18 Other deductions
Show at Q any deductible losses and outgoings not already claimed by the partnership at any other items.
If the partnership is registered for GST, exclude any input tax credit entitlements for expenses incurred by the partnership from the amount shown at Q.
Former STS taxpayers still using the STS accounting method
If the partnership is eligible and has chosen to continue using the STS accounting method, it can claim deductions for the following expenses only when they are paid:
- general deductions, for example, interest expense
- tax-related expenses
- expenses for repairs.
For more information on the STS accounting method, see Continued use of the STS accounting method.
Losses and outgoings
You can claim a deduction for losses and outgoings if they are incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing such income.
However, under section 25–90 of the ITAA 1997 a partnership may also be able to claim a debt deduction for costs such as interest and borrowing costs incurred in relation to a debt interest (as defined in the ITAA 1997) if the costs are incurred in earning foreign source income which is non-assessable non-exempt income under section 768-5 of the ITAA 1997, section 23AI or 23AK of the ITAA 1936. The amount of the deduction is subject to any reduction required by the thin capitalisation rules. Similar rules apply under subsection 230-15(3) of the ITAA 1997 for your debt interest that is a financial arrangement covered by the TOFA rules.
Debt deductions for foreign source income are not quarantined to foreign source income. Therefore, you can deduct these expenses against assessable income of the partnership, subject to any reduction required under the thin capitalisation rules. If these amounts relate to foreign income, include the deduction for these expenses at Q unless they are attributable to an overseas permanent establishment. Do not include them at item 23 Other assessable foreign source income or any other item. If the debt deductions are attributable to an overseas permanent establishment, see Net foreign source income at item 23 Other assessable foreign source income.
You cannot claim a deduction for the following:
- losses or outgoings of capital or of a capital, private or domestic nature, except where special provision is made in the income tax law
- expenses incurred in gaining or producing exempt or non-assessable non-exempt income (except certain debt deductions under section 25–90 or subsection 230-15(3) of the ITAA 1997)
- penalties or fines
- income tax liabilities
- entertainment, except in very limited circumstances
- costs associated with borrowing and servicing debt to the extent that a deduction is denied under the thin capitalisation rules.
For more information, see Appendix 3.The disallowed amount reduces the amount that would otherwise be shown at Q.
Show at Q any expenses incurred by the partnership in the management of its tax affairs. These expenses include:
- the cost of attending an ATO audit
- tax planning
- expenditure on your income tax affairs, that is, a fee or commission for professional advice, where the advice is provided by a registered tax agent, or a barrister or solicitor
- an interest charge imposed by us, and
- a penalty for underestimating a varied GST instalment or PAYG instalment.
Show a deduction for the decline in value of a depreciating asset used in managing the tax affairs of the partnership at Q. For more information about working out decline in value, see Appendix 6.
You cannot claim a deduction for costs for any offence-related matter, for example, the cost of defending a tax prosecution.
If expenditure allowed or allowable as a deduction is recouped, include the amount recouped in assessable income in the year of recoupment.
Losses on the disposal of traditional securities
Show at Q any non-capital losses incurred upon the disposal or redemption of a traditional security which are deductible under section 70B of the ITAA 1936. For more information about gains and losses on traditional securities, including traditional securities that are convertible notes or exchangeable notes, see You and your shares 2015–16. (NAT 2632).
TOFA amounts from financial arrangements
If the TOFA rules apply to calculate an assessable gain or deductible loss on the partnership’s financial arrangements, include at this item any of those deductible losses relating to the financial arrangements.
TOFA amounts that have been included elsewhere should not be included here, for example, amounts that have already been included at:
- S Net income or loss from business item 5
- G Interest deductions item 9.
If what you show at Q or any other deduction label includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).
For more information, see Guide to the taxation of financial arrangements (TOFA).
Payment of premiums to a non-resident insurer
You cannot claim a deduction for insurance premiums paid to a non-resident insurer for the insurance of property situated in Australia or of an event which can happen only in Australia, unless arrangements have been made to our satisfaction for the payment of any tax payable or may become payable for the premium. Keep a record of the details supporting any claim for a deduction.
The partnership can only claim a deduction for gifts (including cash) made to an organisation which is a deductible gift recipient (DGR). DGRs are endorsed by us or specifically named in income tax law. Some of the types of bodies that can be endorsed as DGRs are public benevolent institutions, school building funds and approved overseas aid funds.
To check whether the organisation is a DGR, go to the ABN LookupExternal Link or phone 1300 130 248.
Gifts of certain property valued at $2 or more as well as money may be deductible. This includes gifts of:
- property (including shares) valued by us at more than $5,000
- property (including trading stock and shares) purchased by the donor during the 12 months before the gift was made, and
shares in a listed public company valued at $5,000 or less held by the donor for at least 12 months. Show at Q the deduction for gifts to DGRs. The deduction cannot add to or create a tax loss. You may need to reduce the claim where the amount at item 20 Net Australian income or loss is a loss.
A partnership may elect to spread deductions over five income years or less, where the gift is money, or property valued by us at more than $5,000. Special requirements apply for spreading deductions for certain environmental, heritage and cultural property gifts.
For more information, see Gifts and fundraising.
Deductions for political contributions and gifts
Only individuals can deduct contributions and gifts to political parties and independent members and candidates. Individuals claiming the deduction must not have made the contributions or gifts in the course of carrying on a business.
Show at Q any expenses incurred for subscriptions paid to:
- trade, business or professional associations
- other organisations where the subscription expense is incurred in producing assessable income
- journals or magazines where these relate to producing assessable income.
Do not claim for fees paid for membership of a sporting or social club or a political party.
Deductions for depreciating assets in a low-value pool
If the partnership has allocated depreciating assets used for different income-producing purposes to its low-value pool (for example, some assets are used for producing rental income and others are used in carrying on a business) show the low-value pool deduction at Q. For more information, see Appendix 6. You can also work out your low-value pool deductions by using the Depreciation and Capital Allowances Tool (DCAT) on ato.gov.au
Last modified: 10 Aug 2016QC 48217