• Income

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    The business income to be shown at item P8 is divided into:

    • gross payments subject to foreign resident withholding
    • income received under a labour hire arrangement or from a specified payment
    • assessable government industry payments, and
    • other business income.

    Stop

    Do not show the following types of income at item P8:

    • gross interest - show the amount of income at item 10 on your tax return
    • dividends and franking credits - show the amounts at item 11 on your tax return
    • distributions from partnerships and trusts - show these at item 12 on your tax return (supplementary section)
    • gross rental or similar income, such as agistment or hire fees - show the amount at item 20 on your tax return (supplementary section)
    • net capital gains - show the amount at item 17 on your tax return (supplementary section)
    • PSI shown at P1
    • farm management withdrawals - show the amount at item 16 on your tax return (supplementary section)
    • attributed foreign income - show the amount at item 18 on your tax return (supplementary section)
    • foreign source income - show the amount at item 19 on your tax return (supplementary section).
     

    Goods and services tax

    If you are registered or required to be registered for GST, the following apply:

    • For income tax purposes, you should exclude GST from assessable income, except exempt income and amounts received or receivable that you take into account in calculating income and deductions.
    • You should reduce deductible losses and outgoings by the amount of input tax credit entitlement.
    • In certain circumstances, for example, if there was a change in how much you used an asset for business purposes, an adjustment for GST purposes results in an amount being included in assessable income (if the adjustment is a GST decreasing adjustment) or being deductible (if the adjustment is a GST increasing adjustment).
    • You should also exclude GST components under other specific rules including capital gains tax (cost base, reduced cost base, capital proceeds) and termination values.

    If you are not registered or required to be registered for GST, you do not need to adjust your income and deductions for GST. You can claim the GST inclusive amount incurred on deductible outgoings.

    STS taxpayers

    From 1 July 2005, there is no longer a requirement that an STS taxpayer use the STS accounting method.

    However, if you were an STS taxpayer in an income year that started before 1 July 2005, then while you continue to be an STS taxpayer (from the first income year that starts on or after 1 July 2005), you can choose to continue using the STS accounting method.

    The STS accounting method recognises most income only when it is received. This type of income is called ordinary income (for example, sales of goods and/or services, professional fees and commissions).

    If you are registered or required to be registered for GST, income amounts should exclude GST payable.

    A continuing STS taxpayer using the STS accounting method can claim deductions for the following expenses only when they are paid:

    • general deductions (for example, stock purchases, wages and rent of business premises)
    • tax-related expenses, and
    • expenses for repairs.

    If you are registered or required to be registered for GST, expense amounts should exclude input tax credit entitlements.

    The STS accounting method does not apply to income or deductions that receive specific treatment in income tax law (for example, net capital gains, dividends, depreciation expenses, bad debts and borrowing expenses).

    In addition, if another provision of the tax law apportions or alters the assessability or deductibility of a particular type of ordinary income or general deduction, the timing rule in that provision overrides the received or paid rule for STS taxpayers (for example, double wool clips or prepayment of a business expense for a period greater than 12 months). Because of these specific provisions you may need to make adjustments in the Reconciliation items section of item P8.

    For more information about the STS accounting method, visit our website or phone the Business Infoline on 13 28 66.

    If you are continuing in the STS this year and have chosen to continue using the STS accounting method, you should base the amounts you include at item P8 on the STS accounting method. If your accounting system or financial statements do not reflect the STS accounting rules, you may need to make additional reconciliation adjustments in the Reconciliation items section. For more information about these adjustments, see Income and expense reconciliation adjustments. In addition to the STS accounting method, there are specific STS rules for capital allowances, and for trading stock.

    If you are continuing in the STS this year and have chosen to discontinue using the STS accounting method, business income and expenses that have not been accounted for (because they have not been received or paid) will be accounted for in this year. You may need to make additional reconciliation adjustments in the Reconciliation items section.

    What you may need

    Did you have amounts withheld from your business income - other than PSIincluded at item P1?

    No, Go to Assessable government industry payments.

    Yes, Read on.

    If tax has been withheld from business income you should have received a payment summary.

    You will need to complete the Individual PAYG payment summary schedule 2006 before completing item P8 if you received any of the following summaries:

    A payer may issue a receipt, remittance or similar document in place of the Payment summary - withholding where ABN not quoted.

    If you received income from which tax was withheld and you did not receive or have lost your payment summary, contact your payer and ask for a copy.

    How to complete the Individual PAYG payment summary schedule 2006

    Remember

    If you have both business income (item P8) and personal services income (item P1) you will need to complete an Individual PAYG payment summary schedule 2005-06 for each type of income.

    Step1 Write your TFN and name in the appropriate boxes at the top of the schedule.

    Step2Natureofincome - Print X in the Business income box.

    Step3 For each payment summary, transfer the following information to the schedule, the:

    • type of withholding - look at your payment summary carefully to determine its type and complete the type box, using the following key
      • V, voluntary agreement
      • S, labour hire or other specified payments
      • N, withholding where ABN not quoted
      • F, foreign resident withholding
       
    • payer's ABN or withholding payer number (WPN) and the payer's name in the appropriate boxes
    • total tax withheld in the Taxwithheld box
    • gross payment in the Grosspayment box.

    Step4 Check that you have recorded details from all relevant payment summaries on your payment summary schedule then attach the schedule to page 3 of your tax return.

    Do not attach the payment summaries to your tax return. You must keep them for a period of five years.

    Payers must report to the ATO details of payments where amounts of tax have been withheld. This information will be cross-checked with that on your tax return to ensure that you have declared the correct amount of income and the correct amount of tax withheld.

    Last modified: 01 Sep 2006QC 18499