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Business and professional items 2021

Use these instructions to help you complete the Business and professional items schedule for individuals 2021.

Last updated 26 May 2021

About these instructions

Business and professional items 2021 will help you fill in the Business and professional items schedule for individuals 2021.

In these instructions, we provide information about:

  • streamlined provisions for small business entities
  • personal services income (PSI)
  • business income you must show on the schedule
  • deductions you may be able to claim.

Who should use these instructions?

Use these instructions if you are an individual who completed items 14, 15 or 16 on your tax return (supplementary section). You may also need to use these instructions if you have a net loss from a business activity carried on in partnership with others.

If you are required to complete the Business and professional items schedule for individuals 2021 you should lodge your tax return using myTax or through a registered tax agent.

If you are unable to use myTax or a registered tax agent, contact us on 13 28 66 and we will mail you a paper tax return and Business and Professional items schedule.

Publications and services

To find out how to get a publication referred to in these instructions and for information about our other services, see More information.

Introduction

Who are these instructions for?

If you complete items 14, 15 or 16 of your tax return (supplementary section), these instructions will help you complete the complete the Business and professional items schedule for individuals 2021.

If the business or professional items that apply to you are not filled in, your tax return may be rejected as incomplete. We consider that your tax return has not been lodged until it is returned to us complete.

We may apply a penalty if your tax return and completed schedule are lodged late. For information on the penalty for failing to lodge on time, see Individual tax return instructions 2021.

If you have a net loss from a business activity carried on in partnership with others, you may need to complete items P3 and P9 of the Business and professional items schedule for individuals 2021. See question 13 in Individual tax return instructions supplement 2021. Do not include your partnership details at any other item on your schedule.

You will also need to complete the Individual PAYG payment summary schedule 2021 (NAT 3647) if you received any of the following:

These instructions will also help you fill in the Individual PAYG payment summary schedule 2021.

How long did it take you to complete this schedule?

We are committed to reducing the costs involved in complying with your tax obligations. Your response to this item will help us monitor these costs.

Write the number of hours it took you to prepare and complete your Business and professional items schedule for individuals 2021 at S on page 4 of your schedule.

When completing this item consider the time (rounded up to the nearest hour) you spent:

  • reading the instructions
  • collecting information
  • making calculations
  • completing the schedule
  • putting the tax affairs of your business in order so the information can be handed to your tax agent.

Your answer should reflect the time your business spent preparing and completing your schedule. Include the time spent by your tax agent and any other person whose assistance you obtained.

If you are a tax agent preparing this schedule on behalf of your client, include your time and a reliable estimate of their time.

Records you need to keep

You must keep records of most transactions in English for five years after you prepared or obtained them, or five years after you completed the transactions or acts to which they relate, whichever is the later. Taxation Ruling TR 96/7 Income tax: record keeping – section 262A - general principles clarifies the record-keeping obligations of small businesses, particularly for cash transactions.

If you have losses, you should generally keep records for four years from the year of income when a tax loss is fully deducted. If you have applied a net capital loss, you should generally keep your records of the capital gains tax (CGT) event that resulted in the loss until the end of any period of review for the income year in which the capital loss is fully applied. Penalties can apply if you do not keep the records for the period required.

Some of the more significant record-keeping problems we have identified are failure to:

  • record cash income and expenditure
  • account for personal drawings
  • record goods for your own use
  • separate private expenses from business expenses
  • keep valid tax invoices for creditable acquisitions when registered for the goods and services tax (GST)
  • keep adequate stock records
  • keep adequate records to substantiate motor vehicle claims.

See also:

Choice of superannuation fund

You must keep records that show you have met your obligations to offer a choice of superannuation fund.

See also:

Hobby or business

It is important to determine whether you are carrying on a business or pursuing a hobby, sport or recreational activity that does not produce income.

In general, you are considered to carry on a business if the activity:

  • has started
  • has a significant commercial purpose or character
  • has a purpose of profit as well as a prospect of profit
  • is carried out in a manner that is characteristic of the industry
  • is repeated, regular or continuous
  • is planned, organised and carried on in a business-like manner
  • is of a sufficient size, scale and permanency to generate a profit
  • cannot be more accurately described as a hobby, recreation or sporting activity.

See also:

Assets put to a tax-preferred use – Division 250

Division 250 of the Income Tax Assessment Act 1997 applies to the leasing of assets and other similar arrangements to tax-preferred end users (such as tax-exempt entities, non-residents, and permanent establishments of Australian residents) that carry on business in a foreign country.

If Division 250 applies to an arrangement, then capital allowance deductions will be denied for the asset and the arrangement will be treated as a deemed loan that is taxed as a financial arrangement on a compounding accruals basis.

Division 250 applies to all relevant arrangements where the tax-preferred use of an asset started on or after 1 July 2007. However, Division 250 does not apply if the use occurs under a legally enforceable arrangement that was entered into before 1 July 2007.

Division 250 does not apply if you are a small business entity for the income year in which the arrangement period for the tax-preferred use of the asset starts, and you choose to deduct amounts under Subdivision 328-D (capital allowances for small business entities) for the asset for that income year.

Division 250 does not apply to certain relatively short-term and lower-value arrangements.

Concessions for small business entities

Did you carry on a business at any time during 2020–21 and have an aggregated turnover of less than $10 million?

No

Go to P1 Personal services income (PSI).

Yes

Read on.

You need to know

Small businesses with an aggregated turnover of less than $10 million are called small business entities and may qualify for a range of tax concessions. Prior to 2016–17 the turnover threshold was $2 million.

The threshold for the fringe benefits tax concessions increased to $10 million from 1 April 2017. The $10 million threshold applies to most of the small business concessions, except for:

  • the small business income tax offset, which is available to businesses with an aggregated turnover of less than $5 million (claimed by individual partners)
  • the capital gains tax (CGT) concessions, where the turnover threshold of $2 million continues to apply.

Eligible businesses can choose to use the concessions that best suit their needs. It is not necessary to elect to be a small business entity each year in order to access the concessions, however businesses must review their eligibility each year.

A small business entity may be eligible for the following concessions:

  • CGT 15-year asset exemption
  • CGT 50% active asset reduction
  • CGT retirement exemption
  • CGT small business rollover
  • tax offset equivalent to 8% of the income tax payable on your net small business income (capped at $1,000)
  • simplified depreciation rules
  • simplified trading stock rules
  • deducting certain prepaid business expenses immediately
  • deducting certain business start-up expenses immediately
  • accounting for GST on a cash basis
  • annual apportionment of GST input tax credits
  • paying GST by instalments
  • fringe benefits tax car-parking exemption
  • fringe benefits tax portable electronic device exemption
  • pay as you go (PAYG) instalments based on gross domestic product adjusted notional tax
  • small business restructure roll-over.

Small businesses may also be eligible for the Temporary full expensing or Backing business investment depreciation measures.

From 1 July 2020 the threshold has been increased to an aggregated turnover of less than $50 million (previously less than $10 million) for the following small business entity concessions:

  • deducting certain prepaid business expenses immediately
  • deducting certain business start-up expenses immediately

See also: Increase in small business entity turnover threshold

Eligibility

You are a small business entity if you are carrying on a business and have an aggregated turnover of less than $10 million.

Aggregated turnover is your annual turnover plus the annual turnovers of any entities that are connected with you or that are your affiliates (adjusted to ignore dealings between connected entities and affiliates). Using aggregated turnover prevents larger businesses from structuring or restructuring their affairs to take advantage of the small business entity concessions.

You must review your eligibility each year.

See also:

Calculating your turnover

Turnover includes all ordinary income earned in the ordinary course of business for 2020–21. The following are some examples of amounts included and not included in ordinary income of a business:

Include these amounts:

  • sales of trading stock
  • fees for services provided
  • interest from business bank accounts
  • amounts received to replace something that would have had the character of business income.

Do not include these amounts:

  • GST charged on a transaction
  • proceeds from the sale of business assets
  • capital gains
  • insurance proceeds for the loss or destruction of a business asset
  • amounts received from repayments of farm management deposits.

There are special rules for calculating your annual turnover if you have retail fuel sales or business dealings with associates.

The business operated for only part of the year

If you carried on a business for only part of 2020–21, your annual turnover is worked out using a reasonable estimate of what the turnover would have been if you had carried on the business for the whole of 2020–21. This includes winding up the business.

Satisfying the aggregated turnover threshold

Your business satisfies the less than $10 million aggregated turnover requirement if you meet one of the following:

  • your aggregated turnover for 2019–20 was less than $10 million
  • you estimate at the beginning of 2020–21 that your aggregated turnover for the year will be less than $10 million (and your aggregated turnover in 2018–19 or 2019–20 was less than $10 million), or
  • your actual aggregated turnover, worked out at the end of 2020–21, was less than $10 million. You rely on this test only if you do not satisfy either of the two tests above. If you satisfy this test only, you cannot use the GST and PAYG instalments concessions for 2020–21.

See also:

Former simplified tax system (STS) taxpayers

Continued use of the STS accounting method

Although the STS has now ceased, you may continue using the STS accounting method for 2020–21 if you:

  • were an STS taxpayer continuously from the income year that started before 1 July 2005 (that is from 2004–05) and until the end of 2006–07
  • used the STS accounting method from 2005–06 to 2019–20
  • are a small business entity for 2020–21.

If you meet these three requirements, you can continue using the STS accounting method until you choose not to or you are no longer a small business entity. If you continue to use the STS accounting method, you base the amounts you include at item P8 on the STS accounting method. If your accounting system or financial statements do not reflect the STS accounting method, you may need to make additional reconciliation adjustments at Reconciliation items at P8.

The STS accounting method does not apply to income or deductions that receive specific treatment under income tax law, for example, net capital gains, dividends, depreciation expenses, bad debts and borrowing expenses.

In addition, if another provision of the income tax law apportions or alters the assessability or deductibility of a particular type of ordinary income or general deduction, the timing rule in the specific provision overrides the received or paid rule under the STS accounting method. For example, double wool clips or prepayment of a business expense for a period greater than 12 months. Because of these specific provisions, you may need to make adjustments at Reconciliation items.

Ceasing use of the STS accounting method

If you have discontinued using the STS accounting method, or you are no longer a small business entity, then business income and expenses that have not been accounted for (because they have not been received or paid) will be accounted for in this year. You may need to make additional reconciliation adjustments at Reconciliation items.

There is also a special rule that applies if you are winding up a business this year that you previously carried on, and you were an STS taxpayer in the income year you ceased business.

See also:

Completing the schedule

P1 Personal services income (PSI)

Personal services income (PSI) is income that is mainly a reward for an individual’s personal efforts or skills. Examples of PSI are:

  • income of a professional practitioner in a sole practice
  • income payable under a contract which is wholly or principally for the labour or services of a person
  • income derived by a professional sportsperson or entertainer from the exercise of professional skills
  • income derived by consultants from the exercise of personal expertise.

PSI does not include income that is mainly:

  • for supplying or selling goods (for example, from retailing, wholesaling or manufacturing)
  • generated by a significant income-producing asset (such as a bulldozer)
  • for granting a right to use property (for example, the copyright to a computer program)
  • generated by a business structure (for example, a large accounting firm).

Item P1 concerns PSI earned as a sole trader only. Answer No to the question below if you gained all your PSI as an employee or through a company, partnership or trust.

Did you receive any PSI?

No

Print X in the No box at item P1 on your schedule.
Go to P2 Description of main business or professional activity.

Yes

Print X in the Yes box at item P1 on your schedule. Read on.

If you have earned PSI but not as an employee, you may not be able to claim certain deductions in relation to earning that income (for example, rent, mortgage interest, rates or land tax for your home, or payments to your spouse or other associate) for support work, such as secretarial duties. This depends on whether:

  • you have a personal services business determination from the Commissioner of Taxation stating that your PSI was from conducting a personal services business for the whole of the period you earned PSI, or
  • you satisfied one of the four tests in Part A.

If you earned PSI as a sole trader you need to read on and answer one or more of the questions in Part A. The questions will determine whether deductions in relation to your PSI are affected by the PSI rules.

The PSI rules do not affect your legal, contractual or workplace arrangements; you won’t be treated as an employee as a result of the rules.

Part A

Did you satisfy the results test?

If you earn PSI, you satisfy the results test for 2020–21 if, in respect of at least 75% of your PSI, you can answer yes to all of the following three questions:

  • Under your contract or arrangement, was the PSI paid to achieve a specified result or outcome?
  • Did you have to provide the tools or equipment necessary to do your work? (If no tools or equipment were required for your work, answer yes.)
  • Were you liable for rectifying defects in your work?

Your contract must require the production of a specified result or outcome. The contract must also state that payment is conditional upon the achievement of that outcome. The essence of the contract must be to achieve a result and not just do work as required.

Yes

Print X in the Yes box at P item P1 on your schedule.
Go to P2 Description of main business or professional activity.

No

Print X in the No box at P item P1 on your schedule. Read on.

Have you received a personal services business determination from the Commissioner that was in force for the whole of the period you earned PSI?

This is a notice from the Commissioner stating that you are conducting a personal services business. If you have a personal services business determination from the Commissioner, the PSI rules do not apply to your PSI and any deductions.

Yes

Print X in the Yes box at C item P1 on your schedule.
Go to P2 Description of main business or professional activity.

No

Print X in the No box at C item P1 on your schedule. Read on.

Did you receive 80% or more of your PSI from one source?

If you don’t satisfy the results test and 80% or more of your PSI in 2020–21 came from one client and its associates, you cannot self-assess whether you satisfy the other personal services business tests. The PSI rules apply to you unless you get a determination from the Commissioner.

If you don’t satisfy the results test, you can self-assess against the other tests only if less than 80% of your PSI came from each client.

You should consider PSI obtained by merely putting your name with a labour hire firm, placement agency or similar organisation as income from one client.

Commission agents

Special rules apply to commission agents. For more information, phone 13 28 66.

Yes

Print X in the Yes box at Q item P1 on your schedule.
Go to Part B.

No

Print X in the No box at Q item P1 on your schedule. Read on.

Did you satisfy the unrelated clients test?

You will satisfy the unrelated clients test for 2020–21 if you can answer yes to the following question:

Did you receive PSI from two or more clients who are not associated with each other or with you?

You must also provide the personal services work as a direct result of making offers to the public, for example, by advertising. Do not count clients obtained by registering with a labour hire firm, placement agency or similar organisation.

No

Read on.

Yes

Print X in the box at D1 item P1 on your schedule. Read on.

Did you satisfy the employment test?

You satisfy the employment test in 2020–21 if you can answer yes to either of the following questions:

  • Did you have one or more apprentices for at least half of 2020–21?
  • Did you have employees, or did you engage subcontractors or entities, who performed at least 20% (by market value) of your principal work?

Principal work is the main work that generates the PSI and does not usually include support work, such as secretarial duties. You can count a spouse or a family member who does principal work, but not companies, partnerships or trusts associated with you.

No

Read on.

Yes

Print X in the box at E1 item P1 on your schedule. Read on.

Did you satisfy the business premises test?

You satisfy the business premises test if you can answer yes to all of the following questions. For the whole period during which you earned PSI, were your business premises:

  • maintained by you
  • mainly used by you for work earning your PSI, for example, more than 50% of the use
  • used exclusively by you
  • physically separate from your private residence or the private residence of any of your associates
  • physically separate from the business address of your clients or their associates?

No

Read on.

Yes

Print X in the box at F1 item P1 on your schedule. Read on.

If you printed X at D1, E1 or F1, go to P2 Description of main business or professional activity. Otherwise read on.

Part B

Do not show PSI amounts that were subject to foreign resident withholding in part B. Show these at item P8.

You need to know

You must complete part B of item P1 if you received PSI and you did not:

  • receive a personal services business determination in relation to your PSI
  • satisfy the results test, or
  • satisfy at least one of the other three personal services business tests (if less than 80% of your PSI came from each client).

PSI is divided into:

  • income that was subject to a PAYG voluntary agreement to withhold tax
  • income from which tax has been withheld because you did not quote your Australian business number (ABN) to one of your payers
  • income received under a labour hire arrangement or from a specified payment
  • other PSI.
Goods and services tax (GST)

If you are registered or required to be registered for GST, do not include any GST amounts in your assessable income. Your deductions should not include any amounts that relate to input tax credit entitlements.

Former STS taxpayers

If you are eligible and are continuing to use the simplified tax system (STS) accounting method, you must complete the income and deduction parts of item P1 using the STS accounting method.

See also:

You may need to complete an Individual PAYG payment summary schedule

If tax has been withheld from business income, you should have received a payment summary.

You will need to complete the Individual PAYG payment summary schedule 2021 (NAT 3647) before completing the rest of item P1 if you received one of the following payment summaries:

While the PAYG payment summary – business and personal services income allows reporting of different payment types (including labour hire or other specified payments and voluntary agreement) you must specify on the schedule the nature of the income and the payment type made to you.

For further information, see How to complete the Individual PAYG payment summary schedule 2021.

A payer may issue a receipt, remittance advice or similar document in place of the PAYG payment summary – withholding where ABN not quoted. This document must contain the same details as the payment summary and be signed by the payer.

If you received income from which tax was withheld and you did not receive or have lost your payment summary, contact your payer and ask for a copy.

How to complete the Individual PAYG payment summary schedule 2021

Step 1 Write your tax file number (TFN) and name in the appropriate boxes at the top of the schedule.

Step 2 Nature of income, print X in the Personal services income box.

Step 3 For each payment summary, transfer the following information to the schedule:

  • the type of withholding (look at your payment summary to determine its type and complete the Type box, using the following key)
    • V voluntary agreement
    • N withholding where ABN not quoted
    • S labour hire or other specified payments
  • the payer’s ABN or withholding payer number (WPN) and the payer’s name in the appropriate boxes
  • the total tax withheld in the Tax withheld box
  • the gross payment in the Gross payment box.

Step 4 Check that you have recorded details from all relevant payment summaries on your payment summary schedule. Attach the schedule to page 3 of your tax return.

Do not attach the payment summaries to your tax return. You must keep them for a period of five years.

Payers must report to us details of payments where amounts of tax have been withheld. This information will be cross-checked with that on your tax return to make sure that you have declared the correct amount of income and the correct amount of tax withheld.

You may need two payment summary schedules. If you have both PSI (item P1) and business income (item P8), you will need to complete an Individual PAYG payment summary schedule 2021 for each type of income.

Income

PSI – voluntary agreement

Did you receive any PSI that was subject to a PAYG voluntary agreement?

No

Go to PSI – where Australian business number not quoted.

Yes

Read on.

The amount you show at M is the total income you received that was subject to a PAYG voluntary agreement, including amounts of tax withheld. You will be able to calculate this amount from your completed payment summary schedule.

Completing this item

Add up all the Gross payment amounts on your completed payment summary schedule that have a V in the corresponding Type box. Write the total at M item P1. Do not show cents.

If you complete M item P1, you must also complete G item 14 on page 13 of your tax return (supplementary section).

PSI – where Australian business number not quoted

Did you have any amounts of tax withheld from your PSI for failure to quote your ABN?

No

Go to PSI – labour hire or other specified payments.

Yes

Read on.

The amount you show at N is your total PSI from which an amount has been withheld because you did not quote your ABN, including the amounts of tax withheld. You will be able to calculate this amount from your completed payment summary schedule.

Completing this item

Add up all the Gross payment amounts on your completed payment summary schedule that have an N in the corresponding Type box. Write the total at N item P1. Do not show cents.

If you complete N item P1, you must also complete H item 14 on page 13 of your tax return (supplementary section).

PSI – labour hire or other specified payments

Did you receive any PSI under a labour hire arrangement or from a specified payment?

Specified payments include:

  • tutorial services you provided for the Indigenous Student Success Programme (formerly known as the Indigenous Tutorial Assistance Scheme) of the Department of the Prime Minister and Cabinet
  • income from translation and interpretation services for the Translating and Interpreting Service National of the Department of Home Affairs
  • income as a performing artist in a promotional activity
  • payments of green army allowance (within the meaning of the Social Security Act 1991).

No

Go to PSI - Other.

Yes

Read on.

The amount you show at O is the total income you received from labour hire or other specified payments, including amounts of tax withheld. You will be able to calculate this amount from your completed payment summary schedule.

Do not include income received as an employee of a labour hire business. These amounts will appear on your PAYG payment summary – individual non-business and you should show them at item 1 on page 2 of your tax return.

Completing this item

Add up all the Gross payment amounts on your completed payment summary schedule that have an S in the corresponding Type box. Write the total at O item P1. Do not show cents.

If you complete O item P1, you must also complete J item 14 on page 13 of your tax return (supplementary section).

PSI – other

Did you receive any other PSI?

No

Go to Deductions.

Yes

Read on.

Work out the total amount of other PSI and write this amount at J item P1.

If you are registered or required to be registered for GST, do not include any GST amounts in your assessable income.

Deductions

Limited deductions against PSI

The PSI rules affect the deductions you can claim against your PSI. They do not affect your legal, contractual or workplace arrangements; you won’t be treated as an employee as a result of the PSI rules.

The information on this page is a guide only. You may need further information to determine whether a deduction is available in your circumstances; Taxation Ruling TR 2003/10 Income tax: deductions that relate to personal services income explains the PSI deduction limitation rules.

What deductions you may be able to claim

Subject to exceptions, the general rule is that you may claim an amount used to gain or produce your PSI if you could claim that amount if the income was payable to you as an employee.

The following are examples of items you may be able to claim a deduction for:

  • premiums for workers compensation, public liability and professional indemnity insurance
  • financial institution and other account-keeping fees and charges
  • tax-related expenses, such as the cost of preparing and lodging a tax return or business activity statement (BAS)
  • registration or licensing fees
  • expenses for advertising, tendering and quoting for work
  • deduction for decline in value of depreciating assets
  • simplified depreciation (if you are a small business entity)
  • running expenses for your home office, such as heating and lighting for using a room in your house as a home office (not including rent, mortgage interest, rates or land taxes)
  • salary and wages for an arm’s length employee (not an associate)
  • contributions to a complying superannuation fund on behalf of an arm’s length employee (not an associate)
  • reasonable amounts paid to an associate for principal work
  • contributions to a complying superannuation fund or retirement savings account up to the superannuation guarantee amount for an associate doing solely principal work.

Do not include any amount that was a superannuation contribution for yourself. Any deduction for your own superannuation contributions must be claimed at item D12 on your tax return (supplementary section). See question D12 in Individual tax return instructions supplement 2021.

What you cannot claim

You cannot claim an amount for the following if it related to gaining your PSI:

  • rent, mortgage interest, rates or land tax for your residence (or the residence of an associate)
  • amounts paid to an associate for non-principal work, for example, support such as secretarial work
  • contributions to a superannuation fund for an associate doing solely non-principal work.

Deductions for payments to associates for principal work

Do you have deductions for payments to associates for principal work?

No

Go to Total amount of other deductions against PSI.

Yes

Read on.

Add up the total amount of payments made to associates for principal work. Write the total at K item P1.

Total amount of other deductions against PSI

Do you have other allowable deductions against your PSI?

No

Go to Net PSI.

Yes

Read on.
You need to know

In answering this question, you include only non-commercial business losses deferred from a prior income year if they relate to a business activity which is the same as, or similar to, one of your 2020–21 business activities. See P9 Business loss activity details for an explanation of how the non-commercial business loss rules work.

Your non-commercial business loss deduction may be reduced if:

  • you earned net exempt income in 2020–21, or
  • you became bankrupt or were released from any debts by the operation of an Act relating to bankruptcy.

See also:

Completing this item

Add up the total amount of all other expenses (including non-commercial business losses deferred from a prior income year) that you can deduct from your PSI. Write the amount at L item P1.

Do not include amounts already recorded at K item P1.

If you are registered or required to be registered for GST, your deductions should not include the amount that relates to input tax credit entitlements.

Net PSI

Completing this item

To work out your net PSI go through the following steps:

Step 1 Add up the amounts shown at M, N, O and J item P1.

Step 2 Add up the amounts shown at K and L item P1.

Step 3 Take away the amount calculated at step 2 from the amount calculated at step 1. Write your answer at A item P1.

Step 4 Transfer the amount at A item P1 to A item 14 on page 13 of your tax return (supplementary section).

If the amount is a loss, you must:

  • print L in the Loss box at the right of A item P1
  • print L in the Loss box at the right of A item 14 on your tax return (supplementary section).

Other business income

Did you have any business income other than PSI?

Yes

Go to P2 Description of main business or professional activity

No

Read on

Finishing your schedule

If the only income you need to show on your schedule is PSI, you need to complete only:

Check that you have…

  • transferred your net PSI amount from A item P1 to A item 14 on your tax return (supplementary section). If this amount is a loss, check that you printed L in the Loss box at the right of A.
  • completed and attached your Individual PAYG payment summary schedule 2021 to page 3 of your tax return (if you received PSI that was subject to withholding).

P2 Description of main business or professional activity

Completing this item

Describe the main business or professional activity that your gross income comes from as accurately as possible (for example, beef cattle breeder, vegetable grower, clothing manufacturer, confectionery wholesaler, or electrical goods retailer). Do not use general descriptions, such as farmer, manufacturer or wholesaler.

Print the description of your main business or professional activity at item P2 on page 2 of your schedule.

P3 Number of business activities

Completing this item

Write at B the number of separate and distinct business activities you operated as a sole trader and in partnership during 2020–21. If you operated only one business activity, write 1. The number of business activities you show at B should not be less than the number you show at item P9 Business loss activity details.

P4 Status of business

Completing this item

If you ceased your main business during 2020–21, enter X at C1 item P4 on page 2 of your schedule.

If you commenced a new business during 2020–21, enter X at C2.

If more than one option applies, enter X at C1 only. If neither option applies, leave both boxes blank.

P5 Business name of main business and ABN

The registered business name of your main business activity should be consistent. It should only be updated when there is a name change or when it is no longer the main business activity.

If the business name is legally changed with the Australian Securities & Investments Commission (ASIC), advise us in writing at the time the change is made. The current business name should be shown on your tax return.

Completing this item

Print the registered business name and Australian business number (ABN) of your main business at item P5 on page 2 of your schedule.

P6 Business address of main business

Completing this item

Print the street address of the place where most of your business operations are conducted at item P6 on page 2 of your schedule.

Write the postcode of this address at D item P6.

P8 Business income and expenses

This item has three sections:

The amounts to be included in the Income and Expenses sections of item P8 are amounts derived from your accounting system or financial statements, except for:

  • the values of opening and closing stock, which are to be shown as tax values, and
  • depreciation expenses for small business entities choosing to use the simplified depreciation rules, which are to be shown as tax values.

The income and expense amounts to be included at item P8 should form part of your profit and loss statement and are the basis for calculating your net profit or loss. You should deal with any adjustments to these amounts for tax purposes in the reconciliation items section of item P8.

Show personal services income and related expenses at item P1 and personal services income subject to foreign resident withholding at P8.

Former STS taxpayers

If you are eligible and are continuing to use the STS accounting method, you must use it to complete the income and expenses sections.

See also:

Income

The business income to be shown at item P8 is divided into:

Cryptocurrencies

Your business income may include the funds or the Australian dollar value of property you received through the disposal of cryptocurrency in the ordinary course of your business, or the Australian dollar value of cryptocurrency you received for goods or services you provide as part of your business.

For more information, see Tax treatment of cryptocurrencies.

Sharing economy

Your business income may include amounts earned through the sharing economy or other marketplaces, such as:

  • ride-sourcing
  • accommodation
  • sharing assets like cars, caravans, tools or personal belongings
  • providing services or completing tasks through a digital platform
  • amounts you receive through the sharing economy are assessable income, even if you're not carrying on a business. Include them:
  • at item 1 on your tax return if you are an employee, or
  • at item 24 on your tax return (supplementary section) if other income.

For more information see The sharing economy and tax.

Do not show the following types of income at item P8:

  • gross interest; show the amount of income at item 10 on your tax return
  • dividends and franking credits; show the amounts at item 11 on your tax return
  • distributions from partnerships and trusts; show these at item 13 on your tax return (supplementary section)
  • gross rental or similar income, including renting out all or part of your home through the sharing economy, that is not derived from carrying on a business of renting property, such as agistment or hire fees; show this amount at item 21 on your tax return (supplementary section)
  • income you earned through the sharing economy or other marketplace not derived from carrying on a business; show this amount at item 24 on your tax return (supplementary section) or item 1 on your tax return if you're an employee of the digital platform
  • net capital gains; show these at item 18 on your tax return (supplementary section)
  • PSI shown at item P1
  • farm management repayments; show these at item 17 on your tax return (supplementary section)
  • attributed foreign income; show it at item 19 on your tax return (supplementary section)
  • foreign source income; show it at item 20 on your tax return (supplementary section).
Goods and services tax (GST)

If you are registered or required to be registered for GST, the following apply:

  • Consider your assessable income, exempt income and amounts received or receivable. For tax purposes you should exclude GST from them when you calculate your income and deductions.
  • Reduce deductible losses and outgoings by the amount of input tax credit entitlement. In certain circumstances you could make an adjustment for GST purposes. This could alter your assessable income or deductibles. For example, a change in how much you use an asset for business purposes could increase or decrease your GST component.
  • Exclude GST under rules such as capital gains tax and capital allowances.

If you are not registered for GST, or required to be registered for GST, you do not need to adjust your income and deductions for GST. You can claim the GST-inclusive amount incurred on deductible outgoings.

What you may need
  • Primary production worksheet: If you are a primary producer, you will need this worksheet to help you determine some of the amounts in this section. Complete the worksheet before proceeding.
  • Individual PAYG payment summary schedule 2021 (NAT 3647)
Did you have amounts withheld from your business income – other than PSI included at item P1?

No

Go to Assessable government industry payments.

Yes

Read on.

If tax has been withheld from business income, you should have received a payment summary or an income statement.

You will need to complete Individual PAYG payment summary schedule 2021 (NAT 3647) before completing item P8 if you received any of the following payment summaries:

The PAYG payment summary – business and personal services income allows reporting of different payment types (including voluntary agreement, labour hire or other specified payments). When completing the individual payment summary schedule, you must specify the nature of the income and the payment type made to you.

For more information, see the next section How to complete the Individual PAYG payment summary schedule 2021.

A payer may issue a receipt, remittance or similar document in place of the PAYG payment summary – withholding where ABN not quoted containing the same information as a payment summary.

If you received income from which tax was withheld and you did not receive or have lost your payment summary, contact your payer and ask for a copy.

How to complete the Individual PAYG payment summary schedule 2021

Remember: If you have both business income (item P8) and personal services income (item P1), you must complete an Individual PAYG payment summary schedule 2021 for each type of income.

Step 1 Enter your TFN and name in the appropriate boxes at the top of the schedule.

Step 2 Nature of income, print X in the Business income box.

Step 3 For each payment summary, transfer the following information to the schedule:

  • the type of withholding; look at your payment summary carefully to determine its type and complete the Type box, using the following key
    • V voluntary agreement
    • S labour hire or other specified payments
    • N withholding where ABN not quoted
    • F foreign resident withholding
  • the payer’s ABN or withholding payer number (WPN) and the payer’s name in the appropriate boxes
  • the total tax withheld in the Tax withheld box
  • the gross payment in the Gross payment box.

Step 4 Check that you have recorded details from all relevant payment summaries on your payment summary schedule.

You must keep your payment summaries for a period of five years.

Payers must report to us details of payments where amounts of tax have been withheld. This information will be cross-checked with your tax return to make sure that you have declared the correct amount of income and the correct amount of tax withheld.

Gross payments where Australian business number (ABN) not quoted

Did you have amounts of tax withheld for failure to quote an ABN?

No

Go to Gross payments subject to foreign resident withholding (excluding capital gains).

Yes

Read on.
You need to know

The amounts you show at C and D are the total income you received, from which your payers have withheld tax because you did not quote your ABN. You will be able to calculate these amounts from your completed Individual PAYG payment summary schedule 2021.

Completing this item

Step 1 Add up all the Gross payment amounts on your completed payment summary schedule, derived from primary production activities that have an N in the Type box. Enter the total at C item P8 on your schedule. Do not show cents.

Step 2 Add up all the Gross payment amounts on your completed payment summary schedule, derived from non-primary production activities that have an N in the Type box. Show the total at D. Do not show cents.

Step 3 Add up the amounts you have written at C and D and enter the total in the adjacent Totals box.

If you complete C or D item P8 you must complete W item 15 on page 14 of your tax return (supplementary section).

Gross payments subject to foreign resident withholding (excluding capital gains)

Did you receive any payments that were subject to foreign resident withholding (excluding capital gains)?

No

Go to Gross payments – voluntary agreement.

Yes

Read on.
You need to know

The amount you show at B is the total income you received from your payers which is subject to foreign resident withholding. It includes any amounts of tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2021.

  • Do not include amounts subject to foreign resident capital gains withholding. Include these amounts at item 18 Capital gains (supplementary section).
Completing this item

Step 1 Add up all the Gross payment amounts on your completed payment summary schedule derived from non-primary production activities that have an F in the Type box. Enter the total at B item P8. Do not show cents.

Step 2 Transfer the amount at B to the adjacent Totals box.

If you complete B item P8, you must complete E item 15 on page 14 of your tax return (supplementary section).

Gross payments – voluntary agreement

Did you receive any income that was subject to a PAYG voluntary agreement?

No

Go to Gross payments – labour hire or other specified payments.

Yes

Read on.
You need to know

The amounts you show at E and F are the total income you received that was subject to a voluntary agreement to withhold tax and include the tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2021.

Completing this item

Step 1 Add up all the Gross payment amounts on your completed payment summary schedule derived from primary production activities that have a V in the Type box. Enter the total at E item P8 on your schedule. Do not show cents.

Step 2 Add up all the Gross payment amounts on your completed payment summary schedule derived from non-primary production activities that have a V in the Type box. Enter the total at F. Do not show cents.

Step 3 Add up the amounts you have entered at E and F, and enter the total in the adjacent Totals box.

If you complete E or F item P8, you must complete D item 15 on your tax return (supplementary section).

Gross payments – labour hire or other specified payments

Did you receive:

  • income under a labour-hire arrangement, or
  • a specified payment, including
    • income from tutorial services you provided for the Indigenous Student Success Programme (formerly known as the Indigenous Tutorial Assistance Scheme) of the Department of the Prime Minister and Cabinet
    • income from translation and interpretation services for the Translating and Interpreting Service National of the Department of Home Affairs, or
    • income as a performing artist in a promotional activity?

No

Go to Assessable government industry payments.

Yes

Read on.
You need to know

The amount you show at O is the total income you received from labour hire or specified payments and includes the tax that was withheld. You can calculate this amount from your completed Individual PAYG payment summary schedule 2021.

Do not include income you received as an employee of a labour-hire business. That income appears on your income statement or PAYG payment summary – individual non-business. Show it at item 1 on your tax return.

Completing this item

Step 1 Add up all the Gross payment amounts on your completed payment summary schedule that have an S in the Type box. These amounts are non-primary production income. Enter the total at O item P8. Do not show cents.

Step 2 Transfer the amount at O to the adjacent Totals box.

If you complete O item P8, you must complete F item 15 on page 14 of your tax return (supplementary section).

You will not have any primary production amounts at this item. Leave N blank.

Assessable government industry payments

Did you receive assessable government industry assistance?

No

Go to Other business income.

Yes

Read on.
You need to know

Generally, government credits, grants, rebates, bounties and subsidies are assessable income of the recipient if they are received in, or in relation to, the carrying on of a business. This includes amounts of a capital nature. Amounts relating to the commencement or cessation of a business may give rise to a capital gain. However, in certain circumstances, a specific grant or payment is considered to be exempt income or non-assessable non-exempt income.

A number of Commonwealth, State and Territory government grants and payments have been made available to businesses in response to recent natural disasters and COVID-19. Only those grants and payments that are assessable income will need to be included at this item.

Do not include at this item the following grants and payments:

  • Cash Flow Boost Payments (COVID-19) (non -assessable, non-exempt income). If cash flow boost payments have been included as income in the accounts, they can be included at both I Other business income and an income subtraction reconciliation amount at this item.
  • Commonwealth and State government grants and payments that are tax free.

For more information, see Government grants and payments during COVID-19

Examples of assessable government industry assistance are:

  • bounties
  • employee subsidies
  • export incentive grants
  • fuel tax credits
  • industry restructuring and adjustment payments
  • JobMaker hiring credits
  • JobKeeper payments (COVID-19)
  • Supporting Apprentices and Trainees wage subsidy (COVID-19)
  • producer rebate (wine equalisation tax)
  • alcohol manufacturer refund
  • product stewardship (oil) benefit.

JobKeeper reporting

The accounting basis you use determines the way you report JobKeeper payments.

Accruals accounting basis

JobKeeper payments are derived when the entity provides a completed and valid Business monthly declaration to the ATO.

  • JobKeeper payments relating to valid business monthly declarations made on or before 30 June 2020 are included in your 2019–20 tax return
  • JobKeeper payments relating to valid business monthly declarations made on or after 1 July 2020 are included in your 2020–21 income tax return

Cash accounting basis

JobKeeper payments are derived when the entity receives those payments.

  • JobKeeper payments you received on or before 30 June 2020 are included in your 2019–20 income tax return
  • JobKeeper payments you received on or after 1 July 2020 are included in your 2020–21 income tax return.

JobMaker hiring credit reporting

The accounting basis you use determines the way you report JobMaker hiring credit payments.

Accruals accounting basis

JobMaker hiring credit payments are derived when the entity provides the ATO with a valid claim form after each JobMaker period.

  • JobMaker hiring credit payments relating to valid claim forms made on or before 30 June 2021 are included in your 2020–21 tax return
  • JobMaker hiring credit payments relating to valid claim forms made on or after 1 July 2021 are included in your 2021–22 income tax return

Cash accounting basis

JobMaker hiring credit payments are derived when the entity receives those payments. Payments received on or before 30 June 2021 are assessable in 2020–21.

See also:

Do not show ‘Medicare payments received by medical practices’ at this item. Show them at Other business income.

Completing this item

Step 1 Enter your total primary production government industry payments received by each business at G item P8 on page 2 of your schedule. Do not show cents.

If you have completed the Gross income from primary production worksheet in Information for primary producers 2021, include at G the amount at PP11 on the worksheet.

Step 2 If your assessable primary production government industry payments include fuel tax credits, print D in the Type box at the right of the amount at G.

Step 3 Enter your total non-primary production government industry payments received by each business at H. Do not show cents.

Step 4 If your assessable non-primary production government industry payments include fuel tax credits, print D in the Type box at the right of the amount at H.

Step 5 Add up the amounts you have written at G and H, and enter the total in the adjacent Totals box.

Other business income

Did you receive any other business income?

No

Go to Total business income.

Yes

Read on.
You need to know

Other business income includes:

  • gross sales of trading stock
  • gross sales from produce
  • goods taken from stock for your own use
  • value of livestock killed for rations
  • value of livestock exchanged for other goods or services
  • gross earnings from services
  • rent derived from carrying on a business of renting property
  • income earned through the sharing economy, or other marketplace, where you're carrying on a business
  • taxi driver and ride-sourcing earnings (income you earned as a non-employee taxi driver if it is not shown at item P1)
  • amounts received as recoupment of expenses
  • bad debts recovered
  • profit on sale of depreciating assets
  • royalties
  • insurance recoveries
  • subsidies
  • employee contributions for fringe benefits
  • assessable non-government assistance from all sources
  • foreign exchange (forex) gains.

Your ‘other business income’ excludes amounts shown at C, D, B, E, F, N, O, G and H in your schedule.

If you are a primary producer, you must add the amounts shown at PP1, PP2, PP6, PP7 and PP10 on your Gross income from primary production worksheet. This worksheet is included in the publication Information for primary producers 2021. You must add the total to any other income from a business of primary production referred to above. You show the total of all other income from the business of primary production at I item P8 on page 2 of your schedule.

Completing this item

Step 1 Enter your total amount of ‘other’ primary production business income or loss at I item P8 on page 2 of your schedule. Do not show cents.

Step 2 If you made a loss, print L in the box at the right of the amount at I.

Step 3 Enter your total amount of ‘other’ non-primary production business income or loss at J. Do not show cents.

Step 4 If you made a loss, print L in the box at the right of the amount at J.

Step 5 Add up your ‘other’ primary production and non-primary production business income or loss and enter the total in the adjacent Totals box.

Step 6 If you made a loss, print L in the box at the right of the Totals box.

Total business income

Completing this item

Step 1 Add up the primary production amounts shown at C, E, N, G and I item P8 in your schedule. Enter the total at TOTAL BUSINESS INCOME in the Primary production column.

Step 2 If you made a loss, print L in the box at the right of the amount at TOTAL BUSINESS INCOME in the Primary production column.

Step 3 Add up the non-primary production amounts shown at D, B, F, O, H and J item P8. Enter the total at TOTAL BUSINESS INCOME in the Non-primary production column.

Step 4 If you made a loss, print L in the box at the right of the amount at TOTAL BUSINESS INCOME in the Non-primary production column.

Step 5 Add up the amounts at TOTAL BUSINESS INCOME in the Primary production and Non-primary production columns and enter the total in the adjacent Totals box. If you made a loss, print L in the box at the right of this amount.

Expenses

Do not include the following expenses on your schedule:

  • non-business interest and dividend income expenses; claim deductible expenses at items D7 and D8 on your tax return
  • farm management deposits; include them at item 17 on your tax return (supplementary section)
  • non-business rental expenses; claim deductible expenses at item 21 on your tax return (supplementary section)
  • expenses and losses relating to foreign source income; take them into account as required at item 20 or, in the case of certain debt deductions, claim them at item D15 on your tax return (supplementary section)
  • expenses relating to your personal services income shown at item P1 on your schedule
  • low-value pool deduction, where the pool contains assets used for work-related, self-education or non-business rental purposes; see question D6 in Individual tax return instructions 2021.

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 items that relate to your business or businesses.

You cannot deduct salary and wage expenses where you have not complied with your pay as you go withholding obligations. See Removing tax deductibility of non-compliant payments.

If you are a primary producer, you will need a primary production worksheet to help you work out some of the amounts in this section. This worksheet is included in the publication Information for primary producers 2021. 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 item D10 on your tax return. Do not show the penalty on your Business and professional items for individuals 2021.

See also:

  • Individual tax return instructions 2021
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 2020, the timing of your deduction may be affected by the rules relating to prepayments. 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 if the 12-month rule applies and you are a small business entity, or you would be a small business entity if the aggregated turnover threshold was less than $50 million.

Where expenses shown at item P8 include prepaid expenses that differ from the amounts allowable as deductions in 2020–21, make an expense reconciliation adjustment at H in the Reconciliation items section of item P8.

See also:

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 2020–21, 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.

See also:

  • Thin capitalisation

Opening stock

Did you have trading stock on hand at the start of the year?

No

Go to Purchases and other costs.

Yes

Read on.
You need to know

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 2020 schedule.

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 on your primary production worksheet. 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 in the relevant Purchases and other costs box.

Completing this item

Step 1 Enter the total value of your primary production opening stock at Opening stock in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter the total value of your non-primary production opening stock at Opening stock in the Non-primary production column, item P8. Do not show cents.

Step 3 Add up your primary production and non-primary production opening stock values and enter the total at K.

Purchases and other costs

Did you have purchases and other costs?

No

Go to Closing stock.

Yes

Read on.
You need to know

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 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 include this amount as Contractor, sub-contractor 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.

Completing this item

Step 1 Work out the value of your primary production purchases and other costs directly related to trading stock. If you have more than one business, add up all your primary production purchases and costs.

Step 2 Enter the total value of your primary production purchases and other costs directly related to trading stock at Purchases and other costs in the Primary production column, item P8 in your schedule. Do not show cents.

Step 3 Work out the value of your non-primary production purchases and other costs directly related to trading stock. If you have more than one business add up all your non-primary production purchases and other costs.

Step 4 Enter the total value of your non-primary production purchases and other costs directly related to trading stock at Purchases and other costs in the Non-primary production column, item P8. Do not show cents.

Step 5 Add up your primary production and non-primary production purchases and other costs directly related to trading stock, and enter the total at L.

Former STS taxpayers

If you are eligible and are continuing to use the STS accounting method, show at L only purchases and other costs that you have paid.

See also:

Closing stock

Did you have trading stock on hand at the end of the year?

No

Go to Cost of sales.

Yes

Read on.
Are you a small business entity choosing to use the simplified trading stock rules?

No

Go to Other businesses.

Yes

Read on.

Small business entities

You need to know

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 in 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, read Simplified trading stock rules.

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.
Completing this item

Step 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 put in both the Primary production and Non-primary production columns at item P8 on your schedule must be the same as the values you put at Opening stock. Do not put your reasonable estimate.

Add up your primary production and non-primary production closing stock values, and enter the total at M.

Enter in the Type box at the right of M the code letter you used last year to value closing stock:

  • 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. Print C in the Type box.

Go to Cost of sales.

Step 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. See Other businesses for how to complete this item.

You must include in your closing stock value at M item P8 the value of all stock on hand, regardless of whether you have paid for the stock.

Other businesses

You need to know

The amount you show 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 in Other business income at I or J in the Income section of item P8.

For more details about what constitutes trading stock, read Simplified trading stock rules.

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 item P19 on your schedule.

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.

Completing this item

Step 1 Work out the value of your primary production closing stock. If you have more than one business, add up all your primary production closing stock values.

Step 2 Enter the total value of your primary production closing stock at Closing stock in the Primary production column, item P8 on your schedule. Do not show cents.

Step 3 Work out the value of your non-primary production closing stock. If you have more than one business, add up all your non-primary production closing stock values.

Step 4 Enter the total value of your non-primary production closing stock at Closing stock in the Non-primary production column. Do not show cents.

Step 5 Add up your primary production and non-primary production closing stock values and enter the total at M.

Step 6 From the list below, choose the letter that matches the method you used to value closing stock. If more than one method was used, select the letter that applies to the largest value:

  • C cost
  • M market selling value
  • R replacement value.

Step 7 Print the letter from step 6 in the Type box at the right of the amount at M.

Cost of sales

Did you have any cost of sales?

No

Go to Foreign resident withholding expenses.

Yes

Read on.
You need to know

Goods taken for your own use should not be accounted for as stock on hand at 30 June 2021. Include at I and J Other business income in the Income section of item P8 on your schedule the value of:

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

Use worksheet 1 to work out your cost of sales.

Worksheet 1 – Cost of sales

Row

Calculation elements

Primary production

Non-primary production

a

Stock at 1 July 2020

$

$

b

Purchases at cost

$

$

c

Freight inwards

$

$

d

Other, for example, labour and services

$

$

e

Add the amounts at rows a, b, c and d.

$

$

f

Stock at 30 June 2021

$

$

 

Your cost of sales
Take away the amount at row f from the amount at row e.

$

$

For further information on stock on hand at 1 July 2020, see Opening stock . For information on stock on hand at 30 June 2021, see Closing stock.

Completing this item

Step 1 Enter your total primary production cost of sales at Cost of sales in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 If the cost of sales in the Primary production column, after taking away row f from row e, is a negative amount, print L in the box at the right of this amount.

Step 3 Enter your total non-primary production cost of sales at Cost of sales in the Non-primary production column. Do not show cents.

Step 4 If the cost of sales in the Non-primary production column after taking away row f from row e, is a negative amount, print L in the box at the right of this amount.

Step 5 Add up your primary production and non-primary production cost of sales and enter the total at Cost of sales in the Totals column.

Step 6 If your total cost of sales is a negative amount, print L in the box at the right of this amount.

Foreign resident withholding expenses (excluding capital gains)

Did you have any expenses directly relating to income subject to foreign resident withholding (excluding capital gains)?

No

Go to Contractor, sub-contractor and commission expenses.

Yes

Read on.
Completing this item

Step 1 Enter your total non-primary production foreign resident withholding expenses at Foreign resident withholding expenses (excluding capital gains) in the Non-primary production column, item P8 on your schedule. Do not show cents.

Step 2 Transfer the amount you wrote at step 1 to the adjacent Totals box at U.

You will not have any primary production expense amounts at this item.

Contractor, sub-contractor and commission expenses

Did you have any contractor, sub-contractor or commission expenses in your business?

No

Go to Superannuation expenses.

Yes

Read on.
You need to know

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 item:

Completing this item

Step 1 Enter your total primary production contractor, sub-contractor and commission expenses at Contractor, sub-contractor and commission expenses in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production contractor, sub-contractor and commission expenses at Contractor, sub-contractor and commission expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production contractor, sub-contractor and commission expenses and enter the total at F.

Superannuation expenses

Did you make any superannuation contributions on behalf of eligible employees or their dependants as a business expense?

No

Go to Bad debts.

Yes

Read on.

You need to know

Show 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 item D12 on your tax return (supplementary section). See question D12 in Individual tax return instructions supplement 2021.

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 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.
Completing this item

Step 1 Enter your total primary production superannuation contributions at Superannuation expenses in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production superannuation contributions at Superannuation expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production superannuation contributions and enter the total at G.

Bad debts

Did you write off any bad debts in your business?

No

Go to Lease expenses.

Yes

Read on.
You need to know

Include income from the recovery of bad debts in Other business income at I or J in the Income section of item P8.

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 at I. You show them in the Expenses section at All other expenses, then add them back at H Expense reconciliation adjustments in the Reconciliation items section.

For more information, see 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.
Completing this item

Step 1 Enter your total primary production bad debts at Bad debts in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production bad debts at Bad debts in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production bad debts and enter the total at I.

Lease expenses

Did you have lease expenses in your business?

No

Go to Rent expenses.

Yes

Read on.
You need to know

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 K Rent expenses).

If you include capital expenditure incurred to terminate a lease or licence you will need to add back the amount at H 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 H Expense reconciliation adjustments in the Reconciliation items section on your schedule.

Expenses incurred under a hire purchase agreement are not lease expenses. Such expenses are dealt with at H Expense reconciliation adjustments in the Reconciliation items on your schedule.

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 2020–21 is $59,136.

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 H Expense reconciliation adjustments in the Reconciliation items section.

See also:

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.

Completing this item

Step 1 Enter your total primary production lease expenses at Lease expenses in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production lease expenses at Lease expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production lease expenses and enter the total at J.

Rent expenses

Did you have rent as a business expense?

No

Go to Interest expenses within Australia.

Yes

Read on.
You need to know

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.

Completing this item

Step 1 Enter your total primary production rent expenses at Rent expenses in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production rent expenses at Rent expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production rent expenses and enter the total at K.

Interest expenses within Australia

Did you incur interest as a business expense on money borrowed within Australia?

No

Go to Interest expenses overseas.

Yes

Read on.
You need to know

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 item 21 on your tax return (supplementary section).

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 H Expense reconciliation adjustments in the Reconciliation items section on your schedule.

Completing this item

Step 1 Enter your total primary production interest expenses within Australia at Interest expenses within Australia in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production interest expenses within Australia at Interest expenses within Australia in the Non-primary production column, item P8 on your schedule. Do not show cents.

Step 3 Add up your primary production and non-primary production interest expenses within Australia and enter the total at Q.

Interest expenses overseas

Did you incur interest as a business expense on money borrowed overseas?

No

Go to Depreciation expenses.

Yes

Read on.
You need to know

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 item 21 on your tax return (supplementary section).

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 withheld 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.

If you paid or credited any interest or amounts in the nature of interest:

  • to a non-resident of Australia, or
  • to a resident’s overseas branch

you need to provide additional information. On a separate piece of paper:

  • print the title Schedule of additional information – Item 15
  • print your name, address and TFN
  • print the name and address of each recipient
  • print the total amounts paid or credited
    • to each non-resident, and
    • to the overseas branch of each resident
  • print the amount of tax withheld, if no tax was withheld, state the reason.

Then:

  • print X in the Yes box at Taxpayer’s declaration
  • attach the schedule to page 3 of your tax return.

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 H Expense reconciliation adjustments in the Reconciliation items section in your schedule.

Completing this item

Step 1 Enter your total primary production overseas interest expenses at Interest expenses overseas in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production overseas interest expenses at Interest expenses overseas in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production overseas interest expenses and enter the total at R.

Depreciation expenses

Did you have depreciation as a business expense?

No

Go to Motor vehicle expenses.

Yes

If you are a small business entity and are choosing to use the simplified depreciation rules, read on. Otherwise go to Other businesses.
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 item. Show such deductions at item D15 on your tax return (supplementary section).

Small business entities

You need to know

You show at M Depreciation expenses item P8 the total depreciation deductions being claimed under the small business entity simplified 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 part B of item P1.

Small businesses using the simplified depreciation rules have access to temporary full expensing. You cannot opt out of temporary full expensing for assets that the simplified depreciation rules apply to. For assets purchased from 7:30pm (AEDT) on 6 October 2020 until 30 June 2022, you must write-off the taxable purpose portion of eligible depreciating assets of any value in the income year they are first held and first used, or installed ready for use, for a taxable purpose. These assets are not added to your small business pool.

Under temporary full expensing you must also claim a deduction for the cost of improvements made from 7.30pm (AEDT) on 6 October 2020 to 30 June 2022 to an asset that you have written off under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction for the taxable purpose portion of the improvement cost and no threshold applies.

If temporary full expensing does not apply for an asset, where applicable, you must claim an immediate deduction under instant asset write-off for assets you first start to use, or have installed ready for use, for a business purpose from 12 March 2020 to 30 June 2021, if they cost less than $150,000 each, provided the asset is purchased by 31 December 2020

Assets purchased that cost the relevant threshold amount or more are deducted over time using a small business pool. Some of these assets may have an accelerated rate of depreciation when they are added to the pool under the Backing business investment – accelerated depreciation rules.

For income years ending between 7:30pm AEDT on 6 October 2020 and 30 June 2022, you deduct the entire balance of the small business pool (there is no threshold for that period). For information about which new accelerated depreciation measure applies to an asset, see Interaction of tax depreciation incentives.

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 12 May 2015 to the end of an income year that includes 30 June 2022. For small businesses that have not adopted a substituted accounting period, the effect of the amendments is that the temporary suspension of the lock-out rule is extended to 30 June 2022.

See also:

Calculating your depreciation deductions (Small business entities using simplified depreciation)

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 4 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 or using temporary full expensing)

For each depreciating asset purchased from 7.30pm (AEST) on 12 May 2015 to before 7.30pm (AEDT) on 6 October 2020 and first used or installed ready for use for a taxable purpose such as for producing assessable income in 2020-21, you deduct the taxable business proportion of eligible depreciating assets costing less than $150,000 each (excluding input tax credit entitlements) under instant asset write-off.

For assets you start to hold, and first use (or have installed ready for use) for a taxable purpose at any time between 7.30pm (AEDT) 6 October 2020 and 30 June 2022, the instant asset write-off threshold does not apply. You must immediately deduct the business portion of the asset's cost under temporary full expensing.

Under temporary full expensing, you must also claim a deduction for the cost of improvements made from 7.30pm (AEDT) on 6 October 2020 to 30 June 2022 to an asset that you have written off under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction at this step for the business portion of the improvement cost and no threshold applies. Any later improvements are added to the small business pool.

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 taxable purpose proportion
  • add up 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.

Example 1

For a truck bought on 1 October 2020 at a cost of $149,990 (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

$149,990 × 70% = $104,993

End of example

Do not include the following amounts in this calculation; allocate these assets to the general small business pool (see Step 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 where the cost is not less than the relevant instant asset write off threshold. Such assets must be allocated to the general small business pool (see Step 2) even if the taxable purpose proportion is less than the threshold. For example, if the truck in example 1 cost $150,200 (excluding input tax credit entitlements), the taxable purpose proportion is $105,140 ($150,200 × 70%). On 1 October 2020 the instant asset threshold was $150,000. However, you cannot obtain an instant deduction and the truck must still be allocated to the general small business pool because its cost is not less than the relevant threshold at the time it was first used.
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 balance

Calculation 2a – calculate your opening pool balance

If 2020–21 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 2020–21
  • not excluded from the simplified depreciation rules.

When allocating each depreciating asset that you hold at the start of the income year to the general small business pool only include the taxable purpose proportion of the adjustable value of each depreciating asset.

Example 2

For an asset with an adjustable value of $50,000 at the start of 2020-21 which is used only 60% for an income-producing purpose, add only $30,000 to the pool.

End of example

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.

Example 3

Chantal's Café is a small business and at the end of 2019–20 the closing balance of its general small business pool was $158,000. This becomes the opening balance of the pool for 2020–21.

End of example

Calculation 2b Calculate your closing pool balance

Calculate your pool balance at the end of the year as follows:

  • the opening pool balance (from calculation 2a), 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 (these are the assets that have not been written off in step 1), plus
  • the taxable purpose proportion of any cost addition amounts for assets in the pool during the year (these are the improvements to assets that have not been written off in step 1), less
  • the taxable purpose proportion of the termination value of any pooled assets disposed of during the year. If you dispose of depreciating assets that have been allocated to the general small business pool, the taxable purpose proportion of the termination value is deducted from the closing pool balance, for example, for a pooled depreciating asset used only 60% for an income-producing purpose which was sold for $3,000 (excluding GST) only $1,800 will be deducted from the closing pool balance.

If the result above (the balance of the pool) is greater than zero for the 2020-21 income year, you claim an immediate deduction for this amount. Write the result at 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 Reconciliation items section of item P8.

The closing pool balance for this year becomes the opening pool balance for 2021–22, after any adjustments to reflect the changed business use of a pooled asset. Where you write off the entire pool balance your closing pool balance for 2020-21 will be zero.

The closing pool balance is needed to work out the pool deduction for next year. Do not write the closing pool balance on the tax return.

Calculation 3: 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 and 2.

For information on how to calculate the decline in value of these assets, see Guide to depreciating assets 2021 (NAT 1996).

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. Show these deductions at W Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset item P8 Reconciliation items.

Calculation 4: Disposal of depreciating assets

Calculation 4a 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 Reconciliation items section of item P8.

Example 4

You acquired an asset on 1 February 2018 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 2021 for $3,000 (excluding GST). Include $3,000 as income at Reconciliation items item 5.

End of example

Calculation 4b 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 2021.

You can also work out your depreciation and capital allowance claims by using the Depreciation and capital allowances tool.

Balancing adjustment amounts are included in the Reconciliation items section of item P8. See What are income reconciliation adjustments? and What are expense reconciliation adjustments?.

If your closing pool balance is less than zero, you include the amount below zero in your assessable income in the Reconciliation items section of item P8.

You claim an immediate deduction if the balance of the pool is less than $150,000 (being the relevant instant asset write-off threshold from 12 March 2020) and write this amount at b in worksheet 2.

Worksheet 2 – Depreciation deductions (small business entities using simplified depreciation only)

Row

Calculation elements

Primary production

Non-primary production

Total

a

Certain assets (costing less than the relevant instant asset write off threshold or using temporary full expensing)

$

$

$

b

General small business pool

$

$

$

c

This row has been left blank deliberately

$

$

$

d

Other depreciating assets

$

$

$

e

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

$

$

$
Completing this item

Step 1 Enter your total primary production depreciation deductions at Depreciation expenses in the Primary production column, item P8. Do not show cents.

Step 2 Enter your total non-primary production depreciation deductions at Depreciation expenses in the Non-primary production column. Do not show cents.

Do not show any amount included at part B of item P1.

Step 3 Transfer the amount at row e in worksheet 2 to M Depreciation expenses item P8. Do not show cents.

Step 4 Transfer the amount at row a in worksheet 2 to A item P10 Small business entity simplified depreciation. Do not show cents.

Step 5 Transfer the amount at row b in worksheet 2 and enter the total at B item P10. Do not show cents.

Step 6 Go to Motor vehicle expenses

You can also work out your depreciation and capital allowance claims by using the Depreciation and capital allowances tool.

Other businesses (excluding small businesses using simplified depreciation)

You need to know

You show at M Depreciation expenses item P8 the depreciation claimed in your books of account other than 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.

See also:

The depreciation amount you show at M item P8 should not include profit or loss on the sale of depreciating assets. Include profits on the sale of depreciating assets in Other business income at I or J in the Income section of item P8 on your schedule. You should include losses on the sale of depreciating assets at All other expenses in the Expenses section.

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 H Expense reconciliation adjustments in the Reconciliation items section of item P8.

See also:

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.

Completing this item

Step 1 Enter your total primary production depreciation expenses at Depreciation expenses in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production depreciation expenses at Depreciation expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production depreciation expenses and enter the total at M Depreciation expenses.

Motor vehicle expenses

Did you have motor vehicle expenses in your business?

No

Go to Repairs and maintenance.

Yes

Read on.
You need to know

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 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 question D1 in Individual tax return instructions 2021.

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

Do not include depreciation, finance leasing charges or interest paid. You should include these at M Depreciation expenses, J Lease expenses, Q Interest expenses within Australia or R Interest expenses overseas item P8 on your schedule.

Completing this item

Step 1 Enter your total primary production motor vehicle expenses at Motor vehicle expenses in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production motor vehicle expenses at Motor vehicle expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production motor vehicle expenses and enter the total at N item P8 on your schedule.

Step 4 If you worked out the amount you are claiming for motor vehicle expenses using one of the two methods described in question D1 in Individual tax return instructions 2021, find the code letter that identifies the method you used and print it in the Type box at the right of the amount at N:

  • S if you used the ‘cents per kilometre’ method
  • B if you used the ‘logbook’ method.

Print the code letter N in the Type box if the amount shown at N 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 by question D2 in Individual tax return instructions 2021.

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

Repairs and maintenance

Did you have repairs and maintenance as a business expense?

No

Go to All other expenses.

Yes

Read on.
You need to know

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 item, should also be included at H Expense reconciliation adjustments in the Reconciliation items section item P8 on your schedule. 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.

Example 6

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.

End of example

Where items are newly acquired, including by way of a legacy or gift, the cost of repairs to defects present 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.

See also:

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.

Completing this item

Step 1 Enter your total primary production repairs and maintenance expenses at Repairs and maintenance in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production repairs and maintenance expenses at Repairs and maintenance in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production repairs and maintenance expenses and enter the total at O. Do not show cents.

All other expenses

Did you have any other business expenses?

No

Go to Total expenses.

Yes

Read on.
You need to know

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 at item P8. 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.

Include gifts and donations that are a business expense and amounts you pay professionals in managing the tax affairs of the business at item P8. Do not claim these amounts as gifts and donations or as cost of managing tax affairs on your individual tax return.

For information about forex losses, go to ato.gov.au or see question D15 in Individual tax return instructions supplement 2021.

Include capital and other non-deductible items (including debt deductions denied by thin capitalisation rules) shown here at H Expense reconciliation adjustments in the Reconciliation items section of item P8 on your schedule.

See also:

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.

See also:

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

Completing this item

Step 1 Enter your total ‘other’ primary production expenses at All other expenses in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total ‘other’ non-primary production expenses at All other expenses in the Non-primary production column. Do not show cents.

Step 3 Add up your ‘other’ primary production and ‘other’ non-primary production expenses and enter the total at P item P8 on your schedule.

Total expenses

Completing this item

Step 1 Add up all the expenses you have written in the Primary production column, from Cost of sales down to and including All other expenses. Enter the total at S item P8 on your schedule. Do not show cents.

Step 2 If your total of primary production expenses is a negative amount, print L in the box at the right of the amount at S.

Step 3 Add up all the expenses you have written in the Non-primary production column, from Cost of sales down to and including All other expenses. Enter the total at T. Do not show cents.

Step 4 If your total of non-primary production expenses is a negative amount, print L in the box at the right of the amount at T.

Step 5 Add up your primary production and non-primary production expenses. Enter the total at TOTAL EXPENSES in the Totals column.

Step 6 If your total expenses is a negative amount, print L in the box at the right of this amount.

Reconciliation items

Consider the following items to see whether you qualify for a deduction.

Any adjustments to your income and expense amounts are dealt with at Income and expense reconciliation adjustments.

Section 40-880 deduction

Can you deduct business-related costs under section 40-880?

No

Go to Business deduction for project pool.

Yes

Read on.

Immediate deductibility for business-related start-up costs

Section 40-880 of the Income Tax Assessment Act 1997 allows for certain start-up costs to be immediately deductible where they are incurred by:

  • a small business entity
  • an entity that would be a small business entity if the aggregated turnover threshold was less than $50 million or
  • an entity that is not in business and is not connected with or an affiliate of another entity that is carrying on a business and that entity  
    • is not a small business entity, and
    • would not be a small business entity if the aggregated turnover threshold was less than $50 million.

If you are an individual (operating either alone or in partnership), the non-commercial loss provisions may apply to defer your deduction to a later income year.

Claimable business-related start-up costs

Expenses can be fully deductible in the year in which the expenditure is incurred if the expenditure relates to a business that is proposed to be carried on and is either:

  • incurred in obtaining advice or services relating to the proposed structure or the proposed operation of the business
  • a payment to an Australian government agency of a fee, tax or charge incurred in relation to setting up the business or establishing its operating structure.

See also:

Five-year write-off for a range of business-related costs not recognised elsewhere in the tax law

Section 40-880 also provides a five-year write-off for certain capital expenditure incurred by you in relation to a past, present or prospective business if the expenditure is not already taken into account or not denied a deduction by another provision.

You can claim a deduction for capital expenditure:

  • in relation to your business
  • in relation to a business that used to be carried on, such as capital expenses incurred in order to cease the business
  • in relation to a business proposed to be carried on, such as the costs of feasibility studies, market research or setting up the business entity
  • as a shareholder, beneficiary or partner to liquidate or deregister a company or to wind up a trust or partnership (the company, trust or partnership must have carried on a business).

If you incur expenditure in relation to your existing business, a business that you used to carry on or a business that you propose to carry on, the expenditure is deductible to the extent the business is, was or is proposed to be carried on for a taxable purpose.

You cannot deduct expenditure in relation to an existing business that is carried on by another entity. However, you can deduct expenditure you incur in relation to a business that used to be, or is proposed to be, carried on by another entity. The expenditure is only deductible to the extent that:

  • the business was, or is proposed to be, carried on for a taxable purpose
  • the expenditure is in connection with the business that was or is proposed to be carried on and with you deriving assessable income from the business.

You can deduct 20% of the expenditure in the year you incur it and in each of the following four years. However, for some pre- and post-business expenditure, you may have to defer your claim for a deduction because the non-commercial loss rules apply.

Example 7

If you were carrying on a business during 2020–21, but your relevant capital expenditure relates to a new business that did not commence before 1 July 2020, you cannot claim a deduction for the expenses incurred until the business activity commences.

If you incur such expenditure in these circumstances, you should not claim the deductible amount (20%) but note it in your business or taxation records and claim the amounts deferred for this item in the year the business commences. However, these claims may be subject to further deferral to the extent that they would otherwise give rise to a business loss in the current year.

End of example

See also:

The deduction cannot be claimed for capital expenditure if it:

  • can be deducted under another provision
  • forms part of the cost of a depreciating asset you hold, used to hold or will hold
  • forms part of the cost of land
  • relates to a lease or other legal or equitable right
  • would be taken into account in working out an assessable profit or deductible loss
  • could be taken into account in working out a capital gain or a capital loss
  • would be specifically not deductible under the income tax laws if the expenditure was not capital expenditure
  • is specifically not deductible under the income tax laws for a reason other than the expenditure is capital expenditure
  • is of a private or domestic nature
  • is incurred in relation to gaining or producing exempt income or non-assessable non-exempt income
  • is excluded from the cost or cost base of an asset because, under special rules in the UCA or capital gains tax regimes respectively, the cost or cost base of the asset was taken to be the market value
  • is a return of or on capital or is a return of a non-assessable amount (for example, repayments of loan principal).

Claim the amount deductible under section 40-880 here if:

  • you carried on a business as an individual at any time during 2020–21, or
  • the amount relates to a proposed primary production or performing arts business.

If you have incurred relevant capital expenses that relate to a business that ceased in a previous income year and you carried on the business as a sole trader or through a partnership, claim the expenses here. If you carried on the business through a company or trust, you claim the amount deductible (20%) at item D15 on your tax return (supplementary section).

You must show any recoupment of the expenditure as assessable income, either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8 on your schedule.

Completing this item

Step 1 Enter your deduction for primary production business-related costs at Section 40-880 deduction in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your deduction for non-primary production business-related costs at Section 40-880 deduction in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production deductions for business-related costs and enter the total at A.

Business deduction for project pool

Did you have capital expenditure directly connected with a business project?

No

Go to Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset.

Yes

Read on.
You need to know

Certain capital expenditure you incurred after 30 June 2001 which is directly connected with a project you carry on or propose to carry on for a taxable purpose can be allocated to a project pool and written off over the life of the project. Each project has a separate project pool. The project must be of sufficient substance and be sufficiently identified that it can be shown that the capital expenditure said to be a ‘project amount’ is directly connected with the project.

You are carrying on a project if it involves a continuity of activity and active participation. Merely holding a passive investment, such as a rental property, would not be regarded as carrying on a project.

Such capital expenditure, known as a project amount, is expenditure incurred on:

  • creating or upgrading community infrastructure for a community associated with the project; this expenditure must be paid (not just incurred) to be a project amount
  • site preparation for depreciating assets (other than to drain swamp or low-lying land or to clear land for horticultural plants, including grapevines)
  • feasibility studies for the project
  • environmental assessments for the project
  • obtaining information associated with the project
  • seeking to obtain a right to intellectual property
  • ornamental trees or shrubs.

Project amounts also include mining capital expenditure and expenditure on certain facilities used to transport minerals or quarry materials.

See also:

The expenditure must not be otherwise deductible or form part of the cost of a depreciating asset. If the expenditure incurred arises from a non-arm’s length dealing and is more than the market value of what it was for, the amount of the expenditure is taken to be that market value.

Project amounts are allocated to a ‘project pool’. Your deduction for project amounts allocated to a project pool is spread over the ‘project life’. The project life is the period from the date on which the project starts to operate until the date on which it stops operating. The period must be limited by something inherent in the project. If there is no limited project life, no deduction is available under these rules.

A deduction is available from the income year in which you started to operate a project to gain or produce assessable income. The deduction is worked out on the value of the project pool at the end of the income year at the rate of 150%. For pools containing only project amounts incurred on or after 10 May 2006 for projects starting on or after that day, the rate is 200%. Your deductions are capped at 150% if on or after 10 May 2006 you abandon, sell or otherwise dispose of an existing project and then restart it after that date in circumstances where it would be reasonable to conclude that this was done for the main purpose of ensuring that deductions would be calculated using the higher rate.

Use worksheet 3A or worksheet 3B to work out your deduction.

Worksheet 3A – Project pool deduction for projects which started on or after 10 May 2006

Row

Calculation elements

Amount

a

Value of the project pool at 30 June 2021. This is the closing pool value for 2019–20 (if any) plus the sum of the project amounts you allocated to the pool in 2020–21.

$

b

Your estimate of the life of the project (in years)

years

c

Divide the amount at row a by the amount at row b.

$

d

Multiply the amount at row c by 200%. This is your 2020–21 deduction for the project pool.

$

Your deduction at row d must not be more than the amount at row a.

If a project operated in 2020–21 for purposes other than earning assessable business income, you must reduce your deduction at row d by a reasonable amount for the extent to which the project operated for such other purposes.

Worksheet 3B – Project pool deduction for projects which started before 10 May 2006

Row

Calculation elements

Amount

a

Value of the project pool at 30 June 2021. This is the closing pool value for 2019–20 (if any) plus the sum of the project amounts you allocated to the pool in 2020–21.

$

b

Your estimate of the life of the project (in years)

years

c

Divide the amount at row a by the amount at row b.

$

d

Multiply the amount at row c by 150%. This is your 2020–21 deduction for the project pool.

$

Your deduction at row d must not be more than the amount at row a.

If a project operated in 2020–21 for purposes other than earning assessable business income, you must reduce your deduction at row d by a reasonable amount for the extent to which the project operated for such other purposes.

The pool value can be subject to adjustments, for example, a foreign exchange (forex) adjustment may apply where you met an obligation to pay foreign currency incurred as a project amount which you had allocated to a project pool.

Closing pool value for 2020–21

This is row a minus row d in worksheet 3A and worksheet 3B. You will need the closing pool value for 2020–21 to work out your deduction for the project pool next year.

Any recoupment of the expenditure must be shown as assessable income either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8 on your schedule.

Where a project was abandoned, sold or otherwise disposed of in 2020–21

In this case, whether or not the project had begun to operate, you can claim a deduction for the 2019–20 closing pool value (if any) plus any project amounts allocated to the pool in the 2020–21 year. You must show any proceeds from the abandonment, sale or disposal of the project as assessable income either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of your schedule.

Completing this item

Step 1 Enter your total primary production project pool business deduction at Business deduction for project pool in the Primary production column, item P8 on your schedule. Do not show cents.

Step 2 Enter your total non-primary production project pool business deduction at Business deduction for project pool in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production project pool business deductions and enter the total at L.

Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset

Did you have any of the following expenses:
  • landcare operations
  • water facilities
  • fencing assets
  • fodder storage assets?

No

Go to Income and expense reconciliation adjustments.

Yes

Read on.
Landcare operations expenses

You can claim a deduction for capital expenditure you incur on a landcare operation for land in Australia in the year it is incurred.

If the water facilities and landcare operation rules both apply, you can only deduct the expenditure as expenditure on a water facility; see Water conservation and conveyance facilities. If the carbon sink forest and landcare operation rules both apply, you can only deduct the expenditure as expenditure on carbon sink forests.

Unless you are a rural land irrigation water provider, the deduction is available if you use the land for either:

  • a primary production business, or
  • in the case of rural land, a business for the purpose of producing assessable income from the use of that land, except a business of mining or quarrying.

However your deduction is reduced by a reasonable amount to reflect your use of the land other than for the purpose of carrying on the relevant business in an income year after you incurred the expenditure.

You may claim the deduction even if you are only a lessee of the land.

Rural land irrigation water providers can claim a deduction for certain expenditure they incur. A rural land irrigation water provider is an entity whose business is primarily and principally supplying water to entities for use in primary production businesses on land in Australia or businesses (except mining or quarrying businesses) using rural land in Australia. The supply of water by using a motor vehicle is excluded.

If you are a rural land irrigation water provider, you can claim a deduction for capital expenditure you incurred on a landcare operation for land used by other entities that you supply with water if the land is:

  • land in Australia that those entities use at the time for primary production businesses, or
  • rural land in Australia that those entities use at the time for carrying on businesses for a taxable purpose, except a business of mining or quarrying.

If you are a rural land irrigation water provider your deduction is reduced by a reasonable amount to reflect an entity’s use of the land for other than a taxable purpose in an income year after you incurred the expenditure.

A landcare operation is one of the following:

  1. erecting fences to separate different land classes in accordance with an approved land management plan
  2. erecting fences primarily and principally to keep animals out of areas affected by land degradation in order to prevent or limit further damage and assist in reclaiming the areas
  3. constructing a levee or similar improvements
  4. constructing drainage works, other than the draining of swamps or low-lying land, primarily and principally to control salinity or assist in drainage control
  5. an operation primarily and principally for eradicating or exterminating animal pests from the land
  6. an operation primarily and principally for eradicating, exterminating or destroying plant growth detrimental to the land
  7. an operation primarily and principally for preventing or fighting land degradation other than by erecting fences, or
  8. an extension, alteration or addition to any of the assets described in 1 to 4 above or an extension of an operation described in 5 to 7 above.

A landcare operation also includes:

  • a repair of a capital nature to an asset described in 1 to 4 above
  • constructing a structural improvement that is reasonably incidental to levees (or similar improvements) or drainage works deductible as capital expenditure on a landcare operation
  • a repair of a capital nature, or an alteration, addition or extension to a structural improvement that is reasonably incidental to levees (or similar improvements) or drainage works deductible as capital expenditure on a landcare operation.

An example of a structural improvement that may be reasonably incidental to drainage works is a fence constructed to prevent livestock entering a drain that was constructed to control salinity.

No deduction is available if the capital expenditure is on plant unless it is on certain fences, dams or other structural improvements.

If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

These deductions are not available to a partnership. Expenses for landcare operations incurred by a partnership are allocated to each partner, who can then claim the relevant deduction for their share of the expenditure.

You may need to show any recoupment of the expenditure as assessable income either at Other business income in the Income section of item P8 on your schedule or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8.

See also:

  • Guide to depreciating assets 2021
Water conservation and conveyance facilities

You can claim a deduction for the decline in value of a water facility. A water facility includes plant or a structural improvement, or an alteration, addition or extension to plant or a structural improvement, that is primarily or principally for the purpose of conserving or conveying water.

Water facility includes dams, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills. Water facility also includes certain other expenditure incurred on or after 1 July 2004 for:

  • a repair of a capital nature to plant or a structural improvement that is primarily or principally for the purpose of conserving or conveying water, for example, if you purchase a pump that needs substantial work done to it before it can be used in your business, the cost of repairing the pump may be treated as a water facility
  • a structural improvement, or an alteration, addition or extension to a structural improvement that is reasonably incidental to conserving or conveying water
  • a repair of a capital nature to a structural improvement that is reasonably incidental to conserving or conveying water.

Examples of structural improvements that are reasonably incidental to conserving or conveying water include a bridge over an irrigation channel, a culvert (a length of pipe or multiple pipes that are laid under a road to allow the flow of water in a channel to pass under the road), or a fence preventing livestock entering an irrigation channel.

If you incurred the expenditure from 7.30pm (AEST), 12 May 2015 you claim the full amount in the year you incurred it.

Unless you are an irrigation water provider, the expenditure must be incurred primarily and principally for conserving or conveying water for use in a primary production business you conduct on land in Australia. You may claim the deduction even when you do not own the land. Therefore, if you are a lessee carrying on a business of primary production on the land, you can still claim the deduction. Your deduction is reduced where the facility is not wholly used for either:

  • carrying on a primary production business on land in Australia, or
  • a taxable purpose, for example, producing assessable income.

Irrigation water providers are entitled to a deduction for water facilities expenditure incurred on or after 1 July 2004. An irrigation water provider is an entity whose business is primarily and principally the supply of water to entities for use in primary production businesses on land in Australia. The supply of water by using a motor vehicle is excluded.

If you are an irrigation water provider, you must incur the expenditure primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia (being entities supplied with water by you). The deduction is reduced if the facility is not used wholly for a taxable purpose.

If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

These deductions are not available to a partnership. Costs incurred by a partnership for facilities to conserve or convey water are allocated to each partner who can then claim the relevant deduction for their share of the expenditure.

You may need to show any recoupment of the expenditure as assessable income either:

  • at Other business income in the Income section of item P8 on your schedule, or
  • as part of your Income reconciliation adjustments in the Reconciliation items section of item P8.

See also:

Fencing assets

You can claim a deduction for the decline in value of a fencing asset. A fencing asset includes a structural improvement, a repair of a capital nature, or an alteration, addition or extension to a fence.

If you incurred the expenditure from 7.30pm (AEST), 12 May 2015 you claim the full amount in the year you incurred it. If you incurred the expenditure before this time (or if the expenditure relates to a stockyard, pen or portable fence), the previous decline in value rules that apply to fences based on their effective life continue to apply.

The expenditure must be incurred by you on the construction, manufacture, installation or acquisition of a fencing asset that is used primarily and principally in a primary production business you conduct on land in Australia. You may claim the deduction even when you do not own the land. Therefore, if you are a lessee carrying on a business of primary production on the land, you can still claim the deduction. Your deduction is reduced where the fencing asset is not wholly used for either:

  • carrying on a primary production business on land in Australia, or
  • a taxable purpose, for example, producing assessable income.

If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

These deductions are not available to a partnership. Costs incurred by a partnership on fencing assets are allocated to each partner who can then claim the relevant deduction for their share of the expenditure.

You may need to show any recoupment of the expenditure as assessable income either at Other business income in the Income section of item P8 or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8.

See also:

Fodder storage assets

You can claim a deduction for the decline in value of a fodder storage asset. A fodder storage asset is an asset that is primarily and principally for the purpose of storing fodder. It includes a structural improvement, a repair of a capital nature, or an alteration, addition or extension, to an asset or structural improvement, that is primarily and principally for the purpose of storing fodder.

Fodder refers to food for livestock, usually but not exclusively dried, such as grain, hay or silage. Fodder can include liquid feed and supplements. Examples of typical fodder storage assets include:

  • silos
  • liquid feed supplement storage tanks
  • bins for storing dried grain
  • hay sheds
  • grain storage sheds, and
  • above-ground bunkers.

If you incurred the expenditure from 19 August 2018 you deduct the full amount in the income year in which you incurred it. If you incurred the expenditure between 7.30pm (AEST), 12 May 2015 and 18 August 2018 you deduct one-third of the amount in the income year in which you incurred it, and one-third in each of the following two years, except if you first used the asset or installed it ready for use on or after 19 August 2018. In that case, you deduct the full amount in the income year in which you incurred it (this may require an amendment to a prior year tax return).

If you incurred the expenditure before 7.30pm (AEST), 12 May 2015, the previous decline in value rules that apply to fodder storage assets based on their effective life continue to apply.

The expenditure must be incurred by you on the construction, manufacture, installation or acquisition of a fodder storage asset that is used primarily and principally in a primary production business you conduct on land in Australia. You may claim the deduction even when you do not own the land. Therefore, if you are a lessee carrying on a business of primary production on the land, you can still claim the deduction. Your deduction is reduced where the fodder storage asset is not wholly used for either:

  • carrying on a primary production business on land in Australia, or
  • a taxable purpose, for example, producing assessable income.

If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

These deductions are not available to a partnership. Costs incurred by a partnership on fodder storage assets are allocated to each partner who can then claim the relevant deduction for their share of the expenditure.

You may need to show any recoupment of the expenditure as assessable income either at Other business income in the Income section of item P8 or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8.

See also:

  • Guide to depreciating assets 2021
Small business entities

The amount you show at W must not include any amount relating to a depreciating asset used in your primary production business if you have chosen to claim a deduction for it under the small business entity depreciation rules.

Completing this item

Step 1 Enter your total deductions for primary production landcare operations expenses, water facilities, fencing assets and fodder storage assets at Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset in the Primary production column, item P8. Do not show cents.

Step 2 Enter your total deduction for non-primary production landcare operations expenses, water facilities, fencing assets and fodder storage assets at Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset in the Non-primary production column. Do not show cents.

Step 3 Add up your primary production and non-primary production deductions for landcare operations, water facilities, fencing assets and fodder storage assets and enter the total at W.

Income and expense reconciliation adjustments

Do you need to make any income or expense reconciliation adjustments?

No

Go to Net income or loss from business this year.

Yes

Read on.
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 deduction for decline in value of water facility, fencing asset and fodder storage asset item P8 are assessable income or allowable tax deductions for income tax purposes.

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

Worksheet 4 will assist you with your calculations.

What are income reconciliation adjustments?

Income reconciliation adjustments include:

  • income add backs; this is 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; this is 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 and non-assessable non-exempt income.
    • cash flow boost payments if they have been included in other business income.

Your income reconciliation adjustment is your total income add backs less your total income subtractions.

Use worksheet 4 to work out your income reconciliation adjustments for your primary and non-primary production businesses. The amount you enter at X Income reconciliation adjustments item P8 is the total of your primary production and non-primary production income adjustments.

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

What are expense reconciliation adjustments?

Expense reconciliation adjustments include the following.

  • Expense add backs are expenses shown in the accounts which are not tax deductible, 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 deductions denied by the thin capitalisation rules, other non-deductible expenses.
  • Expense subtractions are items not shown as expenses in the accounts but which are deductible for tax purposes, such as:
    • prepaid expenses from a prior year that are deductible this year but not included elsewhere
    • deduction for decline in value of depreciating assets
    • deductible balancing adjustment amounts on disposal of depreciating assets
    • deduction for environmental protection expenses
    • other items deductible for tax purposes.

Your expense reconciliation adjustment is your total expense add backs less your total expense subtractions.

Use worksheet 4 to work out your expense reconciliation adjustments for your primary and non-primary production businesses. The amount you enter at H Expense reconciliation adjustments item P8 on your schedule is the total of your primary production and non-primary production expense adjustments.

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

See also:

Specific reconciliation adjustments

Following are examples of specific reconciliation adjustments that may apply to you.

If you were previously in the STS read Former STS taxpayers below first.

Former STS taxpayers

Make adjustments in this section of item P8 if:

  • you are eligible and have chosen to continue using the STS accounting method and the amounts you have shown at the Income and Expense sections of item P8 are not based on the STS accounting method, or
  • you stopped using the STS accounting method in 2020–21.

These adjustments are explained in more detail at Adjustments when ceasing to use the STS accounting method.

Worksheet 4 will assist you with your calculations.

Income derived but not received at 30 June 2021 and expenses incurred but not paid at 30 June 2021

If you are eligible and have chosen to continue using the STS accounting method and have included at item P8 amounts of ordinary income that have been derived but not received in 2020–21, the amounts not received are not assessable this year, for example, trade debtors at 30 June 2021.

These amounts form part of your income reconciliation adjustments at X at P8. Include these amounts at row f on worksheet 4.

If you are eligible and have chosen to continue using the STS accounting method and have included at item P8 amounts for general deductions, repairs and tax-related expenses that have been incurred but not paid in 2020–21, the amounts not paid are not deductible this year, for example, trade creditors at 30 June 2021.

These amounts form part of your expense reconciliation adjustments at H item P8. Include these amounts at row n on worksheet 4.

Adjustments when ceasing to use the STS accounting method

If you have discontinued using the STS accounting method read on.

If you have not included at Income at item P8 any amounts of ordinary income that were derived but not received while using the STS accounting method, these amounts are assessable this year, for example, trade debtors at 30 June 2020.

Include these amounts at row b on worksheet 4.

If you have not included at Expenses at item P8 any amounts of general deductions, repairs or tax-related expenses that were incurred but not paid while using the STS accounting method, these amounts are deductible this year, for example, trade creditors at 30 June 2020.

Include these amounts (other than tax-related expenses) at row t on worksheet 4. Enter your deduction for tax-related expenses at item D10 on your tax return.

Disposal of depreciating assets

If you disposed of depreciating assets during the income year, the following amounts form part of your Income reconciliation adjustments at X item P8:

  • the taxable purpose proportion of the termination value of assets that have been disposed of for which an immediate deduction has been claimed either this year or in a prior year
  • if the closing pool balance of a general small business pool is less than zero, the amount below zero
  • assessable balancing adjustment amounts on the disposal of depreciating assets not allocated to a general small business pool.

Include the amounts at row b on worksheet 4.

Any deductible balancing adjustment amounts on the disposal of depreciating assets that you have not allocated to a small business pool form part of your Expense reconciliation adjustments at H item P8. Include these amounts at q on worksheet 4.

See also:

Prepaid expenses

Special rules may affect the timing of deductions for prepaid expenditure. Under these rules you may need to apportion certain prepaid expenses over more than one income year. You must make an expense reconciliation adjustment to add back that part of the expense that is not deductible in the year it is incurred. Show the adjustment at row k on worksheet 4.

If you had a prepaid expense in a prior year which is to be apportioned over the service period and you are entitled to a deduction for part of the expense this year but have not included it elsewhere, show the adjustment as an expense subtraction at row s on worksheet 4.

See also:

Deduction for decline in value

You only add back amounts of depreciation expenses if you are not a small business entity using the simplified depreciation rules. If you are a small business entity using the simplified depreciation rules your tax deduction for decline in value is instead included in the amount at M.

A deduction for a decline in value of a depreciating asset calculated under income tax law may differ from the accounting or book calculation of depreciation. Different rules regarding such things as effective life, the calculation of balancing adjustment amounts and the treatment of debt forgiveness amounts can produce a discrepancy between the two calculations.

Under income tax law you can deduct an amount equal to the decline in value of a depreciating asset in 2020–21 if you held the depreciating asset for any time during the year and used it (or installed it ready for use) for a taxable purpose, such as for producing assessable income.

The deduction is reduced to the extent you do not use the asset for a taxable purpose.

To help you calculate your deduction for decline in value, see the Depreciation and capital allowances tool or Guide to depreciating assets 2021, which also provides explanations of relevant terms. The publication also explains:

There are a number of tax depreciation incentives that you may be able to apply. Your eligibility for each of the incentives depends on your aggregated turnover. If more than one incentive could apply to the asset, the order of application is (subject to opt out choices):

For information about which new accelerated depreciation measure applies to an asset, see Interaction of tax depreciation incentives.

Temporary full expensing

Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new depreciating assets. The eligible new assets must be first held, and first used or installed ready for use for a taxable purpose, between 7.30pm AEDT on 6 October 2020 and 30 June 2022.

For businesses with an aggregated turnover of less than $50 million, temporary full expensing also applies to the business portion of eligible second-hand depreciating assets.

Businesses can also immediately deduct the business portion of the cost of improvements to eligible depreciating assets (and to assets acquired before 7.30pm AEDT on 6 October 2020 that would otherwise be eligible assets) if those costs are incurred between 7.30pm AEDT on 6 October 2020 and 30 June 2022.

If a balancing adjustment event happens to an eligible asset in the same income year as when you first used the asset for a taxable purpose, you cannot deduct the cost of the asset (including costs of improvements) under temporary full expensing.

You also cannot deduct the costs of improvements under temporary full expensing if a balancing adjustment event happens in the income year you incurred those costs.

You can make a choice to opt-out of temporary full expensing for an income year on an asset-by-asset basis. If you are making a choice to opt-out of temporary full expensing you must notify us by recording that choice at C, D and E item P11.

Instant asset write-off

Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.

Businesses with an aggregated turnover of more than $10 million but less than $500 million can claim an instant asset write-off for assets costing less than $150,000 that were purchased from 7.30pm (AEDT) on 2 April 2019 to 31 December 2020, and

  • first used, or installed ready for use, between 1 July 2020 and 30 June 2021.

Backing business investment

Businesses are eligible for the backing business investment – accelerated depreciation deduction if they have an aggregated turnover of less than $500 million in the year they are claiming the deduction.

To be eligible to apply the accelerated rate of deduction under backing business investment, the depreciating asset must:

  • be new and not previously held by another entity (other than as trading stock)
  • be first held on or after 12 March 2020
  • be first used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021
  • not be an asset to which an entity has applied either  
    • temporary full expensing
    • the instant asset write-off rules

If you are eligible for backing business investment – accelerated depreciation, you can choose to not apply these rules to an asset. The choice can be made on an asset-by-asset basis but cannot be changed once made. If you are making a choice to opt-out of backing business investment you must notify us by recording that choice at Q, R and T item P12.

If you choose to use the low-value pool method to calculate the decline in value of low-cost or low-value depreciating assets and the pool contains assets used for work-related, self-education or non-business rental purposes, read question D6 in Individual tax return instructions 2021. Do not include the deduction at item P8. If none of the depreciating assets in the pool is used for any of those purposes, include the amount of your low-value pool deduction at row r on worksheet 4. Where necessary, make a reasonable apportionment between primary production and non-primary production activities.

You should also include the deduction for decline in value of depreciating assets not allocated to a pool at row r on worksheet 4.

You should also add back the depreciation charged in your accounts and shown at M Depreciation expenses in the Expenses section of item P8 as an expense reconciliation adjustment. Include the amount at row h on worksheet 4. The amount at row h should not include any small business pool deductions which you have claimed at M.

Luxury car leasing

A leased car, either new or second-hand, is a luxury car if its cost exceeds the car limit that applies for the income year in which the lease commences. The car limit for- 2020–21 is $ 59,136.

A luxury car lease (other than genuine short-term hire arrangements) is treated as a notional sale-and-loan transaction.

The cost or value of the car specified in the lease (or the market value if the parties were not dealing at arm’s length in connection with the lease) is taken to be the cost of the car for the lessee and the amount loaned by the lessor to the lessee to buy the car.

In relation to the notional loan, the actual lease payments are divided into notional principal and finance charge components. That part of the finance charge component for the notional loan applicable for the particular period (the accrual amount) is deductible to the lessee, subject to any reduction required under the thin capitalisation rules.

The amount forms part of your expense reconciliation adjustments at H item P8 on your schedule. Include the amount at row p on worksheet 4.

In relation to the notional sale, the lessee is treated as the holder of the luxury car and may be entitled to claim a deduction for the decline in value of the car. If the lessee is a small business entity using the simplified depreciation rules for the income year in which the lease is entered into, the lessee allocates the car to their general small business pool.

For the purpose of calculating the deduction, the cost of the car is limited to the car limit for the income year in which the lease is granted.

For more information on deductions for the decline in value of leased luxury cars, see Guide to depreciating assets 2021.

In summary, the lessee is entitled to deductions equal to:

  • the accrual amount
  • the decline in value of the luxury car, based on the applicable car limit, unless the car is allocated to the general small business pool.

You reduce both deductions to reflect any use of the car for a non-taxable purpose.

Where you allocated the car to the general small business pool with the cost based on the applicable car limit, see Calculating your depreciation deductions.

If you have included the lease expense at J Lease expenses in the Expenses section of item P8 in your schedule, the amount should also form part of your expense reconciliation adjustments at H item P8. Include the amount at row i on worksheet 4. Include the deduction for the accrual amount at row p.

If the lease terminates or is not extended or renewed and the lessee does not actually acquire the car from the lessor, the lessee is treated under the rules as disposing of the car by way of sale to the lessor. This constitutes a balancing adjustment event. If the car is not subject to the simplified depreciation rules, any assessable or deductible balancing adjustment amount for the lessee must be determined. If the car has been allocated to the lessee’s general small business pool, see step 4 for small business entities.

Hire-purchase agreements

Hire-purchase and instalment sale agreements of goods are treated as a sale of the property by the financier (or hire-purchase company) to the hirer (or instalment purchaser).

The sale is treated as being financed by a loan from the financier to the hirer at a sale price of either their agreed cost or value or the property’s arm’s length value.

The periodic hire-purchase (or instalment) payments are treated as payments of principal and interest under the notional loan. The interest component is deductible to the hirer, subject to any reduction required under the thin capitalisation rules. This amount forms part of the expense reconciliation adjustments at H item P8. Include the amount at row t on worksheet 4.

In relation to the notional sale, the hirer of a depreciating asset is treated as the holder of the asset and either allocates the asset to the appropriate small business pool if they are a small business entity using the simplified depreciation rules for the income year, or may be entitled to claim a deduction for the decline in value of the depreciating asset. The cost of the asset for this purpose is taken to be the agreed cost or value, or the arm’s length value if the dealing is not at arm’s length.

If you have included hire-purchase charges as an expense at item P8, the amount should also form part of your expense reconciliation adjustments at H item P8. Include the amount at row n on worksheet 4.

Termination of a limited recourse debt

Excessive deductions for capital allowances are included in assessable income under the limited recourse debt rules contained in Division 243 of the ITAA 1997. This will occur where:

  • expenditure on property has been financed or re-financed wholly or partly by the limited recourse debt
  • the limited recourse debt is terminated after 27 February 1998 but has not been paid in full by the debtor
  • because the debt has not been paid in full, the capital allowance deductions allowed for the expenditure exceed the deductions that would be allowable if the unpaid amount of the debt was not counted as capital expenditure of the debtor. Special rules apply in working out whether the debt has been fully paid.

A limited recourse debt is a debt where the rights of the creditor as against the debtor, in the event of default in payment of the debt or of interest, are limited wholly or predominantly to the property which has been financed by the debt or is security for the debt, or rights in relation to such property. A debt is also a limited recourse debt if, notwithstanding that there may be no specific conditions to that effect, it is reasonable to conclude that the creditor’s rights as against the debtor’s are capable of being so limited.

A limited recourse debt includes a notional loan under a hire-purchase or instalment sale agreement of goods to which Division 240 of the ITAA 1997 applies, see section 243-20.

The amount that is included within assessable income as a result of these provisions forms part of your income reconciliation adjustments at X item P8. Include the amount at row b on worksheet 4.

Worksheet 4 – Reconciliation statement

Reconcile your primary production and non-primary production items separately. Part 1a: Income reconciliation adjustments – Additions

Row

Calculation elements

Primary production

Non-primary production

a

Assessable balancing adjustment amounts on disposal of depreciating assets

$

$

b

Assessable business income not included in the profit and loss statement

$

$

c

Subtotal: add the amounts at row a and row b.

$

$

Part 1b: Income reconciliation adjustments – Subtractions

Row

Calculation elements

Primary production

Non-primary production

d

Net exempt income (gross exempt income less expenses relating to that exempt income)

$

$

e

Profit on sale of depreciating assets included in accounts

$

$

f

Other non-assessable income included in the profit and loss statement

$

$

g

Subtotal: add the amounts at rows d, e and f.

$

$

 

Income reconciliation adjustments: take the amount at row g away from the amount at row c.

$

$

Part 2a: Expense reconciliation adjustments – Additions

Row

Calculation elements

Primary production

Non-primary production

h

Depreciation charged in accounts [see note 1.]

$

$

i

Lease payments for luxury cars

$

$

j

Loss on sale of depreciating assets included in accounts

$

$

k

Part of prepaid expenses not deductible this year

$

$

Part 2b: Expense reconciliation adjustments – Items not allowable as deductions

Row

Calculation elements

Primary production

Non-primary production

l

Capital expenditure

$

$

m

Additions to provisions and reserves

$

$

n

Other non-deductible items, including income tax

$

$

o

Subtotal: add the amounts at rows h, i, j, k, l, m and n.

$

$

Part 2c: Expense reconciliation adjustments – Subtractions

Row

Calculation elements

Primary production

Non-primary production

p

Accrual amount deduction for lessee of luxury cars

$

$

q

Deductible balancing adjustment amounts on disposal of depreciating assets

$

$

r

Deduction for decline in value of depreciating assets

$

$

s

Part of prepaid expenses deductible this year but not included elsewhere

$

$

t

Other items deductible for tax purposes not included in the profit and loss statement [See note 4.]

$

$

u

Subtotal: add the amounts at rows p, q, r, s and t.

$

$

 

Expense reconciliation adjustments: take the amount at row u away from the amount from row o.

$

$

Notes

  1. Include amounts at row h only if you are not using the simplified depreciation rules. However, exclude any pool deductions which you have included at M item P8 which relate to a continuing small business pool.
  2. See Guide to depreciating assets 2021 for an explanation of depreciating assets.
  3. If you have included an amount of capital expenditure incurred to terminate a lease or licence at J Lease expenses item P8, make a reconciliation adjustment at H Expense reconciliation adjustments by including the amount of capital expenditure as an expense add back and taking away that part of the expense which is allowed as a tax deduction.
  4. Do not include in the amount at row t:
  • section 40-880 deductions
  • business deductions for project pools
  • deductions for landcare operations, water facilities, fencing assets and fodder storage assets.

Reconciliation adjustments for these amounts are shown separately at A, L and W on your schedule.

Completing this item

Step 1 Complete worksheet 4 using the explanations provided. This will give you your total income and expense reconciliation amounts (primary and non-primary production) that you need for your schedule.

Step 2 Transfer the totals in the Income reconciliation adjustments (below row g) and the Expense reconciliation adjustments (below row u) on the worksheet to the appropriate boxes on your schedule. Do not show cents.

Step 3 If any of the reconciliation adjustment amounts is negative, print L in the box at the right of the amount.

Step 4 Add up your primary production and non-primary production income reconciliation adjustments and enter the total at X.

Step 5 Add up your primary production and non-primary production expense reconciliation adjustments and enter the total at H.

Step 6 If the total income reconciliation adjustment amount is negative, print L in the box at the right of the amount at X. If the total expense reconciliation adjustment amount is negative, print L in the box at the right of H.

Worksheet 5

Working out your net income or loss from primary production business for 2020–21

Row

Calculation elements

Amount

a

Enter your primary production total business income you show in the Primary production column at TOTAL BUSINESS INCOME item P8.

$

b

Enter your primary production total business expenses you show at S item P8.

$

c

Add up the amounts of any deductions for section 40-880 expenditure, project pool and landcare operations, water facilities, fencing assets and fodder storage assets and enter the total at row c.

$

d

Add the amount at row b to the amount at row c.

$

e

Take the amount at row d away from the amount at row a.

$

f

Enter your primary production income reconciliation adjustment (if any).

$

g

Enter your primary production expense reconciliation adjustment (if any).

$

h

Your net income or loss from your primary production business: add the amounts at rows e, f and g.

$

If the amount at row d is more than the amount at row a, the amount at row e is a loss. If it is, or if you have a negative amount at rows f or g, the examples below will help you to work out your loss from primary production business.

Worksheet 6

Working out your net income or loss from non-primary production business for 2020–21

Row

Calculation elements

Amount

i

Enter your non-primary production total business income you show in the Non-primary production column at TOTAL BUSINESS INCOME item P8.

$

j

Enter your non-primary production total business expenses you show at T item P8.

$

k

Add up the amounts of any deductions for non-primary production section 40-880 expenditure, project pool and landcare operations.

$

l

Add the amount at row j to the amount at row k.

$

m

Take away the amount at row l from the amount at row i.

$

n

Enter your non-primary production income reconciliation adjustment (if any).

$

o

Enter your non-primary production expense reconciliation adjustment (if any).

$

p

Your net income or loss from your non-primary production business: add the amounts at rows m, n and o.

$

If the amount at row l is more than the amount at row i, the amount at row m is a loss. If it is, or if you have a negative amount at rows n or o, the examples below will help you to work out your loss from non-primary production business.

Examples 8

If the amount at row e is a $5,000 loss, the amount at row f is $12,000 income and the amount at row g is a $1,000 loss, the net income from the primary production business at row h is $6,000.

If the amount at row e is $5,000 profit, the amount at row f is $2,000 income and the amount at row g is an $8,000 loss, the loss from the primary production business at row h is $1,000.

If the amount at row m is a $5,000 loss, the amount at row n is a $4,000 loss and the amount at row o is a $1,000 loss, the loss from the non-primary production business at row p is $10,000.

End of example
Net income or loss from business for 2020–21

Use worksheet 5 and worksheet 6 to work out your net income or loss from your primary and non-primary production businesses for 2020–21, not including any non-commercial business losses deferred from a prior year.

Completing this item

Step 1 Transfer the amount at row h on worksheet 5 to B item P8. Do not show cents. If the amount is a loss, print L in the box at the right of this amount.

Step 2 Transfer the amount at row p on worksheet 6 to C item P8. Do not show cents. If the amount is a loss, print L in the box at the right of this amount.

Step 3 Add B and C and enter the total in the adjacent Totals column. The amount you show should not include any non-commercial business losses deferred from a prior year (which are shown at D or E, see Deferred non-commercial business losses from a prior year).

If you made a loss from your business, print L in the box at the right of this amount.

If the amount at B or C includes details from more than one business activity, and any one of these activities resulted in a net loss, you also need to complete items P3 and P9 on your schedule.

Deferred non-commercial business losses from a prior year

Do you have any deferred non-commercial business losses from a prior year?

No

Go to Net income or loss from business this year.

Yes

Read on.
You need to know

A deferred non-commercial business loss is a loss you incurred in a prior year which you were unable to claim against other income. If your activity is carried on partly in Australia and partly overseas please phone 13 28 66 or see How to defer your losses.

Your prior year deferred non-commercial business loss for a business activity may be reduced if you earned net exempt income in 2020–21.

If you became bankrupt (or received a relief from debt) the deferred losses will no longer be available. The loss cannot be deducted in the current year or any future year.

See also:

Completing this item

Step 1 At D item P8 on your schedule enter the amount of any primary production losses you deferred in a prior year from activities that are the same or similar to your current year activity. Do not show cents.

Step 2 At E enter the amount of any non-primary production losses you deferred in a prior year from activities that are the same or similar to your current year activity. Do not show cents.

Step 3 Add up your primary and non-primary production deferred non-commercial business losses. Enter the total at Deferred non-commercial business losses from a prior year in the Totals column.

Net income or loss from business

This amount takes into account non-commercial losses deferred from a prior year.

Completing this item

Step 1 If you have net income from primary production business this year at B, take away from it the amount of your deferred non-commercial primary production business losses from a prior year shown at D. Enter the answer at Y Net income or loss from business item P8.

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

If you have a loss from primary production business this year at B, add it to the amount of your deferred non-commercial primary production business losses from a prior year shown at D. Enter the total at Y Net income or loss from business item P8 and print L in the box at the right of the amount .

If you have printed L in the box at the right of the amount at Y, you also need tocomplete items P3 and P9.

Step 2 If you have net income from non-primary production business this year at C, take away from it the amount of your deferred non-commercial non-primary production business losses from a prior year shown at E. Enter the answer at Z Net income or loss from business item P8.

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

If you have a loss from non-primary production business this year at C, add it to the amount of your deferred non-commercial non-primary production business losses from a prior year shown at E. Enter the total at Z Net income or loss from business item P8 and print L in the box at the right of the amount.

If you have printed L in the box at the right of the amount at Z, you also need tocomplete items P3 and P9.

Step 3 Add up the amounts at Y and Z.

Enter the answer at Net income or loss from business in the Totals column. If the total is negative, print L in the box at the right of the amount.

Step 4 Transfer the amounts at Y and Z to B and C (respectively) item 15 on your tax return (supplementary section).

Small business income tax offset

Are you a small business entity with a turnover less than $5 million?

No

Go to P9 Business loss activity details.

Yes

Read on.

You need to work out your net small business income so we can calculate your tax offset. The maximum offset is $1,000 per year per person from all your sources of small business income.

Your net small business income is your assessable income from carrying on your business less your deductions to the extent that they are attributable to that assessable income.

If you carry on multiple businesses combine the profit or loss from each business activity to work out your net small business income from all your businesses. If one or more of your business activities made a loss you must first apply the non-commercial loss rules to work out how each loss is to be treated. Any loss you are unable to claim because of these rules is not taken into account in working out net small business income.

See also:

Use your Y and Z amounts as your starting point for working out your net small business income. Any prior year deferred non-commercial losses being claimed as a deduction this year are already included in the amounts shown at Y and Z. You do not need to include them again in your net small business income calculation.

Do not include:

  • any net capital gains you made from assets used in carrying on your business
  • any personal services income unless you were a personal services business
  • any of the following deductions
    • tax-related expenses
    • gifts or contributions
    • personal superannuation contributions
    • tax losses from prior years.
Completing this item

Step 1 Did you have either of the following:

  • business income or deductions shown at items other than Y or Z item P8 (see Worksheet 7 for a list of these items)
  • business losses that are not deductible under the non-commercial loss rules – see P9 Business losses activity details.

To work out your net small business income, use the worksheet or our Small business income tax offset calculator.

No

The amount at Y and Z item P8 is your net small business income. Add Y and Z together, a negative amount will offset a positive amount. Show the result at A item 15 on your tax return (supplementary section). You are finished with this item. Go to P9.

Yes

Go to step 2.

Step 2 Use the worksheet below to adjust your Y or Z item P8 amount. Show these amounts at rows a and b in the worksheet.

Step 3 If any business losses are not allowable deductions for non-commercial loss purposes show them at row h. If the loss includes a net capital gain, deduct the amount of net capital gain from the loss and show the result at row h.

Step 4 Add up all the amounts at rows a to h and deduct the amount at rows i and j. Show the result at row k. If the result is positive this is your net small business income. Show this amount at A item 15 on your tax return (supplementary section). If the result is a loss show zero. Do not show cents.

Worksheet 7

Worksheet 7a – Item 15 Net income or loss from business

Row

Calculation elements

Amount

a

B primary production
If this amount is negative show it in brackets, for example (5,000).

$

b

C non-primary production
If this amount is negative show it in brackets, for example (5,000).

$

Worksheet 7b – Additions

Row

Calculation elements

Amount

c

FMD withdrawals at item 17 relating to the business

$

d

Foreign source business income from item 19 or 20

$

e

Business interest income (do not include interest on an FMD as it is not business interest income)

$

f

Business dividend income

$

g

Other business income not already shown at this item

$

h

Business losses which are not allowable deductions (excluding any net capital gains)

$

Worksheet 7c – Deductions

Row

Calculation elements

Amount

i

FMD deductible deposits at item 17 relating to the business

$

j

Other business deductions not already claimed at this item

$

Worksheet 7d – Net small business income (including foreign income)

Row

Calculation elements

Amount

k

Add up all the amounts at rows a to h in Worksheets 7a and 7b. Then deduct the amounts at row i and j in Worksheet 7c. Show the result at row k.

$

P9 Business loss activity details

Did you have:

  • a loss from a business activity you carried on either as a sole trader or in partnership (including a loss after deducting your partner expenses)
  • a loss at
    • N or O item 13 Partnerships and trusts
    • A item 14 Personal services income
    • B or C item 15 Net income or loss from business, or
  • a foreign business loss at M item 20 Other net foreign source income?

No

If you are a small business entity using the simplified depreciation rules, go to P10 Small business entity simplified depreciation.

Otherwise, go to Other business and professional items.

Yes

Read on.

You must complete Activity 1.If you have more than one loss, then each loss must be considered separately.

Before you complete item 16 on your tax return (supplementary section), include foreign business losses shown at M item 20 here. If you carry on an activity that is partly in Australia and partly overseas, you must consider if you have an overall loss from the activity before completing this item. Combine the results of the activity that is carried on partly in Australia and overseas to determine if you have an overall loss for the activity.

While this question is about business losses you may have to report an investment loss or a business profit if you answered Yes.

See also:

What you need

If you are a partner in a partnership, you will need the following details for each business activity that you, as a partner, were involved in:

  • the amount of assessable income earned by the partnership for the activity
  • the share of the partnership's assessable income, real property and certain other assets, attributable to partners who are not individuals
  • your share of income or loss of the partnership from the activity.

Investment losses

If you have a partnership non-primary production loss from a passive investment at
O item 13 – for example, from a rental property – then you are not required to report that loss. If, however, that is your only loss, you need to complete Activity 1 at P9 and show:

  • the description of the activity at D as 'Investment'
  • the industry code '67110' at E
  • P for partnership at F
  • 0 for type of loss at G
  • 0 for net loss at I.

If you have completed Activity 1 as directed above:

If you have not completed Activity 1 as directed above, read on.

Work out whether you have a loss for the business activity

Complete Worksheet 1a for each business activity to determine whether you have an overall loss for that activity when both of the following apply:

  • you have a loss from a business activity at any of
    • N or O item 13
    • A item 14
    • B or C item 15
    • M item 20

and

  • you have any of the following from the same business activity
    • gross interest at L item 10 (interest on a farm management deposit (FMD) is not business income)
    • dividends at S, T or U item 11
    • farm management repayments at N or R item 17
    • net capital gain at A item 18
    • net foreign source income or loss at M item 20
    • partner deductions attributable to that business activity at I, J, X or Y
      item 13.

Complete Worksheet 1a

  • Add up the income from the activity shown at items 10, 11, 17, 18 and 20 and write the result at a.
  • Write at b the loss from this activity reported at items 13, 14 or 15.
  • If the activity is carried on in partnership, write at c any partner deductions that relate to this activity which you showed at I, J, X or Y item 13.
  • Write at d any net foreign loss from this activity you showed at M item 20.
  • Add up b, c and d and write the result at e.
  • Subtract the amount at e from a and write the result at f.
  • If the result at f is negative this activity has an overall loss, see You need to know.
  • If the result at f is zero or positive this activity does not have a loss, see Profitable activities.
Worksheet 1a – Working out whether you have a loss for the business activity

To help you work out whether you have a loss for the business activity, you can use this worksheet. If you use it, keep the completed worksheet with your other records.

Worksheet 1a – Working out whether you have a loss

Row

Calculation element

Amount

a

Income from the activity shown at other items:

  • gross interest L item 10
  • dividends S, T, U item 11
  • farm management repayments N, R item 17
  • net capital gain A item 18
  • other net foreign source income M item 20

 

$

b

Loss from the activity shown at:

  • distribution from partnerships N item 13, O item 13
  • net personal services income A item 14
  • net income or loss from business B item 15, C item 15

Show the loss here as a positive amount.

$

c

Partner deductions attributable to the activity shown at I, J, X, Y item 13

$

d

Loss from the activity at M item 20 Other net foreign loss

Show the loss here as a positive amount.

$

e

Add b, c and d.

$

f

Subtract e from a.

The result at f is your business activity's overall profit
or loss.

$

Profitable activities

If the amount at f in Worksheet 1a is zero or positive and:

  • you have more than one business activity net loss to report at P9, then you need to report all of them (there is space for the three largest losses on the paper return), or
  • you do not have a net loss from another business activity then you need to complete Activity 1 as follows in respect of one profitable business activity. Write:
    • the description of activity at D
    • the industry code at E
    • P for partnership or S for sole trader at F
    • 5 for type of loss at G
    • AN as reference for code 5 at C
    • 200926 for number at A
    • 0 for net loss at I.

If you have completed Activity 1 as directed above:

If you have not completed Activity 1 as directed above, note the activity loss amount at Row f in Worksheet 1a and read on.

You need to know

Under the rules for non-commercial business losses, you can use a 2020–21 loss from a business activity you conduct either as a sole trader or in partnership to calculate your 2020–21 taxable income if it meets one of these conditions:

  • an exception applies
  • you meet the income requirement and one of the four tests is satisfied
  • you meet the income requirement and none of the four tests is satisfied, but the Commissioner of Taxation has exercised his discretion, or ruled that it will be exercised, to allow you to claim the loss
  • you do not meet the income requirement, but the Commissioner has exercised his discretion, or ruled that it will be exercised, to allow you to claim the loss.

You cannot claim losses arising from activities you conduct that are a private recreational pursuit or hobby, or if there is no likelihood of profit.

The rules for non-commercial business losses apply to both foreign and Australian business activities.

Keep records of each of the net losses deferred for your separate business activities.

The exceptions

If you operated or proposed to operate a primary production business or a professional arts business and your unrelated assessable income for 2020–21 (except any net capital gain) from other sources is less than $40,000, you may claim your business loss for 2020–21.

A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work, as a performing artist, or as a production associate.

GST excluded

Your assessable income excludes any goods and services tax (GST) on a taxable supply you make. You must be registered or required to be registered for GST to make a taxable supply.

The four tests

You will not have to defer your loss from your business activity if you meet the income requirement and the activity satisfies at least one of the following four tests:

  • There is at least $20,000 of assessable income from the business activity for 2020–21.
  • The business activity has produced a profit for tax purposes in three out of the past five years, including 2020–21.
  • The value of real property assets (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000.
  • The value of certain other assets (except cars, motorcycles and similar vehicles) used on a continuing basis in carrying on the business activity is at least $100,000.

See also:

The income requirement

You must meet the income requirement to continue to access the four tests to offset your loss from a business activity against other assessable income.

If you do not meet the income requirement, you may request the Commissioner to exercise his discretion to allow your loss, see The Commissioner’s discretion.

You will meet the income requirement and have access to the four tests if the total of the following amounts is less than $250,000:

  • Taxable income is the amount shown, or that would be shown, on page 4 of your tax return if the loss from this activity at f in Worksheet1a is claimed and not added back at item 16 less any assessable first home super saver (FHSS) amount. If you have an FMD repayment in relation to the loss activity, include it in calculating the loss from the activity. If your taxable income is zero or a loss, and the loss from this activity is $250,000 or more, you need to complete Worksheet 1b. You need to complete Worksheet 1b for each activity with a loss of $250,000 or more.
  • Total reportable fringe benefits amounts shown on your payment summary and totalled at N and W item IT1 on your tax return.
  • Reportable superannuation contributions are your reportable employer superannuation contributions (shown on your payment summary and totalled at T item IT2 on your tax return), plus any deductible personal superannuation contributions shown at item D12 on your tax return (supplementary section).
  • Net investment losses are the total of your financial investment losses (shown at X item IT5 on your tax return) and rental properties losses (shown at Y item IT6 on your tax return).

If you do not meet the income requirement, you will have to defer your loss unless the Commissioner has exercised his discretion or ruled that it will be exercised, or you satisfy another exception.

Complete Worksheet 1b

  • Write your taxable income or loss at a. Include your non-commercial losses that would be deductible if the income requirement was satisfied. Show a loss as a negative.
  • Write the total of your deductible non-commercial losses at b.
  • Add up a and b and write the result at c.
  • Write any losses carried forward from earlier income years (shown at Q and R item L1 on your tax return) but not claimed (claimed losses shown at F and Z item L1 on your tax return) at d.
  • Write any gifts or donations (shown at D9 item J on your tax return) that were not allowed as a deduction because they added to or created a tax loss at e.
  • Write any personal superannuation contributions (shown at D12 item H on your tax return) that were not allowed as a deduction because they added to or created a tax loss at f.
  • Add up d, e and f and write the result at g. This cannot exceed the amount at c.
  • Subtract g from c and write the result at h. This is your taxable income excluding your non-commercial losses.
  • Write at i your total reportable fringe benefits amounts shown on your payment summary and totalled at N and W item IT1 on your tax return.
  • Write at j your reportable superannuation contributions (shown on your payment summary and totalled at T item IT2 on your tax return).
  • Write at k your total net investment losses being the sum of your financial investment losses (shown at X item IT5 on your tax return) and rental properties losses (shown at Y item IT6 on your tax return).
  • Add up h, i, j and k and show the result at l.
Worksheet 1b: Your deductible non-commercial losses are $250,000 or more and your taxable income is zero or a loss

To help you work out if your deductible non-commercial losses are $250,000 or more and your taxable income is zero or a loss, use this worksheet. Then, keep the completed worksheet with your records.

Worksheet 1b: working your deductible non-commercial losses

Row

Calculation element

Amount

a
  • Your taxable income or loss - excluding any assessable First home super saver released amount (show a loss as a negative)
  • Include your non-commercial losses that would be deductible if the income requirement test was satisfied

 

$

b

Your total deductible non-commercial losses (show as a positive figure)

$

c

Add a and b

$

d

Your losses carried forward from earlier income years shown at Q and R item L1, but not claimed at F and Z item L1

$

e

Your gifts or donations shown at J item D9, that were not allowed as a deduction because they added to or created a tax loss

$

f

Your personal superannuation contributions shown at H item D12 that were not allowed as a deduction because they added to or created a tax loss

$

g

Add d, e and f. If the result exceeds the amount at c, write the amount from c

$

h

Subtract g from c. The result is your taxable income excluding your non-commercial loss

$

i

Your total reportable fringe benefits amounts shown at N and W item IT1

$

j

Your reportable superannuation contributions shown at T item IT2

$

k

The sum of your total net investment losses shown at X item IT5 and rental properties losses shown at Y item IT6

$

l

Add h, i, j, and k.

The result is your income for non-commercial loss purposes.

$
The Commissioner’s discretion

If you meet the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity to be claimed in the year it arises. This can occur even if none of the four tests are satisfied, provided either:

  • the business activity was affected by special circumstances outside the control of the business operators (for example, natural disasters) where the activity would have satisfied one of the four tests but for these special circumstances, or
  • the business activity, because of its nature, has a lead time and for this reason, does not or will not satisfy any of the four tests. However, there is an objective expectation that within a period that is commercially viable for the industry either
    • it will satisfy one of the four tests, or
    • produce assessable income for an income year greater than the tax deduction attributable to that income for that year. ‘Commercial viability’ is measured against independent industry standards.

If you exceed the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity in more limited circumstances. The Commissioner can exercise his discretion in this instance if:

  • the business activity was affected by special circumstances outside the control of the business operators (for example, natural disasters) where the activity was unable to produce a tax profit and would have satisfied one of the four tests but for these special circumstances, or
  • the business activity, because of its nature, has a lead time and, for this reason, does not or will not produce assessable income greater than the tax deduction attributable to that income. However, there is an objective expectation that it will do so within a period that is commercially viable for the industry concerned. ‘Commercial viability’ is measured against independent industry standards.
Applying for the Commissioner’s discretion

You must apply in writing for advice on whether the Commissioner will exercise discretion. To do this, complete the Application for a private ruling on the Commissioner’s discretion for non-commercial business losses.

See also:

Deferring your loss

If you are unable to claim your loss in 2020–21 because of these rules, you must defer the loss.

This deferred loss is not disallowed. Instead, you take it into account for the next income year in which you carry on this business activity, or one of a similar kind.

The deferred loss is a deduction when calculating any net profit or loss from the activity in that future year. Your deferred loss deduction may be reduced if:

  • you earn net exempt income in the future year, or
  • you become bankrupt or are released from any debts by the operation of an Act relating to bankruptcy.

Whether any overall loss can be taken into account when you calculate taxable income for that future year depends on the application of the deferral rules for non-commercial business losses in that year.

If you are unable to claim your loss against other income in 2020–21 because of these rules, you must defer your loss by showing the amount at item 16 on your tax return (supplementary section). The amount shown at item 16 cannot be used to reduce your 2020–21 taxable income.

See also:

Make sure you complete Activity 1, and if necessary, Activity 2 and Activity 3 at P9 on page 4 of your schedule before you complete item 16 on your tax return (supplementary section).

Completing the activities

If you have more than one loss activity to report, list your activities from the largest loss to the smallest loss and complete the activities in that order. Only the first three activities are to be reported.

If you were not required to complete Worksheet 1b, go to Activity 1. Otherwise, each activity needs to be completed as follows:

  • the description of activity at D
  • the industry code at E
  • P for partnership or S for sole trader at F
  • 5 for type of loss at G
  • AN as reference for code 5 at C
  • 200926 for number at A
  • your net loss amount at I.

Activity 1

Description of business activity – Completing this item

Describe the business activity from which you made the largest loss and enter this at D item P9 on page 4 of your schedule. If your business activity is the result of an investment in a tax-effective arrangement, enter the name of the project at D.

Industry code – Completing this item

Show the appropriate industry code for the business activity.

Code the business activity as accurately as possible. The industry code is made up of five digits. For example, if the industry is dairy cattle farming, the code you show on the tax return is 01600.

An incorrect code may result in you not receiving a necessary service or material from us, or could lead us to incorrectly target audits. Taxation statistics use the industry code you provide to publish industry benchmarks.

The industry codes we use are a modified version of the Australian and New Zealand Standard Industrial Classification (ANZSIC) produced jointly by the Australian Bureau of Statistics (ABS) and Statistics New Zealand. Use our Business industry code (BIC) tool to help you find the correct BIC for your business activity.

Partnership or sole trader – Completing this item

At F item P9, enter either P in the box at Partnership (loss from a business activity carried on in partnership with others) or S in the box at Sole trader (loss from a business activity carried on as a sole trader).

Type of loss – Completing this item

Select the most appropriate number code from the following list and enter it at G item P9 on page 4 of your schedule:

  1. Your assessable income from the business activity for 2020–21 was at least $20,000 and you met the income requirement.
  2. The business activity produced a profit for tax purposes in three out of the past five years (2016–17 to 2020–21) and you met the income requirement.
  3. The value of real property assets or interests in real property (excluding any private dwelling) used on a continuing basis in carrying on the business activity was at least $500,000 and you met the income requirement.
  4. The value of certain other assets (except cars, motor cycles or similar vehicles) used on a continuing basis in carrying on the business activity was at least $100,000 and you met the income requirement.
  5. We have written to advise you that the Commissioner will exercise his discretion to allow you to claim a loss for that business activity for 2020–21. This is where the Commissioner has issued a product ruling or a private ruling allowing losses to be claimed from an activity you participated in.
    • Some business activities may be covered by a product ruling or private ruling that does not relate to 2020–21. Use loss code 5 only if you have advice in writing that the Commissioner will exercise his discretion for 2020–21.
    • If you have applied for a private ruling for the Commissioner to exercise his discretion for 2020–21, but have not yet received the ruling, use loss code 8 unless another code applies.
  6. The loss was from a business activity you operated that was a professional arts business and your assessable income (excluding any net capital gain) from unrelated sources was less than $40,000. A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work, as a performing artist, or as a production associate.
  7. The loss is from a business activity you operated that is a primary production business, and your assessable income (excluding any net capital gain) from unrelated sources was less than $40,000.
  8. The above loss codes don’t apply. You must defer your loss and complete item 16 on your tax return (supplementary section).
Did you use loss code 5 at G item P9?

No

Go to Deferred non-commercial business losses from a prior year.

Yes

You must complete Reference for code 5 at C item P9 on page 4 of your schedule. Read on.
Reference for code 5 – Completing this item

If your business activity is covered by a product ruling that states that the Commissioner will exercise his discretion to allow a loss from that business activity:

  • enter PR at C in the Code section of Reference for code5 item P9 on page 4 of your schedule
  • enter the year of the product ruling at Y in the Year section
  • enter the product ruling number at A in the Number section (do not include the year of the product ruling nor the slash).

If your business activity is covered by a private ruling that states that the Commissioner will exercise his discretion to allow a loss from that business activity, write AN at C in the Code section of Reference for code 5 item P9 on page 4 of your schedule.

Deferred non-commercial business loss from a prior year – Completing this item

Write the amount of your deferred non-commercial business loss from a prior year for the business activity at H item P9 on page 4 of your schedule. Do not show cents. Your prior year deferred non-commercial business loss for a business activity may be reduced if you earned net exempt income in 2020–21.

See also:

If you became bankrupt (or received a relief from debt) the deferred losses will no longer be available. The loss cannot be deducted in 2020–21 or any future year.

For more information about how exempt income and bankruptcy affect deferred non-commercial business losses, phone 13 28 66.

Net loss – Completing this item

Write your net loss from the business activity for 2020–21 at I item P9 on your schedule. Do not show cents. If you completed Worksheet 1a for the activity and the result at f was negative, this is your net loss amount. The example below will help you work out what to include at item P9.

Activity 2 and Activity 3

Fill out details for the second and third-largest losses (if applicable) in the same way you have done for Activity 1.

If you made a loss from more than three business activities, determine whether you need to defer the loss for each additional business activity. You will need the total amount of your deferred non-commercial business losses to complete item 16 on your tax return (supplementary section).

The following example shows how to complete items P8 and P9 on your schedule and how the amounts link to your tax return (supplementary section).

Example 9

In 2019–20, Kieren had to defer his non-commercial business loss of $6,000 from his beef cattle primary production business activity. He also had to defer his non-commercial business loss of $3,000 from his retail (computer repairs) business activity. Because he operated the same activities in 2020–21 and if he is not required to defer the losses from either activity, he can claim the $6,000 business loss from the beef cattle primary production business activity as a deduction for calculating any net profit or loss from that business activity for 2020–21. He can also claim the $3,000 business loss from the retail non-primary production business activity as a deduction for calculating any net profit or loss from that business activity for 2020–21.

Kieren would show the amount of $6,000 as a deduction at D item P8, the amount of $3,000 as a deduction at E item P8, and $9,000 at Totals on his Business and professional items schedule for individuals 2021.

This image shows the P8 section of the form. Item P8 is completed with $6000 at D (Primary production), $3000 at E (Non-primary production) and $9000 in the Totals area.

In 2020–21, Kieren made a loss of $4,000 from the beef cattle primary production business. After taking into account his deferred non-commercial primary production business loss of $6,000 from 2019–20, he made a net loss of $10,000 that was shown at B item 15. He withdrew $9,000 from a farm management deposit account related to his beef cattle primary production business shown at R item 17. Kieren completed Worksheet 1a as follows:

Worksheet 1a – Working out whether you have a loss for the business activity

Row

Calculation element

Amount
$

a

Income from the activity at other items such as: gross interest L item 10, dividends S, T, U item 11, farm management repayments N, R item 17, net capital gain A item 18 and other net foreign source income M item 20

9,000

b

Loss from the activity as shown at: distribution from partnerships N item 13, O item 13, net personal services income A item 14, net income or loss from business B item 15, C item 15 (show the loss as a positive amount)

10,000

c

Partner deductions attributable to the activity shown at I, J, X, Y item 13

0

d

Loss from the activity at M item 20 Other net foreign loss (show the loss as a positive amount)

0

e

Add b, c and d.

10,000

f

Net loss

Subtract e from a.

-1,000

Kieren’s assessable income from unrelated sources (excluding any net capital gain) was less than $40,000 and he met the income requirement. Kieren would show the $6,000 deferred non-commercial business loss from 2019–20 at H item P9, and the overall net loss of $1,000 at I item P9 on his Business and professional items schedule for individuals 2021. He would show loss code 7 at G item P9 in the Type of loss box.

See also:

Item P9 filled in with 'Beef cattle' at D (description of activity), 7 entered into G (type of loss), $6,000 entered into H (deferred non-commerical business loss from a prior year) and $1000 entered into I (net loss).

In 2020–21, Kieren made a loss of $5,000 from the computer repairs non-primary production business. After taking into account his deferred non-commercial non-primary production business loss of $3,000 from 2019–20, he made a net loss of $8,000 that he entered at C item 15. Kieren also earned interest of $10 on his business account that he entered at L item 10. He completes Worksheet 1a as follows:

Worksheet 1a: Working out whether you have a loss for the business activity

Row

Calculation element

Amount
$

a

Income from the activity at other items such as: gross interest L item 10, dividends S, T and U item 11, farm management repayments N and R item 17, net capital gain A item 18 and other net foreign source income M item 20

10

b

Loss from the activity as shown at: distribution from partnerships N and O item 13, net personal services income A item 14, net income or loss from business B and C item 15 (show the loss as a positive amount)

8,000

c

Partner deductions attributable to the activity shown at I, J, X and Y item 13

0

d

Loss from the activity at M item 20 Other net foreign loss (show the loss as a positive amount)

0

e

Add b, c and d.

8,000

f

Net loss

Subtract e from a.

-7,990

Kieren did not satisfy any of the non-commercial business loss criteria that allow a business loss to be used to reduce other income, so he must defer the net loss beyond 2020–21.

Kieren shows the $3,000 deferred non-commercial business loss from 2019–20 at N item P9, and the overall net loss of $7,990 at O item P9 on his Business and professional items schedule for individuals 2021. As the loss is deferred, he shows loss code 8 at M item P9 in the Type of loss box.

See also:

Activity 2 filled in with 'Computer repairs' at J (description of activity), 8 entered into M (type of loss), $3,000 entered into N (deferred non-commerical business loss from a prior year) and $7,990 entered into O (net loss).

Kieren also needs to complete G, I and J item 16 on his tax return (supplementary section), deferring his net loss of $7,990 from non-primary production. He is not able to use this net loss to reduce his other 2021 income.

Item 16 filled in with $7,990 at G (deferred losses from sole trader activities), $0 entered into I (Primary production deferred losses) and $7,990 entered into J (Non-primary deferred losses).

End of example

P10 Small business entity simplified depreciation

Do you use the simplified depreciation rules?

No

Go to P11.

Yes

P10 is only for small business entities using the simplified depreciation rules.

Small business entities can claim an immediate deduction for most depreciating assets purchased from 7.30pm (AEST) on 12 May 2015 and on or before 31 December 2020 and first used or installed ready for use for a business purpose:

from 12 March 2020 to 30 June 2021, if they cost less than $150,000 each (the instant asset write-off threshold)

For assets you start to hold, and first use (or have installed ready for use) for a taxable purpose from 7.30pm (AEDT) on 6 October 2020 to 30 June 2022, the instant asset write-off threshold does not apply to businesses using the simplified depreciation rules. You must immediately deduct the business portion of the asset's cost under temporary full expensing.

Completing this item

To complete this item, use the amounts you calculated for small business entity depreciation deductions in worksheet 2 in item P8.

Write at A Deduction for certain assets the amount you claimed at item P8 that relates to assets costing less than $150,000 and purchased before 7.30pm (AEDT) 6 October 2020, and first used or installed ready for use for a taxable purpose in the current year. This is one of the components from row a in worksheet 2 but does not include any amounts relating to temporary full expensing.

Write at B Deduction for general small business pool the total amount the business claimed at item P8 relating to the general small business pool. This is the total amounts from rows b and c in worksheet 2.

If you claimed any depreciation using temporary full expensing you will need to include those amounts at P11.

Other business and professional items

For P11 to P21, you need to fill in all items relating to your business expenses.

If you have more than one business you must add the figures for all businesses, irrespective of whether they are primary or non-primary production, and enter only one figure at each item.

P11 Temporary full expensing

Completing this item

Small business entities using the simplified depreciation rules cannot opt out of temporary full expensing and only need to complete labels F and G.

Other businesses can choose to opt out of temporary full expensing on an asset-by-asset basis and apply the other depreciation rules to that asset. You make this choice for a particular depreciating asset for each applicable income year. Once a choice is made it cannot be revoked.

At C Are you making a choice to opt out of temporary full expensing for some or all of your eligible assets? write:

  • A if you are opting out for some of your assets
  • B if you are opting out for all of your assets.

At D Number of assets you are opting out for, write the number of assets for which you made the choice to opt out of temporary full expensing.

You will not be penalised for specifying an incorrect number of assets where you have made your best attempt to determine the number of assets you are opting out for.

At E Value of assets you are opting out for, write the value of the assets for which you made the choice to opt out of temporary full expensing.The value is the amount you would have otherwise claimed for these assets under temporary full expensing if you had not made the choice to opt out.

At F Temporary full expensing deductions, write the total amount of the deductions that you are claiming under temporary full expensing. This is the amount you would have included as part of your depreciation amount at P8 Business income and expenses.

At G Number of assets you are claiming for, write the number of assets for which you are claiming temporary full expensing.

You will not be penalised for specifying an incorrect number of assets where you have made your best attempt to determine the number of assets you are claiming for.

P12 Backing business investment opt out

Do you use the simplified depreciation rules?

Yes Small business entities using the simplified depreciation rules do not complete this item. Go to P13

No Read on.

Are you making a choice to opt out of Backing business investment for some or all of your eligible assets?

No Go to P13.

Yes For your assets to be eligible for Backing business investment – accelerated depreciation you must meet two conditions:

  • you are an entity with aggregated turnover of less than $500 million in 2020–21
  • the asset is an eligible asset and you have not applied either temporary full expensing or the instant asset write-off rules to the asset.

Completing this item

At Q write:

  • A if you are opting out for some of your eligible assets, or
  • B if you are opting out for all of your eligible assets.

You may choose to opt out of the backing business investment incentive on an asset-by-asset basis. You then apply the general capital allowance rules for that asset. Once a choice is made it cannot be revoked.

For more information see Backing business investment – accelerated depreciation

Number of assets you are opting out for

At R write the number of assets for which you are opting out of Backing business investment – accelerated depreciation.

Value of assets you are opting out for

At T write the total cost of the assets for which you are opting out of Backing business investment – accelerated depreciation.

P13 Trade debtors

Did you have any trade debtors?

No

Go to P14 Trade creditors.

Yes

Read on.

You need to know

This is the total amount owing to the business at the end of the year for goods and services provided during 2020–21 (that is, current trade and other debtors).

Completing this item

Step 1 Work out the total amount owing from trade and other debtors. If you have more than one business, add up all trade and other debtor amounts.

Step 2 Enter the total at E item P13 on page 5 of your schedule. Do not show cents.

P14 Trade creditors

Did you have any trade creditors?

No

Go to P15 Total salary and wage expenses.

Yes

Read on.

You need to know

This is the total amount owed by the business at the end of the year for goods and services received during 2020–21 (that is, current trade and other creditors).

Completing this item

Step 1 Work out the total amount owing to trade and other creditors. If you have more than one business, add up all trade and other creditor amounts.

Step 2 Enter the total at F item P14 on page 5 of your schedule. Do not show cents.

P15 Total salary and wage expenses

Did you pay salary and wages as a business expense?

No

Go to P16 Payments to associated persons.

Yes

Read on.

You need to know

Salary, wages and other labour costs actually paid or payable to persons employed in your business (excluding those forming part of capital expenditure or paid for private domestic assistance) are usually deductible. However, you cannot be an employee of your business. Payments to you of salary are not allowable deductions in calculating your income or loss; treat these payments as an allocation of profits.

Include any salary and wage component of Cost of sales, such as allowances, bonuses, casual labour, retainers and commissions paid to people who received a retainer, and workers compensation paid through the payroll.

Also include direct and indirect labour, holiday pay, locums, long service leave, lump sum payments, other employee benefits, overtime, payments under an incentive or profit-sharing scheme, retiring allowances and sick pay. Include any salary or wages paid to relatives and other related entities both here and at H item P16 on your schedule.

Exclude agency fees, contract payments, sub-contract payments, service fees, superannuation, management fees, consultant fees and payments made from 1 July 2020 where you have not complied with the pay as you go (PAYG) withholding and reporting obligations for those payments.

See also:

Completing this item

Step 1 Add up total salary and wage expenses from each business.

Step 2 Enter the total at G item P15 on page 5 of your schedule. Do not show cents.

Step 3 Select from the following list the letter that matches the description of the expense component where the salary and wage expenses have been wholly or predominantly reported at item P8:

C All included in the expense component Cost of sales
A All included in the expense component All other expenses
B Included in the expense component of both Cost of sales and All other expenses
O Included in expense components other than Cost of sales and All other expenses.

Step 4 Enter the appropriate letter in the Type box at the right of the amount at G.

P16 Payments to associated persons

Did you make any payments to associated persons as a business expense?

No

Go to P17 Intangible depreciating assets first deducted.

Yes

Read on.

You need to know

These are amounts, including salary, wages, commissions or allowances, paid to your relatives. These also include superannuation contributions paid for the benefit of your relatives.

You must also include amounts of salary or wages paid to your relatives and a partnership in which your relatives are partners at G item P15 on your schedule.

You need to keep the following records:

  • full name of relatives or related partnerships
  • age, if under 18 years old
  • relationship
  • nature of duties performed
  • hours worked
  • total remuneration
  • salary or wages claimed as deductions
  • other amounts paid, for example, retiring gratuities, bonuses and commissions.

Excessive or unreasonable payments to your relatives, or a partnership in which your relatives are partners, may not be deductible. The PSI rules (see P1 Personal services income (PSI)) also limit deductions for payments to associates.

Completing this item

Step 1 Add up payments made to relatives and related partnerships from each business.

Step 2 Enter the total at H item P16 on page 5 of your schedule. Do not show cents.

P17 Intangible depreciating assets first deducted

Do you use the simplified depreciation rules?

Yes

Small business entities using the simplified depreciation rules do not complete this item. Go to P21 Trading stock election.

No

Read on.

Did you start to deduct the decline in value of any intangible depreciating assets?

No

Go to P18 Other depreciating assets first deducted.

Yes

Read on.

You need to know

The following intangible assets are regarded as depreciating assets (as long as they are not trading stock):

  • certain items of intellectual property, such as patents, registered designs, copyrights and certain types of licences
  • computer software (or a right to use computer software) that you acquire, develop or have someone else develop for your use for the purposes for which it is designed (in-house software)
  • mining, quarrying or prospecting rights and information
  • certain indefeasible rights to use a telecommunications cable system
  • certain telecommunications site access rights
  • spectrum licences
  • datacasting transmitter licences.

A depreciating asset that you hold starts to decline in value from the time you use it or install it ready for use for any purpose, including a private purpose. However, you can only claim a deduction for the decline in value to the extent that you use the asset for a taxable purpose, such as for producing assessable income.

At item P17 you need to show the cost of all intangible depreciating assets for which you are claiming a business deduction for decline in value for the first time. If you have allocated any intangible depreciating assets with a cost of less than $1,000 to a low-value pool for the income year, you also need to include the cost of those assets at item P17. Do not reduce the cost for estimated non-taxable use.

Expenditure on in-house software that you allocated to a software development pool is not shown at item P17.

See also:

Completing this item

Step 1 Add up the costs of intangible depreciating assets first deducted from each business. This will include any amounts claimed under the instant asset write-off, temporary full expensing and backing business investment rules.

Step 2 Enter the total at I item P17 on page 4 of your schedule. Do not show cents.

P18 Other depreciating assets first deducted

Do you use the simplified depreciation rules?

Yes

Small business entities using the simplified depreciation rules do not complete this item. Go to P21 Trading stock election

No

Read on.

Did you start to deduct the decline in value of any other depreciating assets in 2020–21?

No

Go to P19 Termination value of intangible depreciating assets.

Yes

Read on.

You need to know

A depreciating asset that you hold starts to decline in value from the time you use it or install it ready for use for any purpose, including a private purpose. However, you can claim a deduction for the decline in value only to the extent you use the asset for a taxable purpose, such as for producing assessable income.

At item P18 you need to include the cost of all depreciating assets (other than intangible depreciating assets) for which you are claiming a business deduction for the decline in value for the first time.

If you have allocated any depreciating assets with a cost of less than $1,000 to a low-value pool for 2020–21, you also need to include the cost of those assets at item P18. Do not reduce the cost for estimated non-taxable use.

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

For more information see Guide to depreciating assets 2021.

Completing this item

Step 1 Add up the costs of other depreciating assets first deducted from each business. This will include any amounts claimed under the instant asset write-off, temporary full expensing and backing business investment rules.

Step 2 Enter the total at J item P18 on page 4 of your schedule. Do not show cents.

P19 Termination value of intangible depreciating assets

Do you use the simplified depreciation rules?

Yes

Small business entities using the simplified depreciation rules do not complete this item. Go to P21 Trading stock election.

No

Read on.

Did you stop holding or using any intangible depreciating assets in 2020–21?

No

Go to P20 Termination value of other depreciating assets.

Yes

Read on.

You need to know

Do not show at this item any consideration you received during 2020–21 in relation to in-house software for which you have allocated expenditure to a software development pool.

Include the termination values for intangible depreciating assets (including intangible assets allocated to a low-value pool) that you stopped holding or using during 2020–21 (for example, assets you sold, or that were lost or destroyed).

Generally, the termination value is the amount you received or are deemed to have received for the asset that you stopped holding or using. It includes the market value of any non-cash benefits, such as goods and services, you received for the asset.

Completing this item

Step 1 Add up the amounts you received or are deemed to have received for all intangible depreciating assets that you stopped holding or using in your business, other than:

  • assets allocated in a prior year to the general small business pool or the formerly available long-life small business pool
  • low-cost assets for which an immediate deduction has been allowed under the simplified depreciation rules
  • in-house software for which you allocated expenditure to a software development pool.

If you have more than one business, add up the termination value of intangible depreciating assets amounts for each business.

Step 2 Enter the total at D item P19 on page 5 of your schedule. Do not show cents.

See also

P20 Termination value of other depreciating assets

Do you use the simplified depreciation rules?

Yes

Small business entities using the simplified depreciation rules do not complete this item. Go to P21 Trading stock election.

No

Read on.

Did you stop holding or using any other depreciating assets in 2020–21?

No

Go to P21 Trading stock election.

Yes

Read on.

You need to know

At item P20 you include the termination values for other depreciating assets (including assets allocated to a low-value pool) that you stopped holding or using during 2020–21 (for example, assets you sold, or that were lost or destroyed).

Generally, the termination value is the amount you received or are deemed to have received for the asset that you stopped holding or using. It includes the market value of any non-cash benefits, such as goods and services, you received for the asset.

Completing this item

Step 1 Add up the amounts you received or are deemed to have received for all depreciating assets that you stopped holding or using in your business other than:

  • intangible depreciating assets
  • assets allocated in a prior year to the general small business pool or the formerly available long-life small business pool
  • low-cost assets for which an immediate deduction has been allowed under the simplified depreciation rules
  • buildings or structures for which a deduction is available under the capital works provisions
  • assets falling within the provisions relating to investments in Australian films.

If you have more than one business, add up the termination value of other depreciating assets for each business.

Step 2 Enter the total at K item P20 on page 5 of your schedule. Do not show cents.

For more information see Guide to depreciating assets 2021.

P21 Trading stock election

Have you made a trading stock election?

No

Go to Check that you have….

Yes

Read on.

You need to know

If you have valued trading stock on hand at the end of 2020–21 at an amount that is less than the lowest amount available using one of the valuation methods at Closing stock, you must notify the Commissioner.

Completing this item

If you must notify the Commissioner about your trading stock election, enter Y at P item P21 on page 5 of your schedule. Otherwise leave P blank.

Check that you have …

  • written the correct amount on your schedule for each item that applies to you
  • correctly transferred the amount at A Net PSI item P1 on your Business and professional items schedule for individuals 2021 to A item 14 on page 13 of your tax return (supplementary section)
  • correctly transferred the amounts at Y and Z NET INCOME OR LOSS FROM BUSINESS item P8 on your Business and professional items schedule for individuals 2021 to B and C (respectively) item 15 on page 14 of your tax return (supplementary section)
  • completed and attached the Individual PAYG payment summary schedule 2021 to page 3 of your tax return, if you received business income that was subject to withholding
  • kept your records to prove your claims, where required.

More information

Internet

For general tax information and to download publications and rulings, search ato.gov.au

Publications

Phone

We can offer a more personalised service if you provide your tax file number (TFN) when you phone us.

  • Business 13 28 66
    Information about business income tax, fringe benefits tax (FBT), fuel tax credits (FTC), goods and services tax (GST), pay as you go (PAYG) and activity statements, including lodgment and payment, accounts and business registration (including Australian business number and tax file number), and dividend and royalty withholding tax
  • Individual 13 28 61
    Individual income tax and general personal tax enquiries
  • Superannuation 13 10 20
  • Tax agents 13 72 86

Other services

If you do not speak English well and need help from the ATO, phone the Translating and Interpreting Service (TIS National) on 13 14 50.

If you are deaf or have a hearing or speech impairment, you can phone us through the National Relay Service (NRS) on the numbers listed below, and ask for the ATO number you need:

  • TTY users, phone 13 36 77. For ATO 1800 free call numbers, phone 1800 555 677.
  • Speak and Listen (speech to speech relay) users, phone 1300 555 727. For ATO 1800 free call numbers, phone 1800 555 727.
  • Internet relay users, connect to internet-relay.nrscall.gov.auExternal Link

Small business webinars

We offer free webinars on a variety of topics. There are general topics that suit all small businesses and others that are specific to particular industries or circumstances. Some are also offered in other Chinese, Arabic and Vietnamese.

Lodge online

Lodging online with myTax is the easiest and fastest way to do your own tax.

Benefits of lodging online:

  • Information from employers, banks and government agencies is pre-filled, saving you time and effort.
  • We use a range of systems and controls to ensure that your information is protected, it's as safe as online banking.
  • It's available 24/7 so you can lodge at your convenience.
  • Get your refund faster – generally within two weeks.

Form more information see ato.gov.au/lodgeonline.

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