Worksheet 2 caters for those items that reconcile T Total profit or loss item 6 with T Taxable income or loss item 7, other than those items specifically included in item 7. It does not contain an exhaustive list of reconciliation items. All references to accounts below are taken to mean the company’s profit and loss account.
Additions to T Total profit or loss item 6 not covered by:
- A Net capital gain
- U Non-deductible exempt income expenditure
- J Franking credits
- C Australian franking credits from a New Zealand company
- E TOFA income from financial arrangements not included in item 6
- D Accounting expenditure in item 6 subject to R&D tax incentive
in item 7 are specified under B Other assessable income and W Non-deductible expenses.
Use worksheet 2 to help calculate the total for income-related add-back items at B Other assessable income item 7 and the total for expense-related add-back items at W Non-deductible expenses item 7.
Subtractions from T Total profit or loss item 6 not covered by:
- C Section 46FA deductions for flow-on dividends to V Exempt income
- R Tax losses deducted
- S Tax losses transferred in (from or to a foreign bank branch or a PE of a foreign financial entity)
in item 7 are specified under Q Other income not included in assessable income and X Other deductible expenses. Use worksheet 2 to help calculate the total for income-related subtraction items at Q and the total for expense-related subtraction items at X.
In some cases, a reconciliation adjustment at item 7 adds back or subtracts the whole of an amount shown at item 6 and a separate label at item 7 shows the amount for income tax purposes; for example, for companies not using the small business entity depreciation rules, depreciation as per the accounts is shown at item 6 and added back in full at W Non-deductible expenses item 7. The deduction for the decline in value of depreciating assets is listed at F Deduction for decline in value of depreciating assets item 7.
Worksheet 2:
Adjustments to income derived: increase in interest increase in dividends increase in partnership distribution increase in trust distribution year-end sales cut-off adjustment |
$___________ $___________ $___________ $___________ $___________ |
Assessable balancing adjustment amounts on depreciating assets, |
$___________ |
R&D feedstock adjustments |
$___________ |
Attributed foreign income not included in accounts |
$___________ |
Bad debts recovered not included in accounts |
$___________ |
Benefits or prizes from investment-related lotteries not included in accounts |
$___________ |
$___________ |
|
Grants received not included in accounts |
$___________ |
Gross taxable foreign source income |
$___________ |
Other assessable income not included in accounts |
$___________ |
Total |
$___________ |
Amortisation as per accounts |
$___________ |
Borrowing costs |
$___________ |
Capital items written off as repairs |
$___________ |
$___________ |
|
Expenses to the extent to which they are not deductible: entertainment legal expenses and consultants’ fees subscriptions and donations bad debts part of prepaid expenses not deductible this year travel by spouse (of the same or opposite sex) |
$___________ $___________ $___________ $___________ $___________ $___________ |
Expenses incurred in deriving non-assessable non-exempt |
$___________ |
Certain expenses relating to PSI that are not deductible |
$___________ |
Extraordinary loss per accounts |
$___________ |
Finance lease interest |
$___________ |
Foreign exchange accounting losses |
$___________ |
Foreign tax paid or deemed paid |
$___________ |
Debt deductions denied by thin capitalisation |
$___________ |
Loss on sale of depreciating assets included in accounts |
$___________ |
Loss on sale of other assets included in accounts |
$___________ |
Luxury car lease payments |
$___________ |
Net adjustment to expenses claimed: decrease in consumable stores |
$___________ |
Net increase in provisions |
$___________ |
Net increase in trading stock valuation for tax purposes |
$___________ |
Non-share dividends |
$___________ |
Offshore banking unit losses |
$___________ |
Other capital items included in accounts |
$___________ |
Penalties and fines |
$___________ |
Superannuation charged in accounts |
$___________ |
Trust losses deducted from accounting income |
$___________ |
Unrealised losses on revaluation of assets to fair value |
$___________ |
Total |
$___________ |
Adjustments to income derived: decrease in interest decrease in dividends decrease in trust distribution year-end sales cut-off adjustment |
$___________ $___________ $___________ $___________ |
extraordinary profits per accounts |
$___________ |
foreign exchange accounting profits |
$___________ |
Foreign source income in the accounts that is not assessable income |
$___________ |
Grants receivable |
$___________ |
PSI included in the assessable income of an individual |
$___________ |
Profit on sale of depreciating assets included in accounts |
$___________ |
Profit on sale of other assets included in accounts |
$___________ |
Unrealised gains on revaluation of assets to fair value |
$___________ |
Other income amounts in the accounts that are not assessable income |
$___________ |
Total |
$___________ |
Allowable superannuation fund payments |
$___________ |
Capital expenditure for the establishment of trees in carbon sink forests |
$___________ |
Deductible balancing adjustment amounts on depreciating assets (for R&D assets that are excluded, see note 3) |
$___________ |
Deduction for certain capital expenditure incurred to terminate a lease or licence |
$___________ |
Foreign exchange taxable losses |
$___________ |
Interest charge |
$___________ |
Hire-purchase agreements: interest component |
$___________ |
Luxury car leases: accrual amount |
$___________ |
Mains electricity connection to land used in carrying on a business |
$___________ |
Net adjustment to expenses claimed: increase in consumable stores |
$___________ |
Net decrease in provisions |
$___________ |
Net decrease in trading stock valuation for tax purposes |
$___________ |
Part of prepaid expenses deductible this year, but not included at any other label |
$___________ |
Tax deductible borrowing costs |
$___________ |
Telephone line connection to land used for primary production |
$___________ |
Other deductible items |
$___________ |
Total |
$___________ |
Insert the difference between the total amount of prepaid expenses incurred in the 2015–16 income year and the amount the company is entitled to claim as a deduction in this year. See Deductions for prepaid expenses 2016 for a detailed explanation of how to calculate the company’s deduction for the 2015–16 income year.
Insert the amount of prepaid expenditure that the company was not entitled to deduct in previous years, and which it is now entitled to deduct in the 2015–16 income year. See Deductions for prepaid expenses 2016 for a detailed explanation of how the deduction for later years is calculated.
Insert the difference between the value of consumable stores on hand at the end of the previous income year and the value of consumable stores on hand at the end of the current income year. The balance of these items determines whether they are add-backs or subtractions.
W and X on worksheet 2 do not include any amounts for R&D assets subject to the R&D tax incentive.
Generally, labels at item 7 require a split between amounts subject to the R&D tax incentive and other amounts; for example, book depreciation shown at X Depreciation expenses item 6 includes amounts for assets used in R&D activities.
However, amounts subject to the R&D tax incentive are added back at D Accounting expenditure in item 6 subject to R&D tax incentive item 7 and not at W Non-deductible expenses item 7, and the amount for decline in value of assets used in R&D activities is claimed as part of calculating an R&D tax offset in item 21.
Similarly, disposal losses included at S All other expenses item 6 includes losses for assets used in R&D activities, but amounts subject to the R&D tax incentive are added back at D Accounting expenditure in item 6 subject to R&D tax concession item 7.
Any deductible balancing adjustment amount for assets used wholly in R&D activities is included as part of calculating an R&D tax offset at item 21. Any deductible balancing adjustment amount where the assets have been used in R&D and non-R&D activities is included at X Other deductible expenses item 7.
Additionally, disposal profits included at R Other gross income item 6 that are subject to the R&D tax incentive are uplifted by the relevant portion and included at B Other assessable income item 7, but balancing profits for all assets are subtracted at Q Other income not included in assessable income item 7.
Find out about:
If the company receives an individual’s PSI other than in the course of conducting a personal services business, and does not promptly pay it to the individual as salary or wages:
- the net amount of PSI is attributed to the individual and is not assessable to the company
- certain related expenses are not deductible.
Expenses specifically denied include rent, mortgage interest, rates and land tax for the residence of individuals (or their associates; for example, spouse) whose efforts or skills mainly generate the PSI for the company, the costs of a second private use car and payments of salary or wages and superannuation for associates to the extent such payments relate to non-principal work.
The company is not entitled to a deduction for any net PSI loss that is attributed to the individual.
Only include depreciation expenses at W Non-deductible expenses item 7 if the company is not using the small business entity depreciation rules. However, do not include any pool deductions shown at Expenses, X Depreciation expenses item 6.
Section 25-110 of the ITAA 1997 provides a five-year straight-line write-off for certain capital expenditure incurred in terminating an operating 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; see the details under Change 3 in Blackhole expenditure: business related expenses.
If you have included an amount of capital expenditure incurred to terminate a lease or licence at any expense label in item 6, include the amount at W Non-deductible expenses item 7.