• Reconciliation adjustments

    Do you need to make any reconciliation adjustments?

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

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    NO

    Go to Net income or loss from business this year

    YES

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    You need to know

    You may need to make income reconciliation adjustments or expense reconciliation adjustments. These adjustments reconcile your business operating profit or loss with your business taxable income.

    Do not complete any income reconciliation adjustments or expense reconciliation adjustments if all the amounts you have written at C Gross payments where Australian business number not quoted to W Landcare operations and business deduction for decline in value of water facility, item P8 on your schedule, are assessable income or allowable tax deductions for income tax purposes.

    If you have included amounts such as exempt income or non-deductible expenses at these labels, or have not included amounts which are assessable income or expenditure that is deductible, you must work out your reconciliation adjustments.

    The Reconciliation statement worksheet will assist you with your calculations.

    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.

    What are income reconciliation adjustments?

    Income reconciliation adjustments include:

    • income add backs - income not shown in the accounts which is assessable income for tax purposes, such as:
      • assessable balancing adjustment amounts on disposal of depreciating assets
      • other assessable income not included in the profit and loss statement
       
    • income subtractions - income shown in the accounts which is not assessable income, such as:
      • profit on sale of depreciating assets
      • other income that is not assessable for income tax purposes - for example, gross exempt income.
       

    Your income reconciliation adjustment is:

    your total income add backs

    -

    your total income subtractions

    Use the Reconciliation statement worksheet to work out your income reconciliation adjustments for your primary and non-primary production businesses. The amount you write at XIncome reconciliation adjustments item P8 on your schedule is the total of your primary production and non-primary production income adjustments.

    Where the amount is negative, print L in the box at the right of the amount.

    What are expense reconciliation adjustments?

    Expense reconciliation adjustments include:

    • expense add backs - expenses shown in the accounts which are not tax deductible, including timing deductions, such as
      • prepaid expenses not deductible in this year
      • depreciation
      • loss on sale of a depreciating asset
      • other items not allowable as a deduction - for example, capital expenditure, additions to provisions and reserves, income tax expense, expenses relating to exempt income, debt deduction denied by the thin capitalisation rules, other non-deductible expenses (for more information see Thin capitalisation, and PSI deductions).
       
    • expense subtractions - items not shown as expenses which are deductible for tax purposes, such as
      • prepaid expenses deductible this year but not included at any other label
      • deduction for decline in value of depreciating assets
      • deductible balancing adjustment amounts on disposal of depreciating assets
      • other items deductible for tax purposes.
       

    Your expense reconciliation adjustment is:

    Your total expense add backs

    -

    your total expense subtractions

    Use the Reconciliation statement worksheet to work out your expense reconciliation adjustments for your primary and non-primary production businesses. The amount you write at H Expense reconciliation adjustments item P8 on your schedule is the total of your primary production and non-primary production expense adjustments.

    Where the amount is negative, print L in the box at the right of the amount.

    Last modified: 15 Mar 2007QC 27592