Item 6 Calculation of total profit or loss
The Income and Expenses amounts you write at item 6 are accounting system amounts and correspond to the amounts in the financial statements for the income year, except for the depreciation expenses of small business entities using the simplified depreciation rules.
Common errors: income and expenses incorrectly shown
Income and expenses from financial statements are often shown incorrectly at item 6. There are two main errors:
- showing incorrect amounts
- using incorrect labels.
Consequence of these errors
Errors in item 6 could lead to your organisation:
- paying an incorrect amount of tax
- being inappropriately selected for audit.
- Mutual receipts and expenses
- You must include receipts and expenses that relate to mutual dealings with members at the relevant labels in the item.
- It is important you include these items at item 6 in order to correctly reconcile the accounting total profit or loss to the taxable income or loss in item 7 Reconciliation to taxable income or loss.
- I Fringe benefit employee contributions
- Write at I Fringe benefit employee contributions all payments that the entity has received from recipients of fringe benefits.
- Employee contributions form part of the employer’s or associate’s assessable income if employees make payments for fringe benefits that they have received.
- Some important points to note about employee contributions are
- An employee contribution may be made only from an employee’s after-tax income.
- You cannot use an employee contribution towards a particular fringe benefit to reduce the taxable value of any other fringe benefit.
- In certain circumstances, journal entries in your accounts can be an employee contribution.
- An employee contribution paid directly to you (including those received by journal entry) are included in your assessable income (as a general rule, the costs you incur in providing fringe benefits are allowable deductions).
- An employee contribution paid to a third party who is not an associate (for example, for the servicing of a car) is not assessable to you.
- When calculating the taxable value of a benefit, you use the full GST-inclusive amount of the contribution to reduce the taxable value of the benefit.
- X Depreciation expenses
- Where an entity uses the simplified depreciation rules, the actual tax deduction for depreciation is included at X.
- Otherwise, only write the amount of depreciation for accounting purposes.