• P8 business income and expenses

    This item has three sections:

    • Income
    • Expenses
    • Reconciliation items.

    The amounts to be included in the Income and Expenses sections item P8 are amounts derived from your accounting system or financial statements, except for:

    • the values of opening and closing stock, which are to be shown at tax values as explained at opening stock and closing stock, and
    • depreciation expenses for STS taxpayers, which are to be shown at tax values as explained at Depreciation expenses.

    The income and expense amounts to be included in item P8 should form part of your profit and loss statement and are the basis for calculating your net profit or loss. You should deal with any adjustments to these amounts for tax purposes in the Reconciliation items section of item P8.

    STS taxpayers

    If you have chosen to enter or continue in the STS at item S1, you must complete the income and expenses sections using the STS rules. See STS taxpayers.

    Stop

    You show personal services income and related expenses at item P1, with one exception - personal services income subject to foreign resident withholding - which you show at this question.

    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:

    • income from which tax has been withheld because you did not quote your ABN to one of your payers
    • gross payments subject to foreign resident withholding
    • income that was subject to a PAYG voluntary agreement to withhold tax
    • income received under a labour hire arrangement or from a specified payment
    • assessable government industry payments
    • 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 were registered or required to be registered for GST in 2004-05, the following apply:

    • For income tax purposes, you should exclude GST from assessable income, exempt income and amounts received or receivable that you took 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, or are not entitled to claim input tax credits, 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

    STS taxpayers must use the STS accounting method.

    This 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.

    An STS taxpayer 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
    • 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 the income tax law (for example, net capital gains, dividends, depreciation expenses, bad debts and borrowing expenses).

    In addition, if another provision of the income tax law apportions or alters the assessability or deductibility of a particular type of ordinary income or general deduction, the timing rule in the specific 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 at the Reconciliation items section.

    For more information about the STS accounting method, see More information.

    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 adjustments at the Reconciliation adjustments section. For more information about these adjustments, see Reconciliation adjustments. In addition to the STS accounting method, there are also specific STS rules for depreciation, and for trading stock.

    What you may need

    • Primary production worksheet. If you are a primary producer you will need this worksheet to help you work out some of the amounts in this section. The worksheet is included in Information for primary producers 2005 (NAT 1712-6.2005). To find out how to get this publication see More information. Complete the worksheet before proceeding.
    • Payment summary schedule.

    Did you have amounts withheld from your business income - other than PSI included 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 2004-05 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 2005

    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 for each type of income.

    Step 1

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

    Step 2

    Nature of income - Print X in the Business income box.

    Step 3

    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

    • the payer's ABN or withholding payer number (WPN) and the payer's name in the appropriate boxes
    • the total tax withheld at the Tax withheld box

    the gross payment in the Gross payment box.

    Step 4

    Check that you have recorded details from all relevant payment summaries on your Individual PAYG payment summary schedule 2004-05 then attach the schedule to page 3 of your tax return.

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

    Payers are required to report to the Tax Office 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.

    Gross payments where Australian business number (ABN) not quoted

    Did you have amounts of tax withheld for failure to quote an ABN?

    No

    Go to Gross payments subject to foreign resident withholding.

    Yes

    Read on.

    You need to know

    The amounts you show at C and D are the total income you received from which your payers have withheld an amount because you did not quote your ABN. They include the amounts of tax withheld. You will be able to calculate these amounts from your completed Individual PAYG payment summary schedule 2004-05.

    Completing this question

    Step 1

    Add up all the Gross payment amounts on your completed payment summary schedule that have an N in the type box derived from primary production activities. Write your total at C item P8 on page 2 of your schedule. Do not show cents.

    Step 2

    Add up all the Gross payment amounts on your completed payment summary schedule that have an N in the type box derived from non-primary production activities. Write your total at D. Do not show cents.

    Step 3

    Add up the amounts you have written at C and D and write the total in the adjacent Totals box.

    If you complete C and/or D item P8 you must complete W item 14 on page 10 of your tax return (supplementary section).

    Gross payments subject to foreign resident withholding

    Did you receive any payments that were subject to foreign resident withholding?

    No

    Go to Gross payments - voluntary agreement.

    Yes

    Read on.

    You need to know

    The amount you show at B is the total income you received from your payers which is subject to foreign resident withholding. It includes any amounts of tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2004-05.

    Completing this question

    Step 1

    Add up all the Gross payment amounts on your completed payment summary schedule that have an F in the type box derived from non-primary production activities. Write your total at item P8 on page 2 of your schedule. Do not show cents.

    Step 2

    Transfer the amount at B to the adjacent Totals box.

    If you complete B item P8 you must complete E item 14 on page 10 of your tax return (supplementary section).

    Note

    You will not have any primary production amounts at this question. Leave A blank.

    Gross payments - voluntary agreement

    Did you receive any income that was subject to a PAYG voluntary agreement to withhold?

    No

    Go to Gross payments - labour hire or other specified payments.

    Yes

    Read on.

    You need to know

    The amounts you show at E and F are the total income you received that was subject to a voluntary agreement to withhold tax and includes the tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2004-05.

    Completing this question

    Step 1

    Add up all the Gross payment amounts on your completed payment summary schedule that have a V in the type box derived from primary production activities. Write your total amount at E item P8 on page 2 of your schedule. Do not show cents.

    Step 2

    Add up all the Gross payment amounts on your completed payment summary schedule that have a V in the type box derived from non-primary production activities. Write your total at F. Do not show cents.

    Step 3

    Add up the amounts you have written at E and F and write the total in the adjacent Totals box.

    If you complete E and/or F item P8 you must complete D item 14 on page 10 of your tax return (supplementary section).

    Gross payments - labour hire or other specified payments

    Did you receive:

    • income under a labour hire arrangement, or
    • a specified payment, including
      • income from tutorial services provided for the Indigenous Tutorial Assistance Scheme of the Department of Education, Science and Training
      • income from translation and interpretation services for the Translating and Interpreting Service of the Department of Immigration and Multicultural and Indigenous Affairs
      • income as a performing artist in a promotional activity?
       

    No

    Go to Assessable government industry payments.

    Yes

    Read on.

    You need to know

    The amount you show at O is the total income you received from labour hire or other specified payments and includes the tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2004-05.

    Stop

    Do not include income received as an employee of a labour hire business. These amounts will appear on your PAYG withholding payment summary - individual non business and should be shown at item 1 on your tax return.

    Completing this question

    Step 1

    Add up all the Gross payment amounts on your completed payment summary schedule that have an S in the type box. These amounts are non-primary production income. Write your total at O item P8 on page 2 of your schedule. Do not show cents.

    Step 2

    Transfer the amount at O to the adjacent Totals box.

    If you complete O item P8 you must complete F item 14 on page 10 of your tax return (supplementary section).

    Note

    You will not have any primary production amounts at this question. Leave N blank.

    Assessable government industry payments

    Did you receive assessable government industry assistance?

    No

    Go to Other business income.

    Yes

    Read on.

    You need to know

    Generally, government 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.

    Examples of assessable government industry assistance are:

    • bounties
    • diesel fuel rebate
    • diesel and alternative fuels grants
    • fuel grant under the energy grants credits scheme
    • cleaner fuel grants
    • product stewardship (oil) benefit
    • drought relief
    • employee subsidies
    • export incentive grants
    • fuel sales grants
    • industry restructuring and adjustment payments
    • Medicare payments received by medical practices.

    Completing this question

    Step 1

    Write your total primary production government industry payments received by each business at G item P8 on page 2 of your schedule. Do not show cents.

    Note

    If you have completed the Gross income from primary production worksheet in the Information for primary producers 2005, include at G the amount at PP11 on the worksheet.

    Step 2

    If your assessable primary production government industry payments include a diesel fuel rebate, diesel and alternative fuels grant and/or energy grants credit, print D in the type box at the right of the amount at G.

    Step 3

    Write your total non-primary production government industry payments received by each business at H. Do not show cents.

    Step 4

    If your assessable non-primary production government industry payments include a diesel fuel rebate, diesel and alternative fuels grant and/or energy grants credit, print D in the type box at the right of the amount at H.

    Step 5

    Add up your primary production and non-primary production government industry payments and write the total amount in the adjacent Totals box.

    Other business income

    Did you receive any other business income?

    No

    Go to Total business income.

    Yes

    Read on.

    You need to know

    Other business income includes:

    • gross sales of trading stock
    • gross sales from produce
    • goods taken for own use from stock
    • value of livestock killed for rations
    • value of livestock exchanged for other goods or services
    • gross earnings from services
    • taxi driver earnings (income you earned as a non employee taxi driver if it is not shown at item P1)
    • amounts received as recoupment of expenses
    • bad debts recovered
    • profit on sale of depreciating assets
    • royalties
    • insurance recoveries
    • subsidies
    • employee contributions for fringe benefits
    • assessable non-government assistance from all sources
    • foreign exchange gains (forex gains) - for more information about forex gains, visit our website or see question 22 in TaxPack 2005 supplement.

    Your 'other business income' excludes amounts shown at C, D, B, E, F, O, G and H on your schedule.

    If you are a primary producer, you must add the amounts shown at PP1, PP2, PP6, PP7 and PP10 on your primary production worksheet. This worksheet is included in the publication Information for primary producers 2005. You must add the total to any other income from a business of primary production referred to above. You show the total of all other income from the business of primary production at I item P8 on your schedule.

    Completing this question

    Step 1

    Write your total amount of 'other' primary production business income or loss at I item P8 on page 2 of your schedule. Do not show cents.

    Step 2

    If you made a loss, print L in the box at the right of the amount at I.

    Step 3

    Write your total amount of 'other' non-primary production business income or loss at J. Do not show cents.

    Step 4

    If you made a loss, print L in the box at the right of the amount at J.

    Step 5

    Add up your 'other' primary production and non-primary production income or loss and write the total amount in the adjacent Totals box.

    Step 6

    If you made a loss, print L in the box at the right of the Totals box.

    Total business income

    Completing this question

    Step 1

    Add up the primary production amounts shown at C, E, G, and I item P8 on your schedule. Write the total at Total Business Income in the Primary production column.

    Step 2

    If you made a loss, print L in the box at the right of the amount at Total Business Income in the Primary production column.

    Step 3

    Add up the non-primary production amounts shown at D, B, F, O, H and J item P8 on your schedule. Write the total at Total Business Income in the Non-primary production column.

    Step 4

    If you made a loss, print L in the box at the right of the amount at Total Business Income in the Non-primary production column.

    Step 5

    Add up the amounts at Total Business Income in the Primary production and Non-primary production columns and write the answer in the adjacent Totals box. If you made a loss, print L in the box at the right of this amount.

    Expenses

    Stop

    Do not include the following expense items on your schedule:

    • non-business interest and dividend income expenses - claim deductible expenses at item D7 on your tax return
    • farm management deposits - take them into account as required at item 16 on your tax return (supplementary section)
    • non-business rental expenses - claim deductible expenses at item 20 on your tax return (supplementary section)
    • expenses and losses relating to foreign source income - take them into account as required at item 19 or, in the case of certain debt deductions, claim them at item D15 on your tax return (supplementary section)
    • expenses relating to your personal services income shown at item P1 on your schedule
    • low-value pool deduction where the pool contains assets used for work-related, self-education or rental purposes - read question D6 in TaxPack 2005.
     

    You need to complete all items that relate to your business or businesses. You can deduct business expenses if the expenses were necessary to carry on your business for the purpose of earning assessable income.

    If you are a primary producer you will need a primary production worksheet to help you work out some of the amounts in this section. This worksheet is included in the publication Information for primary producers 2005. Complete the worksheet before proceeding.

    Goods and services tax

    If you are registered or required to be registered for GST, exclude from the deductions any input tax credit entitlements that arise in relation to outgoings. If you pay GST by instalments and incurred a penalty for underestimating a varied GST instalment, you can claim a deduction for the penalty at item D10 on your tax return. Do not show the penalty on your Business and professional items schedule 2004-05. For more information, see TaxPack 2005.

    Records you need to keep

    You must keep your business expenses records for five years after you prepared or obtained them, or five years after you completed the transactions or acts to which they relate, whichever is the later.

    Pre-payments of $1,000 or more

    If you made a prepayment of $1,000 or more for something to be done (in whole or in part) in a future income year, the timing of your deduction may be affected by the rules relating to prepayments. Generally, you will need to apportion your deduction for prepaid business expenditure over the service period or 10 years, whichever is less. There are some exceptions under the 12-month rule for STS taxpayers and the special rules relating to plantation forestry managed agreements. For more information, see the publication Deductions for prepaid expenses 2005 (NAT 4170-6.2005).

    Where expense labels at item P8 include prepaid expenses that differ from the amounts allowable as deductions in the 2004-05 income year, make an expense reconciliation adjustment at H item P8.

    Thin capitalisation

    The thin capitalisation provisions apply to entities (including individuals) to reduce certain deductions (called 'debt deductions') for costs incurred in obtaining and servicing debt finance where the debt applicable to Australian operations exceeds the limits set out in Division 820 of the Income Tax Assessment Act 1997 (ITAA 1997).

    Do the thin capitalisation provisions apply to you?

    The thin capitalisation rules will apply to you if:

    • you are an Australian resident and you, or any of your associate entities, is an Australian controller of a foreign entity or carries on business overseas at or through a permanent establishment, or
    • you are a foreign resident and you carry on business in Australia at or through a permanent establishment or otherwise have Australian income-producing assets.

    The thin capitalisation rules will not apply to you if:

    • your debt deductions (combined with the debt deductions of your associate entities) do not exceed $250,000 in the income year, or
    • you are an Australian resident and the combined value of your and your associates' Australian assets is not less than 90% of the value of your and your associates' total assets.

    If the thin capitalisation rules apply to you, you must complete the Thin capitalisation schedule 2005. The amount of any debt deductions you can claim may be reduced by these rules. For more information, see the Guide to thin capitalisation.

    Complete the thin capitalisation schedule and post it to:

    Australian Taxation Office
    PO Box 1365
    ALBURY  NSW  2640

    Opening stock

    Did you have trading stock on hand at the start of the year?

    No

    Go to Purchases and other costs.

    Yes

    Read on.

    You need to know

    The opening value of an item of stock must equal its closing value in the previous year. The total value of all stock on hand at the start of the year is equal to the amount shown as closing stock on your 2004 schedule.

    If you are a primary producer, you must add the value of your opening stock from your livestock account at PP4 to the value of your opening stock from your produce account at PP9 on your primary production worksheet. The total of these amounts is the total value of your primary production opening stock.

    Do not include any amounts representing opening stock of a business which commenced operations during the year. Include the purchase costs of these items in the relevant Purchases and other costs box.

    Completing this question

    Step 1

    Write the total value of your primary production opening stock at Opening stock in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write the total value of your non-primary production opening stock at Opening stock in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production opening stock values and write the total value at K.

    Purchases and other costs

    Did you have purchases and other costs?

    No

    Go to Closing stock.

    Yes

    Read on.

    You need to know

    This represents the direct cost of materials used for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. It includes inwards freight. It also includes the cost of stock acquired when starting or acquiring a business during the year. It may also include some costs for labour and services provided under contract if these are recorded in the cost of sales account in your business books of account. If so, do not also include this amount as Contractor, sub-contractor and commission expenses.

    If you are a primary producer, you must include the value of your purchases from your livestock account at PP5 on your primary production worksheet.

    Completing this question

    Step 1

    Work out the value of your primary production purchases and other costs directly related to trading stock. If you have more than one business, add up all your primary production purchases and costs.

    Step 2

    Write the total value of your primary production purchases and other costs directly related to trading stock at Purchases and other costs in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 3

    Work out the value of your non-primary production purchases and other costs directly related to trading stock. If you have more than one business, add up all your non-primary production purchases and other costs.

    Step 4

    Write the total value of your non-primary production purchases and other costs directly related to trading stock at Purchases and other costs in the Non-primary production column. Do not show cents.

    Step 5

    Add up your primary production and non-primary production purchases and other costs directly related to trading stock and write the total value at L.

    STS taxpayers

    Only show purchases and other costs that you have paid at L.

    Closing stock

    Did you have trading stock on hand at the end of the year?

    No

    Go to Cost of sales.

    Yes

    Read on.

    If you have chosen to enter or continue in the STS at item S1, read on. Otherwise go to Other businesses.

    STS taxpayers

    You need to know

    You only need to account for changes in the value of your trading stock if there is a difference of more than $5,000 in the value of all your stock on hand at the start of the income year and a reasonable estimate of the value of all your stock on hand at the end of the income year.

    The value of your stock on hand at the start of the income year is the same value as the closing value shown on your schedule in the previous year. This may not necessarily reflect the actual value of your stock if you did not account for the change in value of your stock in the previous year. For more information on a reasonable estimate of the value of stock, see the fact sheet Simplified tax system: simplified trading stock rules - reasonable estimate or see More information.

    You can still choose to conduct a stocktake and account for changes in the value of trading stock, if you wish.

    Is the difference between the value of your opening stock and a reasonable estimate of your closing stock more than $5,000?

    Yes

    You must account for changes in the value of your trading stock. Go to step 2.

    No

    If you choose not to account for changes in the value of your trading stock, go to step 1. Otherwise, go to step 2.

    Completing this question

    Step 1

    If the difference referred to above is $5,000 or less and you choose not to account for this difference, the closing stock values you put in both the Primary production and Non primary production columns at item P8 on page 3 of your schedule must be the same as the values you put at Opening stock. Do not put your reasonable estimate.

     

    Add up your primary production and non-primary production closing stock values and write the total value at M.

    Write in the type box at the right of M the code letter you used last year to value closing stock:

    C cost
    M
    market selling value
    R
    replacement value.

    If this is your first year in business the value of your closing stock will be zero. Write C in the type box.

    Go to Cost of sales.

    Step 2

    If the difference referred to above is more than $5,000 or you choose 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. Read Other businesses for information on how to complete this question.

    You must include in your closing stock value at M item P8 the value of all stock on hand, regardless of whether you have paid for the stock.

    Other businesses

    You need to know

    This is the total value of all trading stock on hand at the end of the year. The amount that is shown at Closing stock is the total of the value of each item of trading stock calculated for tax purposes under section 70-45 of the ITAA 1997.

    Trading stock is anything you have on hand which you produced, manufactured, acquired or purchased for the purpose of sale, manufacture or exchange. For example, trading stock includes livestock but not working animals (except those used by a primary producer), crops and timber when harvested and wool after it is removed from the sheep.

    Manufacturers must include as trading stock partly manufactured goods and materials on hand. However, closing stock excludes any amount that represented closing stock of a business that ceased operations during the year. This amount is included in Other business income at I or J in the Income section item P8 on your schedule. For more details about what constitutes trading stock, see More information.

    You can choose one of the following three methods to value your trading stock:

    • cost
    • market selling value
    • replacement value.

    You may elect to value an item of trading stock below the lowest value calculated by any of these methods because of obsolescence or other special circumstances.

    The value you elect must be reasonable. Where you elect to value an item of trading stock below cost, market selling value and replacement value, you must complete item P19 on your schedule.

    You may use different methods to calculate each item of trading stock in different years or for different items in the same year. However, the opening value of each item in a particular year must be the same as the closing value for that item in the previous year.

    If you are registered for GST, the value of closing stock should not include an amount equal to the input tax credit that would arise if you had acquired the item solely for business purposes at the end of the year of income. Input tax credits do not arise for some items of trading stock, such as shares.

    If you are a primary producer, you must add the value of your closing stock from your livestock account at PP3 on your primary production worksheet to the value of your closing stock from your produce account at PP8 on your primary production worksheet.

    The total of these amounts is the total value of your primary production closing stock.

    As the tax values of closing stock on hand are shown at PP3 and at PP8 on your primary production worksheet, you cannot reduce these values by accounting entries. Keep records showing how each item was valued.

    Completing this question

    Step 1

    Work out the value of your primary production closing stock. If you have more than one business, add up all your primary production closing stock values.

    Step 2

    Write the total value of your primary production closing stock at Closing stock in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 3

    Work out the value of your non-primary production closing stock. If you have more than one business, add up all your non-primary production closing stock values.

    Step 4

    Write the total value of your non-primary production closing stock at Closing stock in the Non-primary production column. Do not show cents.

    Step 5

    Add up your primary production and non-primary production closing stock values and write the total value at M.

    Step 6

    From the list below, find the letter that matches the method you used to value closing stock. If more than one method was used, select the letter that applies to the largest value:

    C cost
    M
    market selling value
    R
    replacement value.

    Step 7

    Print the letter in the type box at the right of the amount at M.

    Cost of sales

    Did you have any cost of sales?

    No

    Go to Foreign resident withholding expenses.

    Yes

    Read on.

    You need to know

    Goods taken for your own use should not be accounted for as stock on hand at 30 June 2005. Include at I and J Other business income in the Income section of item P8 on your schedule the value of:

    • livestock killed for rations
    • livestock exchanged for other goods or services, and
    • goods taken for your own use.

    Use the following worksheet to work out your cost of sales.

    Worksheet 3: Cost of sales

       

    Primary production

    Non-primary production

    Stock at 1 July 2004

    (a)

    $

    $

    Purchases at cost

    (b)

    $

    $

    Freight inwards

    (c)

    $

    $

    Other - for example, labour and services

    (d)

    $

    $

    Add (a), (b), (c) and (d)

    (e)

    $

    $

    Stock at 30 June 2005

    (f)

    $

    $

    Your cost of sales
    Take (f) away from (e)

     

    $

    $

    For further information on stock on hand at 1 July 2004, read Opening stock. For information on stock on hand at 30 June 2005, read Closing stock.

    Completing this question

    Step 1

    Write your total primary production cost of sales at Cost of sales in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    If the cost of sales in the Primary production column - after taking (f) away from (e) - is a negative amount, print L in the box at the right of this amount.

    Step 3

    Write your total non-primary production cost of sales at Cost of sales in the Non-primary production column. Do not show cents.

    Step 4

    If the cost of sales in the Non-primary production column - after taking (f) away from (e) - is a negative amount, print L in the box at the right of this amount.

    Step 5

    Add up your primary production and non-primary production cost of sales and write the total at Cost of sales in the Totals column.

    Step 6

    If your total cost of sales is a negative amount, print L in the box at the right of this amount.

    Foreign resident withholding expenses

    Did you have any expenses directly relating to income subject to foreign resident withholding?

    No

    Go to Contractor, sub-contractor and commission expenses.

    Yes

    Read on.

    Completing this question

    Step 1

    Write your total non-primary production foreign resident withholding expenses at Foreign resident withholding expenses in the Non-primary production column, item P8 on page 2 of your schedule. Do not show cents.

    Step 2

    Transfer the amount you calculated at step 1 to the adjacent Totals box at U.

    Note

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

    Contractor, sub-contractor and commission expenses

    Did you have any contractor, sub-contractor or commission expenses in your business?

    No

    Go to Superannuation expenses.

    Yes

    Read on.

    You need to know

    These are expenses for labour and services provided under contract - other than salaries or wages - for example:

    • payments to self-employed people such as consultants and contractors including payments subject to a PAYG voluntary agreement to withhold and payments made under a labour hire arrangement
    • commissions paid to people not receiving a retainer
    • agency fees - for example, advertising
    • service fees - for example, plant service
    • management fees
    • consultant fees.

    Do not include the following at this item:

    • expenses for external labour which have been included in the business cost of sales account
    • expenses for accounting or legal services - include these at All other expenses.

    Completing this question

    Step 1

    Write your total primary production contractor, sub-contractor and commission expenses at Contractor, sub-contractor and commission expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production contractor, sub-contractor and commission expenses at Contractor, sub-contractor and commission expenses in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production contractor, sub-contractor and commission expenses and write the total at F.

    Superannuation expenses

    Did you make any superannuation contributions on behalf of eligible employees or their dependants as a business expense?

    No

    Go to Bad debts.

    Yes

    Read on.

    You need to know

    Show superannuation expenses for the year of income. Do not include any amount that was a contribution for yourself. The deduction for your own superannuation contributions must be claimed at item D13 on your tax return (supplementary section). See question D13 in TaxPack 2005 supplement.

    Employers are entitled to a deduction for 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 eligible employees or to provide benefits to the employee's dependants on the employee's death. Superannuation benefits mean individual personal benefits, pensions or retiring allowances. A deduction is allowable 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 an employer needs to provide a minimum level of superannuation for eligible employees or pay a tax called the superannuation guarantee charge to the Commissioner. The superannuation guarantee charge is not a superannuation contribution and is not tax deductible.

    Contributions paid by an employer for eligible employees to a non-complying superannuation fund are fringe benefits - other than where the contributions are made for an exempt visitor - and may be subject to tax under the Fringe Benefits Tax Assessment Act 1986.

    The amount of contributions that can be claimed as a deduction by an employer contributing to a resident complying superannuation fund or RSA in respect of eligible employees is limited by the age of each relevant employee.

    Where an employee has reached the age of 70, there is a further restriction on the deduction that can be claimed for an employer contribution to a complying superannuation fund or RSA.

    For the 2004-05 income year the age based limits are as follows:

    Employee deduction limit

    Age in years

    Deduction limit

    under 35

    $13,934  

    35 to 49

    $38,702  

    50 and over*

    $95,980* 

    * For contributions made after the 28th day of the month following the employee's 70th birthday, the deduction claimable is limited to the amount of the contribution required:

    (i) under a federal, state or territory award, or

    (ii) to meet the employer's superannuation guarantee obligation on salary or wages paid to the employee before the employee's 70th birthday.

    The employee's age limit is determined at the end of the day on which the employer, or associate of the employer, made the last contribution for the income year for the benefit of the employee.

    Employer contributions paid to the Superannuation Holding Accounts Special Account are allowable deductions up to a limit of $1,200 per employee.

    Completing this question

    Step 1

    Write your total primary production superannuation contributions at Superannuation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production superannuation contributions at Superannuation expenses in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production superannuation contributions and write the total amount at G.

    Bad debts

    Did you write off any bad debts in your business?

    No

    Go to Lease expenses.

    Yes

    Read on.

    You need to know

    Include income from the recovery of bad debts in Other business income at I or J in the Income section of item P8 on your schedule.

    You are not allowed a deduction for bad debts unless you have previously included the amount in your assessable income or it is for money you lent in the ordinary course of a money-lending business carried on by you.

    Do not include accounting provisions for doubtful debts at I. You show them under Expenses at All other expenses then added back under Reconciliation items at HExpense reconciliation adjustments.

    Before you can claim a bad debt, it must be bad and not merely doubtful. The question of whether a debt is a bad debt will depend on the facts in each case and, where applicable, the action taken for recovery.

    For more information, see Taxation Ruling TR 92/18 - 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 may claim a deduction for the amount written off.
    • Losses incurred in debt-for-equity swaps for debt written off after 26 February 1992 - where under an arrangement you discharge, release or otherwise extinguish the whole or part of a debt owed to you in return for equity in the debtor. You can claim a deduction for the difference between the amount of the debt and the greater of the market value of the equity at the time of issue or the value of the equity recorded in your 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.

    Where you are not in the business of lending money, the deduction is limited to the amount of the debt you have included in assessable income.

    Records you need to keep

    Keep a statement for all debtors whose bad debts you wrote off during the year, showing:

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

    Completing this question

    Step 1

    Write your total primary production bad debts at Bad debts in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production bad debts at Bad debts in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production bad debts and write the total at I.

    Lease expenses

    Did you have lease expenses in your business?

    No

    Go to Rent expenses.

    Yes

    Read on.

    You need to know

    This is expenditure incurred through both financial and operating leases on leasing assets - motor vehicles, plant etc. Do not include the cost of leasing real estate (show this cost at Rent expenses).

    In some circumstances, lease expenses may be debt deductions for the purposes of the new thin capitalisation rules. For more information see Thin capitalisation.

    Note

    If you include an amount of lease expense which is not allowable as a deduction, such as amounts disallowed under the thin capitalisation rules, you will need to add back the amount at H Expense reconciliation adjustments in the Reconciliation items section on your schedule.

    Expenses incurred under a hire purchase agreement are not lease expenses. Such expenses are dealt with at HExpense reconciliation adjustments item P8 Reconciliation items on your schedule.

    Special rules apply to leased cars if the cost of the car exceeds the car limit that applies for the financial year in which the lease commences. The car limit for 2004-05 is $57,009. If you lease a car that is subject to the special rules, the reconciliation between the lease expense and the tax treatment is carried out at H Expense reconciliation adjustments item P8 on your schedule. For more information, see Luxury car leasing.

    Records you need to keep

    List the assets leased and keep full details of leasing expenses for each item - including motor vehicles - and details of any private use. Leasing expenses of certain cars fall under the substantiation rules.

    Completing this question

    Step 1

    Write your total primary production lease expenses at Lease expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production lease expenses at Lease expenses in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production lease expenses and write the total at J.

    Rent expenses

    Did you have rent as a business expense?

    No

    Go to Interest expenses within Australia.

    Yes

    Read on.

    You need to know

    This is expenditure you incurred as a tenant for rental of land and buildings used in the production of income. Include the cost of leasing real estate.

    Completing this question

    Step 1

    Write your total primary production rent expenses at Rent expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production rent expenses at Rent expenses in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production rent expenses and write the total at K.

    Interest expenses within Australia

    Did you incur interest as a business expense on money borrowed within Australia?

    No

    Go to Interest expenses overseas.

    Yes

    Read on.

    You need to know

    Include interest you incurred on money borrowed within Australia to acquire income-producing assets used in your business, to finance business operations or to meet current business expenses.

    Do not include interest incurred in deriving rental income. Claim this at item 20 on your tax return (supplementary section).

    Note

    If you include an amount of interest that is not allowable as a deduction, such as amounts denied by the thin capitalisation rules, you will need to add back the amount at H Expense reconciliation adjustments item P8 Reconciliation items on your schedule. For more information see Thin capitalisation.

    Completing this question

    Step 1

    Write your total primary production interest expenses within Australia at Interest expenses within Australia in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production interest expenses within Australia at Interest expenses within Australia in the Non-primary production column, item P8 on your schedule. Do not show cents.

    Step 3

    Add up your primary production and non-primary production interest expenses within Australia and write the total at Q.

    Interest expenses overseas

    Did you have overseas interest as a business expense?

    No

    Go to Depreciation expenses.

    Yes

    Read on.

    You need to know

    Include any interest incurred on money borrowed from overseas sources to acquire income-producing assets used in your business, to finance business operations or to meet current business expenses.

    Do not include interest incurred in deriving rental income. Claim this at item 20 on your tax return (supplementary section).

    Generally, an amount of withholding tax is required to be withheld from interest paid or payable to non-residents and interest derived by a resident through an overseas branch. These amounts must be sent to the Tax Office.

    If you paid or credited any interest or amounts in the nature of interest to a non-resident of Australia or to a resident's overseas branch, you will need to provide additional information. Print schedule of additional information - item 14 on the top of a separate piece of paper. Show the name and address of each recipient, total amounts paid or credited to each non-resident or overseas branch of a resident and the amount of tax withheld. If no tax was withheld, please state the reason for this. Include your name, address and TFN. Print X in the yes box at Taxpayer's declaration question 2a on your tax return. Sign and attach your schedule to page 3 of your tax return.

    For more information on the tax treatment of interest and dividends paid to non-residents, phone the Business Infoline on 13 28 66.

    Note

    If you include an amount of interest which is not allowable as a deduction, such as amounts denied by the thin capitalisation rules, you will need to add back the amount at H Expense reconciliation adjustments item P8 Reconciliation items on your schedule. For more information see Thin capitalisation.

    Completing this question

    Step 1

    Write your total primary production overseas interest expenses at Interest expenses overseas in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production overseas interest expenses at Interest expenses overseas in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production overseas interest expenses and write the total at R.

    Depreciation expenses

    Did you have depreciation as a business expense?

    No

    Go to Motor vehicle expenses.

    Yes

    If you have chosen to enter or continue in the STS at item S1, read on. Otherwise go to Other businesses.

    Stop

    If you did not carry on a business in the year, but in a prior year allocated assets to a general STS pool or long-life STS pool, do not include the STS pool deductions at this question. Show such deductions at item D15 on your tax return (supplementary section).

    STS taxpayers

    You need to know

    You show at M Depreciation expenses item P8 the total depreciation deductions being claimed under the STS depreciation (capital allowance) rules and for the business use of other assets under the uniform capital allowance (UCA) rules. This includes your deduction under the STS depreciation rules for depreciating assets used for work-related or self-education purposes. You do not need to complete a Capital allowances schedule 2005.

    STS taxpayers can claim an immediate deduction for depreciating assets costing less than $1,000 (excluding input tax credit entitlements) and pool most of their other depreciating assets. There are two STS pools:

    • a general STS pool for depreciating assets with an effective life of less than 25 years
    • a long-life STS pool for depreciating assets with an effective life of 25 years or more.

    Some depreciating assets are excluded from the STS rules but a deduction may be available under the UCA rules.

    For more information about the STS depreciation rules, see the publication The simplified tax system - a guide for tax agents and small businesses, or see More information.

    Calculating your depreciation deductions

    If your accounting system or financial statements provide you with the amounts to complete the table Depreciation deductions for STS, write these amounts in the table. Otherwise, use calculations 1 to 5 below to calculate your depreciation deductions.

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

    Calculation 1: Low-cost assets

    A low-cost asset is an asset:

    • whose cost at the end of the year was less than $1,000 (excluding input tax credit entitlements), and
    • that qualifies for a deduction under the STS depreciation (capital allowance) rules.

    Work out the taxable purpose proportion of each depreciating low-cost asset you acquired in 2004-05 and used or held ready for use for the purpose of producing assessable income. You calculate the deduction for each eligible asset as follows:

    asset's adjustable value    x    taxable purpose proportion

    Note

    The adjustable value of an asset, at the time you first used it (or held it ready for use) for a taxable purpose, will be its cost, unless you previously used or held the asset solely for private purposes. For example, for a tool set bought on 1 December 2004 at a cost of $800 (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 $800 x 70% = $560.

    Add up these results and write the total at (a) in the worksheet.

    Do not include depreciating assets that you acquired prior to entering the STS which cost less than $1,000 (excluding input tax credit entitlements). You allocate these assets to the general STS pool (see calculation 2).

    Definitions

    Depreciating asset is an asset with a limited effective life which declines in value over that life.

    Decline in value (previously 'depreciation') is the value that an asset loses over its effective life.

    Adjustable value of a depreciating asset is its cost (excluding input tax credit entitlements) less its decline in value since you first used it or installed it ready for use for any purpose, including a private purpose.

    Taxable purpose includes the purpose of producing assessable income.

    Taxable purpose proportion is the extent to which you use the asset for a taxable purpose, such as for the purpose of producing assessable income.

    Termination value includes money received from the sale of an asset or insurance money received as the result of the loss or destruction of an asset. Exclude the GST component where the amount received is for a taxable supply.

    Assessable balancing adjustment amount arises where the termination value of the depreciating asset is more than the adjustable value.

    Deductible balancing adjustment amount arises where the termination value of the depreciating asset is less than the adjustable value.

    Calculation 2: STS pool deductions

    To calculate your deductions for both the general and long-life STS pools you must first calculate the opening pool balance of each pool.

    If you are entering the STS, allocate each depreciating asset you hold at the start of the income year to the appropriate pool according to the asset's effective life.

    Only include the taxable purpose proportion of the adjustable value of each depreciating asset. For example, for an asset with an adjustable value of $10,000 that is used only 50% for an income-producing purpose, you will only add $5,000 to the pool.

    You can choose not to allocate an asset to your long-life STS pool if you first used it or installed it ready for use for a taxable purpose before 1 July 2001.

    You calculate the opening pool balance for each STS pool by adding the value of all depreciating assets allocated to the relevant pool.

    If you are continuing in the STS, the opening pool balance of each STS pool is the closing pool balance for the 2003-04 income year, except where you make an adjustment to reflect the changed business use of a pooled asset.

    Calculate your deduction for each STS pool as follows:

    General STS pool deduction:

    opening pool balance    ($)  x  30%

    Long-life STS pool deduction:

    opening pool balance    ($)  x  5%

    Where necessary make a reasonable apportionment for each STS pool deduction between primary production and non-primary production activities.

    Write the result of your general STS pool deduction at (b) in the worksheet on the opposite page.

    Write the result of your long-life STS pool deduction at (c) in the worksheet on the opposite page.

    If either pool balance (after taking into account additions and disposals but before working out the deductions in calculations 2 and 3) is below $1,000, you work out the deduction for the pool using calculation 5(b).

    Calculation 3: Depreciating assets first used for a taxable purpose during 2004-05 and improvements made to assets already allocated to a pool

    You calculate your deduction at half the relevant pool rate for:

    • depreciating assets that you first used or installed ready for use for a taxable purpose during the year
    • improvements made during the year to assets already allocated to an STS pool.

    Calculate your deduction as follows:

    • the taxable purpose proportion of the adjustable value of each depreciating asset first used for a taxable purpose this year multiplied by 15% (general STS pool assets) or 2.5% (long-life pool assets), plus
    • the taxable purpose proportion of the cost of the improvement multiplied by 15% (general STS pool assets) or 2.5% (long-life pool assets).

    Write the total deduction for general STS pool assets at (d) and the total deduction for long-life STS pool assets at (e) in the worksheet on the opposite page.

    If either pool balance (after taking into account additions and disposals but before calculating the deductions in calculations 2 and 3) is below $1,000, work out your deduction for these assets using calculation 5(b).

    Calculation 4: Other depreciating assets

    Work out your deduction for the decline in value of all your other depreciating assets that are not included in calculations 1 to 3.

    See the Guide to depreciating assets 2005 (NAT 1996-6.2005) for information on how to calculate the decline in value of these assets. To find out how to get this publication, see More information.

    Write your total deduction for other depreciating assets at (f) in the worksheet.

    Do not include at (f) in the worksheet depreciating assets which qualify for a deduction under Subdivision 40-F or 40-G of the ITAA 1997 as water facilities or landcare operations in your primary production business and for which you have chosen to claim a deduction under those Subdivisions and not the STS rules. Show these deductions at W Landcare operations and business deduction for decline in value of water facility item P8 Reconciliation items.

    Calculation 5: Disposal of depreciating assets

    (a) Low-cost assets

    If you have disposed of a low-cost asset for which you have claimed an immediate deduction in calculation 1 this year or in the prior year, include the taxable purpose proportion of the termination value at the Reconciliation items section item P8. For example, for a low-cost asset used only 50% for an income producing purpose which was sold for $200 (excluding GST), only $100 will be assessable and included as a reconciliation adjustment. Termination value includes money received from the sale of an asset or insurance money received as the result of the loss or destruction of an asset.

    (b) Assets allocated to STS pools

    Where you dispose of depreciating assets that have been allocated to either the general or long-life STS pools, you deduct the taxable purpose proportion of the termination value from the closing pool balance. For example, for a pooled depreciating asset used only 50% for an income-producing purpose which was sold for $3,000 (excluding GST), only $1,500 will be deducted from the closing pool balance. If the balance of a pool (after taking into account any additions and disposals but before calculating the deductions in calculations 2 and 3) is below $1,000, you can claim an immediate deduction for this amount. Write this deduction against the appropriate pool at (b) or (c) in the worksheet.

    If the closing pool balance is less than zero, you include the amount below zero in your assessable income at the Reconciliation items section of item P8. For more information about closing pool balances.

    (c) Other depreciating assets

    See the Guide to depreciating assets 2005 for information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets.

    Balancing adjustment amounts are included at the Reconciliation items section of item P8. See What are income reconciliation adjustments? and What are expense reconciliation adjustments?.

    Closing pool balance

    The closing balance of each STS pool for an income year is:

    • the opening pool balance (see calculation 2), plus
    • the taxable purpose proportion of the adjustable value of assets that were first used or installed ready for use for a taxable purpose during the year (see calculation 3), plus
    • the taxable purpose proportion of the cost of any improvements made to assets in the pool during the year (see calculation 3), less
    • the taxable purpose proportion of the termination value of any pooled assets disposed of during the year [see calculation 5(b)], less
    • the STS pool deduction (see calculation 2), less
    • the deduction for assets first used by you during the year (see calculation 3), less
    • the deduction for the cost of improvements made to the pooled assets during the year (see calculation 3).

    If your closing pool balance is less than zero, see calculation 5(b).

    The closing pool balance for this year becomes the opening pool balance for the 2005-06 income year except where you made an adjustment to reflect the changed business use of a pooled asset.

    You will need your opening pool balance to work out the pool deduction next year. Do not write your closing pool balance on your tax return (supplementary section).

    Worksheet 4: Depreciation deductions for STS

     

    Primary production ($)

    Non-primary production ($)

     

    Total ($)

    Low-cost assets

       

    (a)

     

    General pool

       

    (b)

     

    Long-life pool

       

    (c)

     

    General pool (1/2 rate)

       

    (d)

     

    Long-life pool (1/2 rate)

       

    (e)

     

    Other assets

       

    (f)

     

    Depreciation expenses
    [add (a), (b), (c), (d), (e) and (f)]

       

    (g)

     

    Completing this question

    Step 1

    Write your total primary production depreciation deductions at Depreciation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production depreciation deductions at Depreciation expenses in the Non-primary production column. Do not show cents.

    Step 3

    Transfer the amount at (g) in worksheet 4 to M Depreciation expenses. Do not show cents.

    Step 4

    Transfer the amount at (a) in worksheet 4 to A item P10 STS depreciating assets on page 4 of your schedule. Do not show cents.

    Step 5

    Transfer the total of the amounts at (b) and (d) in worksheet 4 to B item P10. Do not show cents.

    Step 6

    Transfer the total of the amounts at (c) and (e) in worksheet 4 to C item P10. Do not show cents.

    Step 7

    Go to Motor vehicle expenses.

    Other businesses

    You need to know

    You show at M Depreciation expenses item P8 the depreciation claimed in your books of account other than for those assets allocated in a prior year to a general STS pool or a long-life STS pool. For assets allocated to such a pool, include here the amount of the pool deduction to be claimed for tax purposes. For information see STS depreciation deductions.

    The depreciation amount shown at M should not include profit or loss on the sale of depreciating assets. You should include profits on the sale of depreciating assets in Other business income at I or J in the Income section of item P8 on your schedule. You should include losses on the sale of depreciating assets at P All other expenses in the Expenses section.

    Accounting or book depreciation may differ from the deduction for the decline in value of depreciating assets.

    You carry out the reconciliation between accounting depreciation and the deduction for decline in value at H Expense reconciliation adjustments in the Reconciliation items section of item P8.

    You can use the decline in value calculator on our website to calculate the decline in value of these assets or see the Guide to depreciating assets for more information on how to calculate decline in value.

    Is expenditure revenue or capital?

    Practice Statement PS LA 2003/8 provides guidance on two 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 two 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 of the total purchases on qualifying low-cost business items that are revenue expenditure.

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

    Completing this question

    Step 1

    Write your total primary production depreciation expenses at Depreciation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production depreciation expenses at Depreciation expenses in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production depreciation expenses and write the total at M.

    Is the amount at M greater than $15,000?

    No

    Go to step 4.

    Yes

    You will need to complete and attach a Capital allowances schedule 2005 unless you:

    • have chosen to enter or continue in the STS at item S1, or
    • are exiting the STS at item S1 or have previously exited the STS, and the amount at label relates entirely to STS depreciating assets.

    For more information, see the Capital allowances schedule instructions 2005 (NAT 4089-6.2005).

    Step 4

    If you are exiting the STS or have previously exited the STS, and are continuing to claim a deduction in respect of a prior STS pool at MDepreciation expenses, you will also need to print in the code box at M the appropriate code from the following table.

    In all other cases leave the code box blank.

    Type of depreciation expense

    Code

    The amount at M relates entirely to STS depreciating assets. Do not complete a Capital allowances schedule 2005.

    S

    The amount at M relates to both STS depreciating assets and to UCA items.
    You will need to complete and attach a Capital allowances schedule 2005 if the total amount at M exceeds $15,000.

    M

    Motor vehicle expenses

    Did you have motor vehicle expenses in your business?

    No

    Go to Repairs and maintenance.

    Yes

    Read on.

    You need to know

    Questions D1 and D2 in TaxPack 2005 tell you more about the expenses you can claim.

    Do not include depreciation, finance leasing charges or interest paid. You should include these at M Depreciation expenses, J Lease expenses, Q Interest expenses within Australia or R Interest expenses overseas item P8 on your schedule.

    Completing this question

    Step 1

    Write your total primary production motor vehicle expenses at Motor vehicle expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production motor vehicle expenses at Motor vehicle expenses in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production motor vehicle expenses and write the total at N item P8 on your schedule.

    Step 4

    If you worked out the amount you are claiming for motor vehicle expenses using one of the four methods described in question D1 in TaxPack 2005, find the code letter that identifies the method you used and print it in the type box at the right of the amount at N.

    If you are claiming motor vehicle expenses other than for a car - see question D2 in TaxPack 2005 - print the code letter N in the type box at the right of the amount at N.

    If you have more than one code, print the code that applies to the largest claim.

    Repairs and maintenance

    Did you have repairs and maintenance as a business expense?

    No

    Go to All other expenses.

    Yes

    Read on.

    You need to know

    This is expenditure shown in your accounts for repairs and maintenance of premises, plant, machinery, implements, utensils, rolling stock or articles associated with the production of income. Any non-deductible expenditure, such as items of a capital nature or amounts relating to private use of an item, included at this question, should also be included at H Expense reconciliation adjustments in the Reconciliation items section item P8 on your schedule. The following information on deductions for repairs will assist you to work out whether you need to make an expense reconciliation adjustment.

    Repairs

    You may deduct the cost of repairs - not being expenditure of a capital nature - to premises and depreciating assets such as plant, machinery or equipment used solely for producing assessable income, or in carrying on a business for that purpose.

    Expenditure on repairs to property used partially for business or income-producing purposes - for example, where the property is also used for private purposes or in the production of exempt income - is deductible only to the extent that is reasonable, taking account of such use.

    Where items are newly acquired, including by way of a legacy or gift, the cost of repairs to 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 further information on deductions for repairs, see Taxation Ruling TR 97/23 - Deductions for repairs.

    Records you need to keep

    To support your claim for the cost of repairs, you must keep full details, including source documents, of the nature and cost of repairs to each item.

    Completing this question

    Step 1

    Write your total primary production repairs and maintenance expenses at Repairs and maintenance in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total non-primary production repairs and maintenance expenses at Repairs and maintenance in the Non-primary production column. Do not show cents.

    Step 3

    Add up your primary production and non-primary production repairs and maintenance expenses and write the total at O.

    All other expenses

    Did you have any other business expenses?

    No

    Go to Total expenses.

    Yes

    Read on.

    You need to know

    This is the total of all other expenses which you incurred in deriving your profit or loss and which you have not already shown elsewhere at item P8. Other expenses include wages, accounting and professional fees, advertising, office supplies, foreign exchange (forex) losses and any loss on the sale of a depreciating asset as shown in your accounts.

    For more information about forex losses, visit our website or see question D15 in TaxPack 2005 supplement.

    You should also include capital and other non-deductible items (including debt deductions denied by thin capitalisation rules) shown here at H Expense reconciliation adjustments in the Reconciliation items section of item P8 on your schedule. See Reconciliation adjustments for more information.

    For more information on thin capitalisation, see Thin capitalisation.

    Home office expenses

    If part of your home was specifically set aside as your place of business and used solely for the purpose of conducting your business affairs and you had no other place from where they were mainly carried on, the following expenses are partly deductible:

    • occupancy expenses - including rent, mortgage interest, rates, and house and contents insurance
    • running expenses - including electricity, cleaning, depreciation, leasing charges and repairs to furniture and furnishings in the office.

    In most cases, you can apportion expenses on a floor area basis and, if the area of your home was a place of business for only part of the year, on a time basis.

    Where you used part of your home as a home office but it did not qualify as a place of business, only the additional running expenses you incurred may be deductible.

    For further details, see Taxation Ruling TR 93/30 - Deductions for home office expenses and Practice Statement PS LA 2001/6 - Home office expenses: diaries of use and calculation of home office expenses.

    Records you need to keep

    You should keep records to show how you have calculated your home office expenses. The Tax Office may ask you for these at a later date.

    Completing this question

    Step 1

    Write your total other primary production expenses at All other expenses, Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    Write your total other non-primary production expenses at All other expenses, Non-primary production column.

    Step 3

    Add up your other primary production and other non-primary production expenses and write the total amount at P item P8 on your schedule.

    Total expenses

    Completing this question

    Step 1

    Add up all the primary production expenses you have written in the Primary production column, from Cost of sales down to and including All other expenses, and write the total at S item P8 on page 3 of your schedule. Do not show cents.

    Step 2

    If your total of primary production expenses is a negative amount, print L in the box at the right of the amount at S.

    Step 3

    Add up all the non-primary production expenses you have written in the Non-primary production column, from Cost of sales down to and including All other expenses. Write the total at T. Do not show cents.

    Step 4

    If your total of non-primary production expenses is a negative amount, print L in the box at the right of the amount at T.

    Step 5

    Add up your primary production and non-primary production expenses. Write the total at total expenses in the Totals column.

    Step 6

    If your total of expenses is a negative amount, print L in the box at the right of this amount.

    Last modified: 15 Mar 2007QC 27592