable on income, exclude the GST from the income derived. Exclude input tax credit entitlements on outgoings from deductions. Some GST adjustments (occurring, for example, where the percentage of business use of an asset changes) may be included in assessable income or allowed as deductions.

Only include at item 5 Business income and expenses:

• business income amounts derived directly by the trust (include distributions received from other trusts and partnerships at item 8 Partnerships and trusts)
• Australian-sourced income (include foreign source income at item 22 Attributed foreign income and item 23 Other assessable foreign source income).

Income and expenses are divided into 3 columns:

• primary production, showing relevant amounts of income and expenses from primary production
• non-primary production, showing relevant amounts of income and expenses from non-primary production
• totals, showing the total of the previous 2 columns.

Income subject to foreign resident withholding is shown at label B in the Non-primary production column and the Totals column.

If the trust is eligible and is continuing to use the simplified tax system (STS) accounting method, see Former STS taxpayers. Otherwise, see the information for all trusts.

Ceasing use of the STS accounting method

If the trust has discontinued 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 year. You may need to make additional reconciliation adjustments. See Former STS taxpayers.

Income

This section deals with:

• Gross payments where ABN not quoted
• Gross payments subject to foreign resident withholding
• Assessable government industry payments
• Other business income

Gross payments where ABN not quoted

Print at label C and D Gross payments where ABN not quoted, as appropriate, gross income received by the trust that was subject to withholding where an ABN was not quoted, this includes amounts of tax withheld.

If you print an amount at label C or D, complete a Non-individual PAYG payment summary schedule 2023 and attach the completed schedule to the trust tax return.

If you complete label C or D, print the corresponding amount of tax withheld at item 6 – label T Tax withheld where ABN not quoted.

Gross payments subject to foreign resident withholding

Print at label B Gross payments subject to foreign resident withholding (excluding capital gains) gross payments to the trust that were regulated foreign resident income. Gross payments include amounts withheld.

Complete label B only if the trust is a non-resident trust. For a resident trust, do not include an amount, such as foreign sourced income at label B.

'Regulated foreign resident income' refers to payments that are prescribed in the Taxation Administration Regulations 2017 (and former Taxation Administration Regulations 1976External Link) as being subject to the foreign resident withholding measure.

Do not include payments where the amount was varied to nil under the foreign resident withholding measure because the income was not taxable under a tax treaty.

Do not include at this label amounts subject to the foreign resident capital gains withholding. The capital gains should be included at item 21 Capital gains.

If an amount is printed at label B, complete a Non-individual PAYG payment summary schedule 2023 and attach the completed schedule to the trust tax return.

Print gross distributions of regulated foreign resident income from partnerships and other trusts at item 8 Partnerships and trusts. A Non-individual PAYG payment summary schedule 2023 is not required for these distributions because they do not have an associated payment summary.

You will not have any primary production amounts at this item.

Assessable government industry payments

Print at label E and F Assessable government industry payments, as appropriate, the total amount of assessable government industry assistance. Examples of these payments are:

• bounties
• employee subsidies
• export incentives grants
• industry restructure and adjustment payments
• JobMaker Hiring Credits
• JobKeeper payments (COVID-19)
• Apprentices and Trainees wage subsidy
• fuel tax credits
• producer rebate (wine equalisation tax)
• excise refund scheme for alcohol manufacturers
• product stewardship (oil) benefit.

If the amount at label E or F includes fuel tax credits, producer rebate (wine equalisation tax), excise refund scheme for alcohol manufacturers or a product stewardship (oil) benefit, print D in the CODE box at the right of the amount.

Medical practices should show their Medicare payments at label H Other business income, not at label E or F.

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 not be assessable as income directly, but may give rise to a capital gain.

However, in certain circumstances, a specific grant or payment is considered to be exempt income or non-assessable non-exempt income.

A number of government grants and payments have been made available to businesses in response to recent natural disasters and COVID-19. Only those grants and payments that are assessable income will need to be included at this item.

Do not include at label E or F the following grants and payments:

• government grants and payments that are tax free
• cash flow boost payments (COVID-19) (non-assessable, non-exempt income).

Cash flow boost reporting

If the trustee accounts for the cash flow boost as income in the trust’s accounting system, the trustee may include it in:

• label G and H Other business income (as appropriate), and
• the calculation of item 5 Reconciliation items – label A Income reconciliation adjustments as an income subtractions item. As a result, no cash flow boost amount will be reported at item 5 Net income or loss from business or item 26 Total net income or loss.

Depending on the terms of the trust deed, if the cash flow boost is considered to be income of the trust estate it would be shown at:

• item 57 Income of the trust estate – label A, and
• item 58 Statement of distribution – label W Share of the income of the trust estate for each beneficiary.

The cash flow boost should not be reflected at any other items in the Trust tax return 2023 or item 58 Statement of distribution.

JobMaker hiring credit reporting

The accounting basis you use determines the way you report JobMaker hiring credit payments.

Accruals accounting basis

JobMaker hiring credit payments are derived when the entity provides us with a valid claim form after each JobMaker period.

JobMaker hiring credit payments relating to valid claim forms made during 2022–23 are assessable in 2022–23.

Cash accounting basis

JobMaker hiring credit payments are derived when the entity receives those payments. Payments received during 2022–23 are assessable in 2022–23.

For more information, see:

• TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business
• Government grants, payments and stimulus during COVID-19.

Other business income

Print at label G and H Other business income as appropriate, other business income such as revenue arising from the sale of goods, services rendered, disposal of depreciated assets, work in progress amounts assessable under section 15-50 of the ITAA 1997 and royalties.

If the Taxation of financial arrangements (TOFA) rules apply to the trust, include other business income from financial arrangements subject to the TOFA rules at label G or H.

Do not include amounts that are shown at label C, D, B, E and F.

If the amount at label G or H is a loss, print L in the box to the right of the loss amount.

If you have included an amount for profit on the sale of depreciating assets at label G or H, see Appendix 6.

If you acquired or disposed of crypto assets in carrying on your business in 2022–23, see Crypto assets and business to determine the appropriate tax treatment.

Expenses

Complete the following expenses amounts at item 5:

• Foreign resident withholding expenses
• Contractor, subcontractor and commission expenses
• Superannuation expenses
• Cost of sales
• Bad debts
• Lease expenses
• Rent expenses
• Total interest expenses
• Total royalty expenses
• Depreciation expenses
• Motor vehicle expenses
• Repairs and maintenance
• All other expenses
• Total expenses

Apart from 2 exceptions for small business entities mentioned below, the amounts included at labels P to N are amounts derived from the accounting system or financial statements of the trust. Make any adjustments to these amounts for tax purposes at item 5 Reconciliation items – label B Expense reconciliation adjustments.

Small business entities using the simplified trading stock rules should use tax values for their closing stock in calculating their cost of sales printed at label E Cost of sales.

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

Small business entities using the simplified depreciation rules should use tax values at label K Depreciation expenses.

If the trust is registered or required to be registered for GST, exclude input tax credit entitlements on outgoings from deductions.

If any expenses have been prepaid, the prepayment provisions may affect the timing of the deduction that can be claimed. Generally, the trust will need to apportion its deduction for prepaid business expenditure over the service period or 10 years, whichever is less. There are some exceptions to this under the 12-month rule for trusts that are small business entities or would be small business entities if the aggregated turnover threshold was $50 million. If the amounts shown as expenses at label P to N differ from the amount allowable as deductions in 2022–23, make a reconciliation adjustment at item 5 Reconciliation items – label B Expense reconciliation adjustments.

For more information, see Deductions for prepaid expenses 2023.

Foreign resident withholding expenses

Print at label P Foreign resident withholding expenses (excluding capital gains) all expenses directly relating to gaining the income included at Income – label B Gross payments subject to foreign resident withholding. Do not include these amounts at any other expense entry in item 5. Do not include any expenses incurred in gaining income not assessable in Australia.

Do not include at this label any expenses incurred in relation to amounts subject to foreign resident capital gains withholding.

Complete this entry only if the trust is a non-resident trust. For a resident trust do not include expenses, such as expenses incurred in deriving foreign sourced income, at this entry.

You will not have any primary production amounts at label P.

Contractor, subcontractor and commission expenses

Print at label C Contractor, subcontractor and commission expenses the expenditure incurred for labour and services provided under contract other than those in the nature of salaries and wages. For example:

• payments to self-employed people, such as consultants and contractors
• commissions paid to people not receiving a retainer
• agency fees such as advertising
• service fees such as plant service
• management fees
• consultant fees.

Do not include the following at label C:

• expenses for external labour which are incorporated into the amount included at label E Cost of sales
• expenses for accounting or legal services; include these at label N All other expenses.

Record keeping

Keep a record of the following:

• name and address of the payee
• nature of the services provided
• the amount and date paid.

Superannuation expenses

Print at label D Superannuation expenses the employee superannuation expenses incurred for the income year.

Employers are entitled to a deduction for eligible contributions made to a complying superannuation, provident, benefit or retirement fund, or retirement savings account (RSA), where the contribution is to provide superannuation benefits for employees or to provide benefits to the employee’s dependants on the employee’s death. Superannuation benefits mean payments for superannuation member benefits or superannuation death benefits.

Provided certain conditions are met, employers can claim a deduction for eligible superannuation contributions made in respect of a former employee within 4 months of the employee ceasing employment and at any time after the employee ceases employment for defined benefit interests.

You can claim a deduction in the income year in which the contributions are made.

Contributions made to a non-complying fund:

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

Under the superannuation guarantee legislation, an employer needs to provide a minimum level of superannuation for employees or pay the superannuation guarantee charge (SGC) that is payable on the superannuation guarantee shortfall.

The SGC is not a superannuation contribution and is not tax deductible. Employers may not claim a tax deduction for any late contribution that they make to reduce the amount of SGC that they have to pay under the superannuation guarantee late payment measures.

Contributions paid by an employer for employees to a non-complying superannuation fund are fringe benefits and may be subject to tax under the Fringe Benefits Tax Assessment Act 1986.

There is no limit on the amount of contributions that can be claimed as a deduction by an employer contributing to a complying superannuation fund or RSA for employees under the age of 75 years. However, the employee may be liable to pay additional tax if their concessional contributions exceed the concessional contributions cap. For more information, see Caps, limits and tax on super contributions.

If an employee has reached the age of 75 years, there is a restriction on the deduction that can be claimed for an employer contribution to a complying superannuation fund or RSA. For contributions made after the 28th day of the month following the employee’s 75th birthday, the deduction claimable is limited to the greater of the following amounts:

• the amount of the contribution required under an industrial award, determination or notional agreement preserving State awards
• the amount of the contribution that reduces the employer’s charge percentage under the Superannuation Guarantee (Administration) Act 1992 for the employee.

For more information, see Key super rates and thresholds.

Cost of sales

Information on completing cost of sales for:

• Small business entities
• All other trusts

Small business entities

If the trust is a small business entity using the simplified trading stock rules, you will need to know the value of its closing stock in order to calculate label E Cost of sales. Small business entities only need to account for changes in the value of their trading stock in limited circumstances. If the trust does not need to account for the change in value of closing stock, its closing stock will equal its opening stock value. If the trust does need to account for the change in value of closing stock, or chooses to do so, see item 41 Closing stock for information about how to calculate the closing stock value.

All other trusts

Print at label E Cost of sales the cost of anything produced, manufactured, acquired, or purchased for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. This includes freight inwards and may include some external labour costs, if these are recorded in the cost of sales account in the normal accounting procedure of the business.

If the cost of sales account is in credit at the end of the income year (that is, a negative expense) then print L in the box at the right of the amount. Do not print brackets around the amount.

For more information on the circumstances that 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.

Bad debts

Print at label F Bad debts the bad debts expenses incurred for the income year.

Include recovery of bad debts as appropriate at Income – label G or H Other business income.

You cannot claim a deduction for bad debts unless the debt that is bad has previously been included in your assessable income, or is for money lent in the ordinary course of the business of the lending of money by a trust carrying on that business. Accordingly, you cannot generally claim a deduction for an unpaid present entitlement that has been written off as a bad debt under section 25-35 of the ITAA 1997.

Under the Trust loss provisions of Schedule 2F to the ITAA 1936, certain rules have to be satisfied by a trust before the trustee can deduct bad debts or debt equity swap amounts.

Do not include accounting provisions for doubtful debts at label F. Include these at label N All other expenses then add them back at item 5 Reconciliation items – label B Expense reconciliation adjustments. To calculate the amount of the expense reconciliation adjustment, see Worksheet 1.

Before a bad debt can be claimed, it must be bad and not merely doubtful. The deduction depends upon the facts in each case and, where applicable, the action taken for recovery. For more information, see TR 92/18 Income tax: bad debts.

You can claim a deduction for partial debt write-offs where only part of a debt is bad and is written off. You can claim a deduction for the amount written off.

Deductions for bad debts may be reduced by the commercial debt forgiveness provisions; see Appendix 4.

You can claim a deduction for losses incurred in debt and equity swaps for debt written off. You may be able to claim a deduction for a debt and equity swap by the trust if the provisions of sections 63E to 63F of the ITAA 1936 are satisfied. Under these provisions a deduction may be allowable for the difference between the amount of the debt extinguished and the greater of the market value of the equity or the value at which the equity is recorded in the creditor’s books at the time of issue. The market value of the equity is the price quoted on the stock exchange or, if the equity is not listed, the net asset backing of the equity.

If the TOFA rules apply to the trust, include all the trust's bad debts from financial arrangements subject to the TOFA rules at label F.

Record keeping

If the trust writes off bad debts during the income year, keep a statement for all debtors in respect of which a write-off occurred, showing:

• their name and address
• the amount of the debt
• the reason why the debt is regarded as bad
• the year that the amount was returned as income.

Lease expenses

Print at label G Lease expenses the expenditure incurred through both finance and operating leases on leasing assets, such as motor vehicles, plant, or other equipment. Do not include the cost of leasing real estate (include this cost at label H Rent expenses).

If you include capital expenditure incurred to terminate a lease or licence, you will need to add back the amount at item 5 Reconciliation items – label B Expense reconciliation adjustments. Although capital expenditure to terminate a lease or licence is not deductible in one year, a 5 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. For more information, see Worksheet 1.

Expenses incurred under a hire-purchase or instalment sale agreement of goods, are not lease expenses. Such expenses are referred to in Appendix 6.

In some circumstances, lease expenses may be debt deductions for the purposes of the thin capitalisation rules. For information on thin capitalisation, see Appendix 3.

In certain cases, an amount of tax (withholding tax) is withheld from amounts paid or payable under equipment leases to non-residents and overseas branches of residents, and must be remitted to us. This is also subject to the operation of any relevant tax treaties (treaties). If you have withheld amounts from payments to non-residents, you may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report.

If an amount of lease expense is not allowable as a deduction, such as amounts disallowed under the thin capitalisation rules, add back the amount at item 5 Reconciliation items – label B Expense reconciliation adjustments.

Record keeping

If a deduction is claimed for the cost of leasing depreciating assets, keep a record of the following:

• a description of the items leased
• full particulars of the lease expenses for each item, including motor vehicles, showing
  • who the payments were made to
  • the terms of the payments including details of any prepayments or deferred payments
  • if any assignment, defeasance, or re-direction to pay the payments was entered into, full particulars of the arrangement including to whom the payments were made
• details of use other than for producing assessable income
• any documentation on or relating to the lease of the items.

Rent expenses

Print at label H Rent expenses the expenditure incurred as a tenant for the rental of land and buildings used in the production of income.

Total interest expenses

Print at label I Total interest expenses the interest incurred on money borrowed within Australia and overseas to acquire income-producing assets, to finance business operations or to meet current business expenses.

If the TOFA rules apply to the trust, include all interest incurred on money borrowed within Australia and overseas to acquire income-producing assets, to finance business operations or to meet current business expenses from financial arrangements subject to the TOFA rules at label I.

Do not include interest expenses incurred in relation to deriving rental income, these interest deductions are included at item 9 Rent – label G Interest deductions.

Interest paid or payable to non-residents

An amount of tax, withholding tax, is generally required to be withheld from interest paid or payable to non-residents and to overseas branches of residents by the resident payer.

If you:

• are a payer, you must withhold the tax and remit this to us.
• have withheld amounts from payments to non-residents, you may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report.

Do not use the trust return as a substitute for the PAYG withholding from interest dividend and royalty payments paid to non-residents – annual report.

The thin capitalisation rules may apply to reduce interest deductions.

These rules place a limit on the amount of interest and other loan costs that can be deducted for Australian tax purposes. For more information, see Appendix 3.

Print the disallowed amount at item 5 Reconciliation items – label B Expense reconciliation adjustments.

Distributions made by the issuer of a non-share equity interest are not deductible.

You may not be able to claim interest in certain situations, for example, if it has been incurred for private or domestic purposes.

Print the amount of interest not allowable as a deduction at item 5 Reconciliation items – label B Expense reconciliation adjustments.

Record keeping

If interest is paid to non-residents or to overseas branches of residents, keep a record of the following:

• name and address of recipient
• amount of interest paid or credited
• amount of withholding tax withheld and the date on which it was remitted to us.

Total royalty expenses

Print at label J Total royalty expenses the royalty expenses for the income year, include royalties paid to residents and non-residents.

Royalties paid or payable to non-residents

An amount of tax, withholding tax, is generally required to be withheld from royalties paid or payable to non-residents and to overseas branches of residents by the resident payer.

If you:

• are a payer, you must withhold the tax and remit this to us
• have withheld amounts from payments to non-residents, you may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report.

Do not use the trust return as a substitute for the PAYG withholding from interest dividend and royalty payments paid to non-residents – annual report.

Record keeping

Keep a record of the following:

• name and address of recipients
• amounts paid or credited
• nature of the benefit derived, for example, a copy of the royalty agreement
• details of tax withheld where applicable and the date on which it was remitted to us.

For more information, see Appendix 2.

Depreciation expenses

If the trust is an eligible small business entity and has chosen to use the simplified depreciation rules, see Small business entities applying the simplified depreciation rules. Otherwise, see All other trusts.

Print at label K Depreciation expenses the depreciation expenses of small business entities using the simplified depreciation rules as tax values.

All other trusts

Print at label K Depreciation expenses the book depreciation expenses for depreciating assets, other than for pool assets. For assets allocated to the pool, include at label K the amount of the pool deduction to be claimed for tax purposes.

Don't include at label K:

• profit on the sale of a depreciating asset, include at Income – label G or H Other business income
• loss on the sale of a depreciating asset, include at Expenses – label N All other expenses.

The accounting or book depreciation may differ from the deduction for the decline in value of depreciating assets. Reconcile the deduction for the decline in value of depreciating assets with accounting depreciation at item 5 Reconciliation items – label B Expense reconciliation adjustments.

For more information on deductions for the decline in value of depreciating assets, see Appendix 6. You can also work out your decline in value by using the Depreciation and capital allowances tool.

Simplifying tax obligations for business

PS LA 2003/8 Practical approaches to low-cost business expenses provides guidance on 2 straightforward methods, which 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 or capital.

Subject to certain qualifications, the 2 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 that is revenue expenditure.

A deduction for expenditure incurred on low-cost tangible assets calculated in accordance with this Practice Statement will be accepted by us.

Small businesses not applying the simplified depreciation rules

Small businesses that do not apply the simplified depreciation rules can claim, under temporary full expensing, an immediate deduction for the business portion of the cost of eligible assets that you first used, or have installed ready for use, for a taxable purpose from 7:30 pm AEDT 6 October 2020 to 30 June 2023, and where no balancing adjustment event has occurred in the same income year. Additionally, eligible small businesses are also able to deduct the business portion of cost of improvements to those new eligible depreciating assets, and to existing eligible depreciating assets, incurred from 7:30 pm AEDT on 6 October 2020 to 30 June 2023.

Small businesses that do not apply the simplified depreciation rules can opt out of temporary full expensing on an asset-by-asset basis. The choice cannot be changed, and you must notify us by the day you lodge your income tax return for the income year to which the choice relates.

For information on what new accelerated depreciation measure applies to an asset, see Interaction of tax depreciation incentives.

The temporary full expensing measure is available to all entities with an aggregated turnover less than $5 billion, not just small business entities.

For more information on eligible assets and eligible businesses, see Temporary full expensing.

Small business entities applying the simplified depreciation rules

Small businesses applying the simplified depreciation rules have access to temporary full expensing. You cannot opt out of temporary full expensing for assets to which the simplified depreciation rules apply. For assets first held from 7:30 pm AEDT on 6 October 2020 until 30 June 2023, you must deduct the taxable purpose portion of all eligible depreciating assets (irrespective of value) in the income year they are first used, or installed ready for use, for a taxable purpose. The deduction amount is the taxable purpose proportion of the asset's cost less any decline in value between when you first held the asset and when it was first used or installed ready for use. These assets are not added to your small business pool.

Special rules apply if the depreciating asset is a passenger vehicle.

Under temporary full expensing, you must also claim a deduction for the cost of improvements made from 7:30 pm AEDT on 6 October 2020 to 30 June 2023 to an asset that you have fully deducted under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction for the taxable purpose portion of the improvement cost, and no threshold applies.

For income years ending between 7:30 pm AEDT on 6 October 2020 and 30 June 2023, you deduct the entire balance of the small business pool. There is no threshold for that period.

For more information, see:

• Temporary full expensing
• Small business pool.

Small business entities that have previously elected out of the simplified depreciation rules are no longer subject to the ‘lock-out’ rule (which prevented small businesses from re-entering the simplified depreciation regime for 5 years if they had opted out). These entities may re-elect to use the simplified depreciation rules.

The suspension of the 5 year restriction only applies from 12 May 2015 to the end of an income year that includes 30 June 2023.

For more information on what new accelerated depreciation measure applies to an asset, see Interaction of tax depreciation incentives.

If the trust is an eligible small business entity and has chosen to use the simplified depreciation rules, print at label K Depreciation expenses the total depreciation deductions being claimed by the trust under the simplified depreciation rules and the uniform capital allowances (UCA) rules. You must also complete:

• item 50 – label S Temporary full expensing deductions and item 50 – label T Number of assets you are claiming for if you are claiming for eligible assets where temporary full expensing applies
• item 51 – label A Deduction for certain assets (costing less than the relevant instant asset write-off threshold) for eligible assets where instant asset write-off applies, and
• item 51 – label B Deduction for general small business pool to record the write-off of your small business pool under temporary full expensing.

A small business entity choosing to use these simplified depreciation rules must use both the immediate write-off and the pooling where applicable. You can’t choose to use one and not the other.

Some depreciating assets are excluded from these simplified depreciation rules, but you may be able to claim a deduction under the UCA rules. Examples of assets excluded from the simplified depreciation rules are:

• horticultural plants (including grapevines) which are deducted under special UCA provisions as specified in Appendix 6
• assets that are leased out, or will be leased out, by a small business entity for more than 50% of the time on a depreciating asset lease. You can generally claim a deduction under the UCA provisions.

Depreciation deductions are generally available only to the legal owner of the asset. However, an entity is not entitled to claim a deduction for the decline in value of a depreciating asset it leases out under a hire-purchase agreement as the hire-purchase is treated as a sale of the asset to the hirer.

For certain depreciating assets used by a small business entity in the course of carrying on a business of primary production, the entity can choose whether to use these simplified depreciation provisions or specific UCA provisions. The specific UCA provisions are those applying to landcare operations, water facilities, fencing assets, fodder storage assets, electricity connections and phone lines. For more information on these specific UCA provisions, see Appendix 6. If a trust chooses to use the simplified depreciation provisions with respect to certain primary production assets, then it must use both the immediate write-off and the pooling where applicable.

As the small business entity depreciation rules apply only to depreciating assets, certain capital expenditure incurred by a small business entity that does not form part of the cost of a depreciating asset may be deducted under the UCA provisions. This includes capital expenditure on certain business-related costs and amounts directly connected with a project. Do not include these amounts at label K. Print the amount that you can claim as a deduction at item 5 Reconciliation items – label B Expense reconciliation adjustments.

For more information on the UCA provisions, see Appendix 6. For more information, see Small business CGT concessions.

Calculating depreciation deductions for small business entities

Only use steps 1 to 4 to calculate the depreciation deductions only if the trust is an eligible small business entity and has chosen to use these simplified depreciation rules.

If the profit and loss statement of the trust provides the amounts to complete table 4, write these amounts in the table. Otherwise, use steps 1 to 4 to calculate the depreciation deductions.

The amounts you write in the table must be tax and not accounting values.

1. Deduction for certain assets (using temporary full expensing)

For assets you start to hold from 7:30 pm AEDT on 6 October 2020 to 30 June 2023, and first use (or have installed ready for use) for a taxable purpose in the 2022–23 year, you must immediately deduct the taxable purpose proportion of the asset's cost (less any decline in value since acquiring the asset) under temporary full expensing.

Under temporary full expensing, you must also claim a deduction for the cost of improvements made in the 2022–23 income year to an asset that you have fully depreciated under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction at this step for the taxable purpose proportion of the improvement cost and no threshold applies. Any later improvements are added to the small business pool.

For assets which qualify for a deduction under the small business simplified depreciation rules, work out the extent they are used for the purpose of producing assessable income (taxable purpose proportion). Calculate the deduction for each eligible asset as follows:

Asset adjustable value × asset taxable purpose proportion

The adjustable value of an asset, at the time it was first used (or installed ready for use) for a taxable purpose, will be its cost unless the asset was previously used (or installed ready for use) by the trust solely for private purposes. For example, for computing hardware bought on 1 December 2021 at a cost of $140,000 (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 $140,000 × 70% = $98,000.

Add up all of the amounts from this step and write the total at a in table 4.

Do not include in this calculation amounts for depreciating assets that the trust started to hold before starting to use the simplified depreciation rules; allocate these assets to a general small business pool (see step 2).

2. General small business pool

Trusts that are already using simplified depreciation rules

Opening pool balance

For trusts using the simplified depreciation rules, the opening balance of the general small business pool is the closing pool balance for the previous income year, except where an adjustment is made to reflect the changed business use of a pooled asset.

Additions to the opening pool balance

Any assets that the trust starts to hold during the relevant period (7:30 pm (AEDT) 6 October 2020 and 30 June 2023) and first uses, or instals ready for use, in the 2022–23 income year are fully deducted under temporary full expensing (see step 1). Therefore, no assets first used, or installed ready for use, in the 2022–23 income year are allocated to the pool.

If the trust incurs Improvement costs for an asset in the 2022–23 income year and has already fully deducted the cost of that asset in an earlier income year (whether under temporary full expensing or another instant asset write-off threshold), the improvement costs are also fully deducted under temporary full expensing (see step 1). The improvement costs do not get allocated to the pool.

If the trust has previously fully deducted an improvement cost for the asset in an earlier income year, and incurs further improvement costs in the 2022–23 year, the asset is allocated to the pool. The value of the asset is equal to the cost of those further improvements.

If the trust incurs costs associated with disposing of, or otherwise ceasing to hold, an asset allocated to the pool, those costs are added to the pool.

Subtractions from the opening pool balance

If the trust ceases to hold an asset that has been allocated to the pool in the 2022–23 income year, or an earlier income year, the taxable purpose proportion of the termination value is subtracted from the pool balance (see step 4b).

If that subtraction results in pool balance going below zero, the amount below zero is included in assessable income at item 5 Reconciliation items – B Expense reconciliation adjustments and there is no deduction under temporary full expensing with respect to your general pool balance in the 2023 income year.

However, if the pool balance at the end of the 2023 income year is greater than zero (after any subtractions for balancing adjustment events happening to assets allocated to the general small business pool), under temporary full expensing, the trust must deduct the then entire general pool balance in the 2023 income year. Write the amount at item b of table 4.

Closing pool balance

The closing pool balance for this year becomes the opening pool balance for 2023–24, after any adjustments to reflect the changed business use of a pooled asset. The trust will have a closing pool balance for the 2022–23 year of $0.

Trusts that start to use simplified depreciation rules in 2022–23

Opening pool balance

For trusts that start to use the simplified depreciation rules in 2022–23, the opening pool balance is the sum of the taxable purpose proportions of the adjustable values of those depreciating assets that were held and used (or installed ready for use), just before the start of 2022–23, and that were not excluded from the simplified depreciation rules.

Additions/subtractions to the pool balance

Any assets that the trust starts to hold during the relevant period (7:30 pm (AEDT) 6 October 2020 and 30 June 2023) and first uses, or instals ready for use, in the 2022–23 income year are fully depreciated under temporary full expensing (see step 1). Therefore, no assets first used, or installed ready for use, in the 2022–23 income year are allocated to the pool.

If the trust incurs improvement costs in the 2022–23 year to an asset that was allocated to the small business pool at the start of the 2022–23 year, the taxable purpose proportion of those costs are added to the pool.

If the trust incurs costs associated with disposing of, or otherwise ceasing to hold, an asset allocated to the pool, those costs are added to the pool.

If the trust ceases to hold an asset that was allocated to the small business pool at the start of 2022–23, the taxable purpose proportion of the termination value of the asset is subtracted from the pool balance (see step 4b).

• If that subtraction results in the pool balance going below zero, the amount below zero is included in your assessable income at item 5 Reconciliation items – B Expense reconciliation adjustments and there is no deduction under temporary full expensing with respect to the 2022–23 general pool balance.
• If the pool balance at the end of 2022–23 is greater than zero (after any subtractions for balancing adjustment events happening to assets allocated to the general small business pool), under temporary full expensing, the trust must deduct the then entire general pool balance in 2022–23. Write the result at b in table 4.

Closing pool balance

The closing pool balance for this year becomes the opening pool balance for 2023–24, after any adjustments to reflect the changed business use of a pooled asset. The trust will have a closing pool balance of $0 at the end of 2022–23.

Do not write the closing pool balance in the tax return.

3. Other depreciating assets

Calculate the deduction for the decline in value of all other depreciating assets that are not included in steps 1 and 2 and write the total at d in table 4. For more information, see Appendix 6 and Guide to depreciating assets 2023.

Write the total deduction at e in table 4.

4. Ceasing to hold depreciating assets

(a) Certain assets for which an immediate deduction has been claimed

If a balancing adjustment event happens to a depreciating asset for which the trust has claimed an immediate deduction under step 1 this year or in a prior income year under the relevant instant asset write-off threshold, include the taxable purpose proportion of the termination value at item 5 Reconciliation items. For more information, see Worksheet 1.

A balancing adjustment event occurs when the trust stops holding a depreciating asset; for example, when the trust sells the asset, or the asset is lost or destroyed. Termination value includes money received from the sale of an asset or insurance money received.

For example, if a low-cost asset used only 60% for an income-producing purpose, and was sold for $2,000 (excluding GST), only $1,200 will be assessable and included as a reconciliation adjustment.

(b) Assets allocated to the general small business pool

If the trust ceases to hold a depreciating asset allocated to the general small business pool in this income year, or in a previous income year due to the instant asset write off threshold that was in place at the time, the taxable purpose proportion of the termination value is subtracted from the pool balance.

For example, if a pooled depreciating asset used only 60% for an income-producing purpose, and was sold for $3,000 (excluding GST), only $1,800 will be subtracted from the pool balance.

If, after making the subtraction, the pool balance is more than zero, write this deduction against the general small business pool deduction at b in table 4 (if you have not already done so at step 2).

If the pool balance is less than zero, you include the amount below zero in your assessable income at item 5 Reconciliation items (if you have not already done so at step 2).

If expenses are incurred in disposing of, or otherwise ceasing to hold, a depreciating asset, these expenses may be taken into account in step 2 by adding them to the pool balance.

(c) Other depreciating assets

For information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets, see Guide to depreciating assets 2023. Include balancing adjustment amounts at item 5 Reconciliation items, see Worksheet 1.

Transfer the amount at row e to label K Depreciation expenses.

Transfer the amount at row a to item 50 – label S Temporary full expensing deductions.

Transfer the total of the amounts at rows b and c to item 51 – label B Deduction for general small business pool.

5 year restriction

The law has been changed to suspend the 5 year 'lock out' rule that applies to small business entities that have previously chosen to use these simplified depreciation rules but have then opted-out in a later year.

If the trust is a small business entity that has previously chosen to use these simplified depreciation rules but then, in a later year, has chosen to stop using this concession, the trust can again choose to use the simplified depreciation until the end of 30 June 2023.

Motor vehicle expenses

Print at label L Motor vehicle expenses motor vehicle running expenses only. These expenses include fuel, repairs, registration fees and insurance premiums. They do not include the following expenses shown at label:

• G Lease expenses
• I Total interest expenses
• K Depreciation expenses.

Repairs and maintenance

Print at label M Repairs and maintenance the expenditure on repairs and maintenance of plant, machinery, implements and premises.

Write back any non-deductible expenditure, such as items of a capital nature or amounts relating to private use of an item included at label M, at item 5 Reconciliation items – label B Expense reconciliation adjustments. The following information will help you work out if you should make an expense reconciliation adjustment.

Repairs

As long as it is not expenditure of a capital nature, you may deduct the cost of repairs to property, plant, machinery or equipment used solely for producing assessable income or in carrying on a business. You can only deduct expenditure on repairs to property used partially for business or income-producing purposes (for example, if the property is used for private purposes or in the production of exempt income) to an extent that is reasonable in the circumstances.

If items are newly acquired, including items acquired by way of a legacy or gift, the cost of remedying 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.

For more information on deductions for repairs, see TR 97/23 Income tax: deductions for repairs.

Record keeping

To support any claim for repairs, keep source records showing full details of the nature and cost of repairs to each item.

All other expenses

Print at label N All other expenses the total of all other business expenses for the income year that have not already been included at label P to label M, for example, travel expenses.

• Write back capital and other non-deductible items included at label N at item 5 Reconciliation items – label B Expense reconciliation adjustments.
• If you have included an amount for a loss on the sale of a depreciating asset at label N, see Appendix 6.
• The calculation of some deductions may be affected by the commercial debt forgiveness provisions; see Appendix 4.
• Expenses listed here that are costs associated with borrowing and servicing debt may not be allowable under the thin capitalisation rules; see Appendix 3. Include the non-deductible amount at item 5 Reconciliation items – label B Expense reconciliation adjustments.
• If what you show at label N includes an amount that is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).

Total expenses

Print at label O Total expenses – labels P to N the sum of all expense items shown at label P to N.

If there is a negative amount at label E Cost of sales, which exceeds the sum of expenses shown at label P to D and label F to N, print L in the box at the right of the amount printed at label O.

Reconciliation items

Reconcile operating profit or loss

The reconciliation adjustments reconcile operating profit or loss as shown in the profit or loss account (the accounts) with the trust's net income or loss from business for income tax purposes.

If the trust has included any amounts such as exempt income or non-deductible expenses in the accounts, or has not included amounts which are assessable income or expenditure that is deductible, work out the reconciliation adjustments.

Income reconciliation adjustments

Print at label A Income reconciliation adjustments the net income-related reconciliation adjustments. The amounts included here fall into 2 classes, which either increase or reduce the net adjustment, 'income add backs' and 'income subtractions'.

• Income add backs are amounts not shown in the accounts, but are assessable income, including timing adjustments. These items increase the total shown at label A. Examples include
  • any excess of the tax value of closing stock over the tax value of opening stock (other than small business entities using the simplified trading stock rules)
  • assessable balancing adjustment amounts on depreciating assets; see Appendix 6
  • limited recourse debt amounts; see Appendix 6
  • other assessable income not included in the accounts, small business entities should see Appendix 6.
• Income subtractions are income items shown in the accounts, which are not assessable income, including timing adjustments. These items reduce the total shown at label A. Examples include
  • exempt income, including income exempt from Australian tax under a double-tax treaty
  • profit on the sale of a depreciating asset; see Appendix 6
  • personal services income (PSI) included in the assessable income of an individual (attributed amount); see Personal services income – item 30
  • other income shown in the accounts which is not assessable for income tax purposes; former STS taxpayers should see Former STS taxpayers
  • cash flow boost payments if they have been included in other business income.

To calculate the net amount of the income-reconciliation adjustments, see Worksheet 1.

If the income subtractions exceed the income add backs, the total is a negative amount. Print L in the box at the right of the amounts shown at label A.

Expense reconciliation adjustments

Print at label B Expense reconciliation adjustments the net expense related reconciliation adjustments. The amounts included here fall into 2 classes that either increase or reduce the net adjustment, 'expense add backs' and 'expense subtractions'.

• Expense add backs are expenses shown in the accounts, which are either not tax deductible or are only partly tax deductible, including timing adjustments. These items increase the total shown at label B. Examples include
  • additions to provisions and reserves
  • capital expenditure
  • certain expenses relating to personal services income that are not deductible; see Personal services income – item 30
  • debt deductions denied by the thin capitalisation provisions; see Appendix 3
  • depreciation expenses; see Note
  • expenses relating to exempt income, including expenses relating to tax treaty exempt income
  • hire-purchase payments; see Appendix 6
  • income tax expense
  • loss on the sale of a depreciating asset
  • luxury car lease payments
  • part of prepaid expenses not deductible this year
  • penalties and fines
  • other non-deductible expenses; former STS taxpayers should see Former STS taxpayers.

Note: Only add back amounts of depreciation expenses if the trust is not a small business entity using the simplified depreciation rules. However, exclude any small business pool deductions included at label K Depreciation expenses.

• Expense subtractions are amounts not shown as expenses in the accounts but are tax deductible, including timing adjustments. These items reduce the total amount shown at label B. Examples include
  • any excess of the tax value of opening stock over the tax value of closing stock
  • any expenditure incurred under Subdivision 40-J of the ITAA 1997 to establish trees in carbon sink forests
  • deductible balancing adjustment amounts on depreciating assets; see Appendix 6
  • deduction for decline in value of depreciating assets (other than trusts using the small business entity depreciation rules); see Appendix 6
  • deduction for environmental protection expenses; see Appendix 6
  • deduction for project pool; see Appendix 6
  • deduction for electricity connections and phone lines; see Appendix 6
  • hire purchase agreements, interest component; see Appendix 6
  • deductions for landcare operations and decline in value of water facility, fencing asset and fodder storage asset; see Appendix 6
  • luxury car leases, accrual amount; see Appendix 6
  • part of prepaid expenses deductible this year, but not shown in accounts
  • section 40–880 deduction; see Appendix 6
  • bonus deduction for small business skills and training boost; see Appendix 14.
  • bonus deduction for small business technology investment boost; see Appendix 14.
  • other deductible items; former STS taxpayers should see Former STS taxpayers.

For more information on which new depreciation measure applies to an asset, see Interaction of tax depreciation incentives.

If the expense subtractions exceed the expense add backs, the total is a negative amount. Print L in the box at the right of the amount.

To calculate the net amount of the expense reconciliation adjustments, see Worksheet 1.

Specific reconciliation adjustments

Former STS taxpayers

If the trust is eligible and is continuing to use the STS accounting method, you may need to make additional adjustments; see Appendix 13.

You will need to make adjustments at Reconciliation items if the trust:

• uses the STS accounting method, and the amounts shown at Income and Expenses are not based on the STS accounting method, or
• stops using the STS accounting method.

These adjustments are explained in more detail below. Worksheet 1 will help with the calculations.

Trade debtors and creditors as at 30 June 2023

If the trust is eligible, has chosen to continue using the STS accounting method and has included, as income at item 5, amounts of ordinary income that have been derived but not received in 2022–23, the amounts not received (for example, trade debtors at 30 June 2023) are not assessable in 2022–23.

Print these amounts as income subtractions at label A Income reconciliation adjustments.

If the trust is eligible, has chosen to continue using the STS accounting method and has included, as expenses at item 5, amounts of general deductions, repairs or tax-related expenses that have been incurred but not paid in 2022–23, then the amounts not paid (for example, trade creditors at 30 June 2023) are not deductible in 2022–23.

Print these amounts as expense add-backs at label B Expense reconciliation adjustments.

Adjustments when ceasing to use the STS accounting method

If the trust has discontinued using the STS accounting method and changed to an accruals accounting method this year, read below.

If the trust has previously not included, as income at item 5, amounts of ordinary income that were derived but not received while using the STS accounting method (for example, trade debtors at 30 June 2022) these amounts are assessable this year.

Print these amounts as income add backs at label A Income reconciliation adjustments.

If the trust has previously not included as expenses at item 5, amounts of general deductions, repairs or tax-related expenses that were incurred but not paid while using the STS accounting method (for example, trade creditors at 30 June 2022) these amounts are deductible this year.

Include these amounts as expense subtractions at label B Expense reconciliation adjustments unless they are tax-related expenses. Include the deduction for tax-related expenses at item 18 Other deductions.

Disposal of depreciating assets

If the trust has disposed of (ceases to hold) depreciating assets during the income year, the following amounts (if any) are income add backs at label A Income reconciliation adjustments:

• taxable purpose proportion of the termination value of certain assets disposed of, for which an immediate deduction has been claimed
• if the closing pool balance of the general small business pool is less than zero, amount below zero, and
• assessable balancing adjustment amounts on the disposal (or deemed disposal) of depreciating assets not subject to the small business entity depreciation rules.

Print any deductible balancing adjustment amounts on the disposal of depreciating assets not subject to the small business entity depreciation rules as expense subtractions at label B Expense reconciliation adjustments.

Prepaid expenses (immediate deduction)

Small businesses and entities that would be small business entities if the aggregated turnover threshold was $50 million are entitled to an immediate deduction for prepaid expenses if:

• the expenditure is incurred for a period of service not exceeding 12 months, and
• the eligible service period ends on or before the last day of the next year of income.

If the eligible service period is more than 12 months, or ends after the next year of income, you must apportion the deduction for the expenditure over the eligible service period or 10 years, whichever is less.

For more information, see Deductions for prepaid expenses 2023. If expense amounts include prepaid expenses that differ from the amounts allowable as deductions in 2022–23, make the reconciliation adjustment at label B Expense reconciliation adjustments.

Prepaid expenses (apportionment)

The trust’s total deduction for prepaid expenses in 2022–23 may comprise 2 components:

• the part of prepaid expenses incurred in 2022–23 that relates to that income year
• that part of the 2021–22 or earlier income year’s expenses was not deductible in that income year, but is deductible in 2022–23 under the prepayment rules.

For more information, see Deductions for prepaid expenses 2023.

If expense amounts include prepaid expenses that differ from the amounts allowable as deductions in 2022–23, make the reconciliation adjustment at label B Expense reconciliation adjustments.

Trading stock on hand (other than small business entities using the simplified trading stock rules)

Reconciliation adjustments will be required where the tax values of trading stock on hand have not been used in calculating the amount included at label E Cost of sales. Any excess of the tax value of closing stock over the tax value of opening stock would be an income add back. Any excess of the tax value of opening stock over the tax value of closing stock would be an expense subtraction. If you have used accounting values for trading stock on hand in calculating the amount included at label E, you will need to take further reconciliation adjustments from those amounts.

For more information on the tax value of trading stock, see item 39 Opening stock and item 41 Closing stock.

Net income or loss from business

The trust's net income or loss from business is the amount of the trust's net income or loss for tax purposes that is from business. It is the total business income less total expenses incurred in producing that income according to the accounting systems, adjusted by any tax reconciliation items.

Print at label S Net income or loss from business in the totals column:

• total business income, minus
• label O Total expenses, plus or minus
• label A Income reconciliation adjustments and label B Expense reconciliation adjustments.

If the amount at label S is an overall loss, print L in the box at the right of the amount.

The amount at label S equals the sum of the net income or loss from business at:

• label Q for primary production, and
• label R for non-primary production.

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

Net small business income

Is the trust a small business entity?

• No – Go to item 6 Tax withheld.
• Yes – Read on.

The trust must work out the net small business income. Beneficiaries who are individuals need to know their share of net small business income to claim the small business income tax offset in their own tax return if they are entitled to it.

An individual is only entitled to the offset in respect of a share of net small business income received from a small business entity trust in which they are a beneficiary, where the business income was derived by that trust from carrying on its own business activities.

Trustees and beneficiaries who are prescribed persons (under 18 years of age and not excepted persons) are not entitled to the offset.

The net small business income is the trust’s assessable income from carrying on a small business, less any deductions to the extent that they are attributable to that assessable income. If the trust carries on multiple businesses, combine the trust's assessable income and attributable deductions to work out the net small business income.

Do not include:

• any net capital gains from assets used in carrying on the business
• any personal services income that was attributed to another person
• any of the following deductions
  • tax-related expenses
  • gifts or contributions
  • tax losses from prior years.

Completing item 5V Net small business income

Step 1 Did the trust have any business income or deductions at items other than at label S Net income or loss from business?

• No – The amount at label S Net income or loss from business is your net small business income. Print this amount at label V Net small business income. You have completed this section. Go to item 6 Tax withheld.
• Yes – Read on.

Step 2 If you had any of the following, use Worksheet 1A to work out your net small business income:

• foreign source business income at item 23 Other assessable foreign source income
• attributed foreign business income at item 22 Attributed foreign income
• interest income earned in the course of carrying on the business included at item 11 Gross interest
• dividend income earned in the course of carrying on the business included at item 12 Dividends; for example, dividends earned in the course of carrying on a share trading business
• any business income not already included at Income – label C to G and label D to H
• any business deductions not already included at Expenses – label P to N; for example, debt deductions against foreign source business income claimed at item 18 Other deductions.

For more information, see Small business income tax offset.

Continue to: Income excluding foreign income – items 6 to 9

Return to: Instructions to complete the Trust tax return 2023