About these instructions

How these instructions will help you to complete the Business and professional items schedule.

Last updated 20 July 2023

Overview

Business and professional items 2023 will help you fill in the Business and professional items schedule for individuals 2023.

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.

If you are required to complete the Business and professional items schedule for individuals 2023, you should lodge your individual tax return using myTax or through a registered tax agent.

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

Who are these instructions for?

Use these instructions if you are an individual who needs to complete questions 14, 15 or 16 in your individual supplementary tax return. 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 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 2023.

If you have a net loss from a business activity carried on in partnership with others, you may need to complete questions P3 and P9 of the Business and professional items schedule for individuals 2023. See question 13 in Individual tax return instructions supplement 2023. Do not include your partnership details at any other question in your schedule.

You will also need to complete the Individual PAYG payment summary schedule 2023 if you received any of the following:

These instructions will also help you fill in the Individual PAYG payment summary schedule 2023.

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 2023 at label S on page 5 of your schedule.

When completing this label 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 5 years after you prepared or obtained them, or 5 years after you completed the transactions or acts to which they relate, whichever is the later. 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 until the later of:

2 years from the year of income when a tax loss is fully deducted, or
5 years.

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 taken 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.

For more information, see TD 2007/2 Income tax: should a taxpayer who has incurred a tax loss or made a net capital loss for an income year retain records relevant to the ascertainment of that loss only for the record retention period prescribed under income tax law?

Choice of superannuation fund

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

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.

For more information, see TR 97/11 Income tax: am I carrying on a business of primary production?

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 2022–23 and have an aggregated turnover of less than $10 million?

No	Go to question 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 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:

bonus deduction for expenditure on skills and training or technology investment
CGT 15-year asset exemption
CGT 50% active asset reduction
CGT retirement exemption
CGT small business rollover
tax offset equivalent to 16% 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 depreciation measure.

From 1 July 2021, the threshold is an aggregated turnover of less than $50 million (previously less than $10 million) for the following small business entity concessions:

simplified trading stock rules
PAYG instalments based on gross domestic product adjusted notional tax.

For more information, see 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.

Calculating your turnover

Turnover includes all ordinary income earned in the ordinary course of business for 2022–23. 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 2022–23, 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 2022–23. 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 2021–22 was less than $10 million
you estimated at the beginning of 2022–23 that your aggregated turnover for the year would be less than $10 million (and your aggregated turnover in 2020–21 or 2021–22 was less than $10 million), or
your actual aggregated turnover, worked out at the end of 2022–23, was less than $10 million. You rely on this test only if you do not satisfy either of the 2 tests above. If you satisfy this test only, you cannot use the GST and PAYG instalments concessions for 2022–23.

For more information, see small business entity concessions.

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 2022–23 if you:

were an STS taxpayer continuously from 2004–05 until the end of 2006–07
used the STS accounting method from 2005–06 to 2021–22
are a small business entity for 2022–23.

If you meet these 3 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 question 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 question P8 – Reconciliation items.

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.

For more information, see Small business entity concessions.

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