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Expenses

Last updated 25 June 2019

Do not include the following expenses on your schedule:

  • non-business interest and dividend income expenses; claim deductible expenses at Interest deductions and Dividend deductions on your tax return
  • farm management deposits; include them at Net farm management deposits or repayments on your tax return
  • non-business rental expenses; claim deductible expenses at Rent on your tax return
  • expenses and losses relating to foreign source income; take them into account as required at Foreign income, assets and entities, or in the case of certain debt deductions, claim them at Other deductions on your tax return
  • expenses relating to your personal services income shown at Personal services income
  • low-value pool deduction, where the pool contains assets used for work-related, self-education or non-business rental purposes at Low value pool deduction.

Your expenses may include expenditure relating to the acquisition and disposal of cryptocurrency in the ordinary course of your business, or the arm’s length value of the business item (including trading stock) acquired using cryptocurrency.

You need to complete all sections that relate to your business or businesses.

If you are a primary producer, you will need a primary production worksheet to help you work out some of the amounts. 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 Cost of managing tax affairs on your tax return. Do not show the penalty in this section.

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.

Prepayments 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) after 30 June 2018, 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 is an exception for small business entities if the 12-month rule applies.

Where expenses shown in this section include prepaid expenses that differ from the amounts allowable as deductions in 2018–19, then make an expense reconciliation adjustment at Expense reconciliation adjustment in the Business reconciliation items section.

For more information, see Deductions for prepaid expenses.

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 ITAA 1997.

The thin capitalisation rules may apply to you if:

  • you are an Australian resident and you, or any of your associate entities, are an Australian controller of a foreign entity or carry on business overseas at or through a permanent establishment, or
  • you are a foreign resident with operations or investments in Australia and you are claiming debt deductions.

The thin capitalisation rules will not affect you if:

  • your debt deductions (combined with the debt deductions of your associate entities) do not exceed $2,000,000 in 2018–19, or
  • you are an Australian resident and the combined value of your associates’ and your Australian assets is not less than 90% of the value of your associates’ and your total assets.

If the thin capitalisation rules affect you, the amount of any debt deductions you can claim may be reduced by these rules.

For more information, see Thin capitalisation.

Opening stock

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 2018 tax return.

If you are a primary producer, you must add the value of your opening stock from your livestock account at PP4 on your primary production worksheet to the value of your opening stock from your produce account at PP9. 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 at Purchases and other costs.

Purchases and other costs

Purchases and other costs represent 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 and also 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 at Contractor, subcontractor 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.

Former STS taxpayers

If you are eligible and are continuing to use the STS accounting method, include only purchases and other costs that you have paid. See Former simplified tax system (STS) taxpayers .

Closing stock

Small business entities

If you are a small business entity and are choosing to use the simplified trading stock rules you need to account for changes in the value of your trading stock only if there is a difference of more than $5,000 between 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 ato.gov.au or phone 13 28 66.

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.

  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 enter must be the same as the values you enter at Opening stock. Do not enter your reasonable estimate.

    Select the Closing stock value type:
    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. Select Closing stock value type C.

    Go to Cost of sales.
  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. For more information, see Other businesses below.

    You must include in your Closing stock amount the value of all stock on hand, regardless of whether you have paid for the stock.

Other businesses

The amount that is shown at Closing stock is the total of the value of all items of trading stock, with the value of each item calculated for tax purposes in accordance with 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 at Other business income. For more details about what constitutes trading stock, see Simplified trading stock rules or phone 13 28 66.

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. This may be because it has become obsolete or there are 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 the Trading stock election.

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 income year. 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.

Cost of sales

Goods taken for your own use should not be accounted for as stock on hand at 30 June 2018. Include at Other business income the value of:

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

MyTax will work out your Cost of sales from the information you provide.

Foreign resident withholding expenses (excluding capital gains)

Enter your total non-primary production expenses directly related to income subject to foreign resident withholding (excluding capital gains). You will not have any primary production amounts here.

Contractor, sub-contractor and commission expenses

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 (such as for services provided by an advertising agency)
  • service fees (such as plant service)
  • management fees
  • consultant fees.

Do not include the following at this field:

  • 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.

Superannuation expenses

If you made superannuation contributions on behalf of eligible employees or their dependants as a business expense, enter the superannuation expenses for the income year. Do not include any amount that was a contribution for yourself. The deduction for your own superannuation contributions must be claimed at Personal super contributions on your tax return.

Employers are entitled to a deduction for the contributions they made to a complying superannuation, provident, benefit or retirement fund or retirement savings account (RSA) where the contributions are to provide superannuation benefits for employees or to provide benefits to the employee’s dependants on the employee’s death. 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, and
  • do not count towards superannuation guarantee obligations.

You can check the compliance status of superannuation funds at superfundlookup.gov.auExternal Link. Under the superannuation guarantee, an employer needs to provide a minimum level of superannuation for employees. If the employer does not make the minimum contribution by the relevant date, the employer is required to pay the superannuation guarantee charge on the superannuation guarantee shortfall. The superannuation guarantee charge is not a superannuation contribution and is not tax deductible. Contributions made by employers to offset a superannuation guarantee charge liability are not deductible.

Contributions paid by an employer to a non-complying superannuation fund on behalf of an employee are generally fringe benefits (other than where the contributions are made for a temporary resident) and may be subject to tax under the Fringe Benefits Tax Assessment Act 1986.

There is no age-related limit on deductions for contributions made on or before the 28th day following the end of the month in which the employee turns 75. However, the employee may be liable to pay additional tax if their concessional contributions exceed their concessional contributions cap.

For more information, see Super contributions – too much can mean extra tax.

For contributions made after the 28th day following the end of the month of the employee’s 75th birthday, the deduction claimable is limited to:

  • the amount of the contribution required under an industrial award, determination or notional agreement preserving state awards, or
  • the amount of the contribution that reduces an employer's charge percentage under the Superannuation Guarantee (Administration) Act 1992 in respect of the employee, or
  • where both amounts are applicable, the greater of the two amounts is to be applied.

Bad debts

If you wrote off any bad debts in your business include income from the recovery of bad debts at Other business income.

You are not allowed a deduction for bad debts unless you have previously included the amount in your assessable income and it relates to money you lent in the ordinary course of a money-lending business or it represents a business loss or outgoing of a revenue nature.

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.

Do not include accounting provisions for doubtful debts. You include them at All other expenses, then add them back at Expense reconciliation adjustments in the Business reconciliation items section.

See also Taxation Ruling TR 92/18 Income tax: bad debts.

You can also 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 for debt written off under a debt-for-equity swap where you discharge, release or otherwise extinguish the whole or part of a debt owed to you in return for equity in the debtor.

In the case of a debt-for-equity swap, 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.

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
  • where applicable, the year that you returned the amount as income.

Lease expenses

This is expenditure incurred on financial leases and on operating leases for assets such as motor vehicles and plant. Do not include the cost of leasing real estate (show this cost at Rent expenses.

If you include capital expenditure incurred to terminate a lease or licence you will need to add back the amount at Expense reconciliation adjustments. Although capital expenditure to terminate a lease or licence is not deductible in one year, a five-year straight-line write-off may be allowable (see section 25–110 of the ITAA 1997) for certain capital expenditure incurred to terminate a 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 worksheet 4 and note 3.

In some circumstances, lease expenses may be debt deductions for the purposes of the thin capitalisation rules.

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 Expense reconciliation adjustments.

Expenses incurred under a hire purchase agreement are not lease expenses. Such expenses are included at Expense reconciliation adjustments.

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 2018–19 is $57,581.

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 Expense reconciliation adjustments. For more information, see Luxury car leasing.

Records you need to keep

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

Rent expenses

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.

Interest expenses within Australia

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 Rent on your tax return.

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 Expense reconciliation adjustments.

Interest expenses overseas

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 Rent on your tax return.

Generally, you are required to withhold an amount of withholding tax from interest paid or payable to non-residents and from interest derived by a resident through an overseas branch. You must send these amounts to us. You cannot deduct an interest expense if you were required to withhold tax on that interest and you failed to do so.

For information on the tax treatment of interest paid to non-residents, phone 13 28 66.

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 Expense reconciliation adjustments.

Depreciation expenses

Continuing small business pools

If you are not carrying on a business this year, but in a prior year you allocated assets to a general small business pool or long-life small business pool (or the law allocated the assets to such a pool), do not include the pool deductions at this section. Show such deductions at Other deductions on your tax return.

Small business entities

Include amounts for depreciation deductions claimed under the small business entity capital allowances (depreciation) rules and for the business use of other assets under the uniform capital allowances (UCA) rules. This includes your deduction under the small business entity rules for depreciating assets used for work-related or self-education purposes. However, this excludes any amount included at Personal services income.

Small business entities can claim an immediate deduction for most depreciating assets purchased after 7.29pm (AEST) on 12 May 2015 and first used or installed ready for use for a business purpose:

  • from 7:30 pm (AEDT) on 2 April 2019 until 30 June 2020, if they cost less than $30,000 each.
  • from 29 January 2019 and before 7:30 pm (AEDT) 2 April 2019, if they cost less than $25,000 each.
  • before 29 January 2019, if they cost less than $20,000 each.

Assets purchased for the relevant threshold amount or more are deducted over time using a small business pool.

Some depreciating assets are excluded from these simplified depreciation rules, but a deduction may be available under the UCA rules.

If you are a small business entity and are choosing to use these simplified depreciation rules, you must use immediate write-off and pooling as applicable. You cannot choose to use one and not the other.

Five-year restriction

Small business entities that have previously elected out of the simplified depreciation rules are no longer subject to the ‘lock-out’ rule (which prevented small businesses from re-entering the simplified depreciation regime for five years if they had opted out). These entities may re-elect to use the simplified depreciation rules.

The suspension of the five year restriction only applies from 7:30 pm AEST 12 May 2015 to 30 June 2020 .

See Simplified depreciation – rules and calculations or phone 13 28 66.

Calculating your depreciation deductions

You can work out your depreciation and capital allowance claims by using the Depreciation and capital allowances tool. If you want to manually calculate your amounts read on.

If your accounting system or financial statements provide you with the amounts to complete worksheet 2, enter these amounts in the worksheet. Otherwise, use calculations 1 to 5 below to calculate your depreciation deductions.

The amounts you enter in worksheet 2 must be tax values and not accounting values.

Calculation 1: Deduction for certain assets (costing less than the relevant instant asset write off threshold)

An immediate deduction is available for certain depreciating assets:

  • which you started to use, or have installed ready for use during the income year
  • whose cost at the end of the year is less than the relevant instant asset write off threshold (excluding input tax credit entitlements)
  • that qualify for a deduction under the small business entity depreciation rules.

Work out the taxable purpose proportion of each of these types of assets. You calculate the deduction as follows:

  • multiply each asset's adjustable value by the taxable purpose proportion
  • add these results and enter the total at a in worksheet 2.

The adjustable value of an asset, at the time it was first used (or installed ready for use) for a taxable purpose, will be its cost unless the asset was previously used (or installed ready for use) by the small business solely for private purposes. For example, for a vehicle bought on 1 December at a cost of $19,990 (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 $19,990 × 70% = $13,993.

Do not include the following amounts in this calculation; allocate these assets to the general small business pool (see Calculation 2):

  • depreciating assets costing less than the relevant instant asset write off threshold which you held prior to using the simplified depreciation rules
  • depreciating assets that cost the relevant instant asset write off threshold or more. Such assets must be allocated to the general small business pool (see calculation 2) even if the taxable purpose proportion is less than the threshold. For example, if the vehicle above cost $20,200, the taxable purpose proportion is $14,140 ($20,200 × 70%). However, you cannot obtain an instant deduction and the vehicle must still be allocated to the general small business pool because its cost is not less than the relevant threshold of $20,000.

Definitions

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.

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

Cost addition amounts include the cost of capital improvements to assets and costs reasonably attributable to disposing of or permanently ceasing to use an asset (this may include advertising and commission costs or the costs of demolishing the asset).

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

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

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

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.

Calculation 2: General small business pool deduction

To calculate your deductions for the general small business pool you must first calculate the opening pool balance of the pool.

If 2018–19 was the first income year for which you were a small business entity and chose to apply the simplified depreciation rules, the opening balance of the general small business pool is the sum of the taxable purpose proportions of the adjustable values of the depreciating assets that were:

  • used, or held for use, just before the start of 2018–19
  • not excluded from the simplified depreciation rules.

Include only the taxable purpose proportion of the adjustable value of each depreciating asset. For example:

  • for an asset with an adjustable value of $50,000 which is used only 50% for an income-producing purpose, add only $25,000 to the pool
  • for an asset with an adjustable value of $30,200 which is used 70% for an income-producing purpose, add only $21,140 to the pool.

You can choose not to allocate an asset to your general small business pool if you first used it, or installed it ready for use, for a taxable purpose before 1 July 2001.

For an income year that is not the first income year for which you were a small business entity, the opening pool balance of the general small business pool is the closing pool balance for the previous income year, except where you make an adjustment to reflect the changed business use of a pooled asset.

Calculate your deduction for the general small business pool in 2018–19 as follows:

  • opening pool balance $ × 30%
  • where necessary, make a reasonable apportionment for the general small business pool deduction between primary production and non-primary production activities
  • enter the result of your general small business pool deduction at b in worksheet 2
  • if the pool balance (after taking into account additions and disposals but before calculating the deductions in steps 2, 3 and 4) is below $30,000, you instead work out the deduction for the pool using calculation 5.

Calculation 3: Depreciating assets including motor vehicles first used for a taxable purpose during 2018–19 and cost addition amounts for assets already allocated to a pool

You calculate your deduction at half the general small business pool rate for:

  • depreciating assets that you first used or installed ready for use for a taxable purpose during the year
  • cost addition amounts for assets already allocated to the general small business 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%, plus
  • the taxable purpose proportion of the cost addition amounts multiplied by 15%.

Enter the total deduction for general small business pool assets at c in worksheet 2.

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.

For information on how to calculate the decline in value of these assets, see Guide to depreciating assets.

Enter your total deduction for other depreciating assets at d in worksheet 2.

Do not include at d in the worksheet depreciating assets which qualify for a deduction under Subdivision 40-F or 40-G of the ITAA 1997 as water facilities, fencing assets, fodder storage assets or landcare operations in your primary production business and for which you have chosen to claim a deduction under those Subdivisions and not these small business entity depreciation rules. Enter these deductions at Landcare operations and business deduction for decline in value of water facility, fencing asset and fodder storage asset.

Calculation 5: Disposal of depreciating assets

  1. Certain assets (costing less than the relevant instant asset write off threshold ) and low-cost assets claimed in previous years

If you have disposed of a depreciating asset (costing less than the relevant instant asset write off threshold) for which you have claimed an immediate deduction in calculation 1 this year or a low-cost asset for which you have claimed an immediate deduction in a prior year, include the taxable purpose proportion of the termination value in the Business reconciliation items section.

For example, you acquired an asset on 1 February 2013 for $6,400 for 100% taxable use and claimed an immediate write-off under the threshold which existed at that time. You disposed of this asset at arm's length on 1 February 2019 for $3,000. Include $3,000 as income at the Business reconciliation items section.

  1. Assets allocated to the general small business pool

Where you dispose of depreciating assets that have been allocated to the general small business pool, 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, and was sold for $3,000 (excluding GST), only $1,500 will be deducted from the closing pool balance. If the balance of a pool is below the relevant instant asset write off threshold but greater than zero (after taking into account any additions and disposals but before calculating the deductions in calculations 2, 3 and 4), you claim an immediate deduction for this amount. Enter this deduction against general small business pool assets at row b in worksheet 2.

If the closing pool balance is less than zero, you include the amount below zero in your assessable income in the Business reconciliation items section.

If expenses are incurred in disposing of a depreciating asset, these expenses may be taken into account in calculation 3.

  1. Other depreciating assets

For information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets, see Guide to depreciating assets.

Balancing adjustment amounts are included in the Business reconciliation items section. See What are income reconciliation adjustments? and What are expense reconciliation adjustments?

Closing pool balance

The closing balance of each small business 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 any cost addition amounts for 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) less
  • the general small business pool deduction (see calculation 2) less
  • the deduction for assets first used by you during the year (see calculation 3) less
  • the deduction for any cost addition amounts for pooled assets during the year (see calculation 3).

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

The closing pool balance for this year becomes the opening pool balance for 2019–20 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 enter your closing pool balance on your tax return.

Worksheet 2: Depreciation deductions for small business entities

Row

Calculation elements

Primary production
($)

Non-primary production
($)

Total
($)

a

Certain assets

 


 


 


b

General small business pool

 


 


 


c

General small business pool (half rate)

 


 


 


d

Other assets

 


 


 


e

Depreciation expenses:
add the amounts at rows a, b, c and d.

 


 


 


Do not include any amount shown at Personal services income.

  1. Enter the amount at row e at Depreciation expenses.
  2. Enter the total amount at row a at Small business entity simplified depreciation - Deduction for certain assets.
  3. Add up the total amounts at rows b and c and enter the amount at Small business entity simplified depreciation - Deduction for general small business pool.

Other businesses

To calculate the decline in value of these assets you can use the Depreciation and capital allowances tool.

Include amounts for the depreciation claimed in your books of account, except for those assets allocated in a prior year to a general pool or a long-life pool. For assets allocated to such a pool, include here the amount of the pool deduction to be claimed for tax purposes.

Include here claims for instant asset write off for businesses with a turnover from $10 million and less than $50 million for assets costing less than $30,000 purchased from 7.30pm (AEDT) on 2 April 2019 and first used or installed ready for use by 30 June 2019.

For further information, see Definitions.

The depreciation amount should not include profit or loss on the sale of depreciating assets. You should include profits on the sale of depreciating assets at Other business income. You should include losses on the sale of depreciating assets at All other expenses.

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 Expense reconciliation adjustments.

See also Guide to depreciating assets.

Is expenditure revenue or capital in nature?

Law Administration Practice Statement PS LA 2003/8 Practical approaches to low-cost business expenses provides guidance on two straightforward methods that 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 expenditure or capital expenditure.

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.

We will accept a deduction for expenditure incurred on low-cost assets calculated in accordance with this practice statement.

Motor vehicle expenses

Special substantiation and calculation rules for car expenses apply to an individual. Under these rules, motor vehicle expenses can be claimed using one of two methods where the expense is for a motor car, station wagon, panel van, utility truck or other road vehicle designed to carry a load of less than one tonne and fewer than nine passengers. For an explanation of these methods, see Work-related car expenses.

Include motor vehicle expenses related to ride-sourcing activities at this section.

Select the Motor vehicle expense type

S: if you used the 'cents per kilometre' method

B: if you used the 'logbook' method

N: if the amount shown relates to a:

  • motorcycle
  • taxi taken on hire
  • road vehicle designed to carry a load of one tonne or more, or nine or more passengers
  • any other motor vehicle expenses covered at Work-related travel expenses.

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

Do not include depreciation, finance leasing charges or interest paid. You should include these at Depreciation expenses, Lease expenses, Interest expenses within Australia or Interest expenses overseas.

Repairs and maintenance

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 field, should also be included at Expenses reconciliation adjustments. 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 (such as 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. For example, if the asset was used 45% in the business, 40% for private use and 15% to produce exempt income, a reasonable deduction would be 45% of the expenditure.

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 more information on deductions for repairs, see Taxation Ruling TR 97/23 Income tax: 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.

All other expenses

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. 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.

You should also include gifts and donations that are a business expense and amounts you pay professionals in managing the tax affairs of the business at this section. You should not claim these amounts at Gifts or donations or Cost of managing tax affairs on your tax return.

For information about forex losses, go to ato.gov.au or see Other deductions.

You should also include capital and other non-deductible items (including debt deductions denied by thin capitalisation rules) shown here at Expense reconciliation adjustments.

For more information, see:

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 more information, see:

Records you need to keep

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

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