Reconciliation items

Reconciliation items overview

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

Answer the question below to complete this label.

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 ITAA 1997 allows for certain start-up costs to be immediately deductible where they are incurred by either:

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

For more information, see Claiming a tax deduction for depreciating assets and other capital expenses.

5-year deduction for a range of business-related costs not recognised elsewhere in the tax law

Section 40-880 of the ITAA 1997 also allows you to deduct in equal proportions over a 5-year period certain capital expenditure incurred by you 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 incurred:

• 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 that 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 can't 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 4 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.

For more information, see Losses.

The deduction can't 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 of the ITAA 1997 here if:

• you carried on a business as an individual at any time during 2023–24, 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 question D15 in your supplementary tax return.

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

Completing this question

Step 1 Write your deduction for primary production business-related costs at Section 40-880 deduction in the Primary production column, P8 Reconciliation items in your schedule. Don't show cents.

Step 2 Write your deduction for non-primary production business-related costs at Section 40-880 deduction in the Non-primary production column. Don't show cents.

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

Business deduction for project pool

Answer the question below to complete this label.

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.

For more information, see Guide to depreciating assets 2024.

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 2024. This is the closing pool value for 2022–23 (if any) plus the sum of the project amounts you allocated to the pool in 2023–24.	$
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 2023–24 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 2023–24 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 2024. This is the closing pool value for 2022–23 (if any) plus the sum of the project amounts you allocated to the pool in 2023–24.	$
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 2023–24 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 2023–24 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 2023–24

This is row a minus row d in worksheet 3A and worksheet 3B. You will need the closing pool value for 2023–24 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 P8 Reconciliation items – Income reconciliation adjustments in your schedule.

Where a project was abandoned, sold or otherwise disposed of in 2023–24

In this case, whether or not the project had begun to operate, you can claim a deduction for the 2022–23 closing pool value (if any) plus any project amounts allocated to the pool in the 2023–24 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 P8 Reconciliation items – Income reconciliation adjustments in your schedule.

Completing this question

Step 1 Write your total primary production project pool business deduction at Business deduction for project pool in the Primary production column, P8 Reconciliation items in your schedule. Don't show cents.

Step 2 Write your total non-primary production project pool business deduction at Business deduction for project pool in the Non-primary production column. Don't show cents.

Step 3 Add up your primary production and non-primary production project pool business deductions and write the total at label 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?

If you answered:

• 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
• 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:

• located 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 for your use of the land for a non-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 P8 Income in your schedule or as part of your Income reconciliation adjustments in the P8 Reconciliation items.

For more information, see Guide to depreciating assets 2024.

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.

You can fully deduct capital expenditure on a water facility if you incurred the expenditure from 7:30 pm (AEST), 12 May 2015. You fully deduct the expenditure in the year you incurred it. The total deduction can't be more than the amount of the capital expenditure.

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 don't 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
• a taxable purpose, for example, producing assessable income.

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 P8 Income in your schedule, or
• as part of your Income reconciliation adjustments in the P8 Reconciliation items.

For more information, see Guide to depreciating assets 2024.

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 in 2023–24 you claim the full amount in that income year. If you incurred the expenditure before 13 May 2015 (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 don't 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 item P8 Income
• as part of your Income reconciliation adjustments in the Reconciliation items section of item P8.

For more information, see Guide to depreciating assets 2024.

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
• 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 7:30 pm (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 2 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 7:30 pm 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 don't 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
• a taxable purpose, for example, for 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 item P8 Income
• as part of your Income reconciliation adjustments in the Reconciliation items section of item P8.

For more information, see Guide to depreciating assets 2024.

Small business entities

The amount you write at label 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 question

Step 1 Write 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, P8 Reconciliation items. Don't show cents.

Step 2 Write your total deduction for non-primary production landcare operations expenses and water facilities at Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset in the Non-primary production column. Don't 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 write the total at label W.

Income and expense reconciliation adjustments

Answer the question below to complete this label.

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.

In some cases you will need to complete income reconciliation adjustments or expense reconciliation adjustments even if all the amounts you have written at P8 Income – label C Gross payments where Australian business number not quoted to P8 Reconciliation items label W Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset are assessable income or allowable tax deductions for income tax purposes.

You must work out your reconciliation adjustments if:

• you have included amounts such as exempt income or non-deductible expenses, or
• you have not included amounts which are assessable income or expenditure that is deductible.

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 P8 Reconciliation items – label X Income reconciliation adjustments 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 2023–24
  • 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 in 2023–24 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
  • bonus deduction for small business skills and training boost, see Appendix 2
  • bonus deduction for small business energy incentive, see Appendix 2
  • 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 show at P8 Reconciliation items – label H Expense reconciliation adjustments 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.

For more information, see Thin capitalisation

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 P8 Reconciliation items if:

• you are eligible and have chosen to continue using the STS accounting method and the amounts you have shown at P8 Business income and expenses are not based on the STS accounting method, or
• you stopped using the STS accounting method in 2023–24.

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 2024 and expenses incurred but not paid at 30 June 2024

If you are eligible and have chosen to continue using the STS accounting method and have included at P8 Income amounts of ordinary income that have been derived but not received in 2023–24, the amounts not received are not assessable this year, for example, amounts outstanding from trade debtors at 30 June 2024.

These amounts form part of your income reconciliation adjustments at P8 Reconciliation items – label X. 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 P8 Reconciliation items amounts for general deductions, repairs and tax-related expenses that have been incurred but not paid in 2023–24, these amounts are not deductible this year, for example, amounts owed to trade creditors at 30 June 2024.

These amounts form part of your expense reconciliation adjustments at P8 Reconciliation items – label H. 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 P8 Income amounts of ordinary income that were derived but not received while using the STS accounting method, these amounts are assessable in 2023–24 – for example, outstanding amounts from trade debtors at 30 June 2023.

Include these amounts at row b on worksheet 4.

If you have not included at P8 Expenses 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 in 2023–24 – for example, amounts owed to trade creditors at 30 June 2023.

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

Disposal of depreciating assets

If you disposed of depreciating assets during 2023–24, the following amounts form part of your P8 Reconciliation items – Income reconciliation adjustments – label X:

• the taxable purpose proportion of the termination value of assets that have been disposed of for which an immediate deduction has been claimed either in 2023–24 or in a prior income 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.

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 P8 – label H. Include these amounts at row q on worksheet 4.

For more information, see:

• Guide to depreciating assets 2024
• Depreciation and capital allowances tool.

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 income year in which it is incurred. Write 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 in 2023–24 but have not included it elsewhere, show the adjustment as an expense subtraction at row s on worksheet 4.

For more information, see Deductions for prepaid expenses 2024

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 label 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 2 calculations.

Under income tax law you can deduct an amount equal to the decline in value of a depreciating asset in 2023–24 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 don't 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 2024, which also provides explanations of relevant terms. The publication also explains the option to allocate to a low-value pool depreciating assets that cost less than $1,000 (excluding input tax credit entitlements) and depreciating assets that have an opening adjustable value of less than $1,000.

Special balancing adjustments

A special balancing adjustment event will occur in an income year after the year in which temporary full expensing has been claimed when:

• it is no longer reasonable to conclude that you will use the depreciating asset principally in Australia for the principal purpose of carrying on a business, or
• it becomes reasonable to conclude that the depreciating asset will never be located in Australia.

This special balancing adjustment event is not triggered if you use the simplified depreciation rules, other than for those depreciating assets that are excluded from the simplified depreciation rules. For those other depreciating assets, the event may still be triggered if you have claimed temporary full expensing with respect to that asset.

If this special balancing adjustment event is triggered:

• you are treated as though you have ceased to hold the asset and the termination value of the asset will be equal to its market value at that time, resulting in the temporary full expensing deduction being clawed back to the extent of the assets then market value, and
• the first element of cost is modified so that the first element of cost of the asset is the asset’s termination value at the time of the event, such that though you may not thereafter work out the decline in value for that asset using temporary full expensing, you might, in a later income year, be entitled to claim other capital allowances that you are entitled to for that asset (for example, under the general capital allowances rules for the proportion of business use). You may not claim a deduction for the asset under the general capital allowance rules in the same income year as the special balancing adjustment event.

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 2023–24 is $68,108.

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 P8 – label H in 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 2024.

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 Depreciation expenses.

If you have included the lease expense at P8 – label J Lease expenses in the Expenses section in your schedule, the amount should also form part of your expense reconciliation adjustments at P8 – label H. 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 doesn't 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 P8 – label H. Include the amount at row t in Worksheet4.

In relation to the notional sale, the hirer of a depreciating asset is treated as the holder of the asset. They allocate the asset to the appropriate small business pool if they are a small business entity using the simplified depreciation rules for the income year. Otherwise, they may be entitled to claim a deduction for the decline in value of the depreciating asset under the general capital allowances rules. 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 P8 Expenses, the amount should also form part of your expense reconciliation adjustments at P8 Reconciliation items – label H. 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 was 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 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 P8 reconciliation items – label X. Include the amount at row b on Worksheet 4.

Worksheet 4 – Reconciliation statement

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: subtract the amount at row g 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 in 2022–23 and not included elsewhere	$	$
x	Bonus deduction for small business skills and training boost	$	$
y	Bonus deduction for small business energy incentive
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, x, y and t.
	Expense reconciliation adjustment: take the amount at row u away from the amount at row o

Notes for parts 1a to 2c

9. 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 P8 Expenses – label M which relate to a continuing small business pool.
10. See Guide to depreciating assets 2024 for an explanation of depreciating assets.
11. If you have included an amount of capital expenditure incurred to terminate a lease or licence at P8 Expenses – label J Lease expenses, make a reconciliation adjustment at label 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.
12. Don't 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.

Completing this question

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. Don't show cents.

Step 3 If a reconciliation adjustment amount 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 write the total at label X.

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

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

Worksheet 5

Working out your net income or loss from primary production business for 2023–24Row	Calculation elements	Amount
a	Your primary production total business income you show in the Primary production column at TOTAL BUSINESS INCOME – P8 Income	$
b	Your primary production total business expenses you show at P8 Expenses – label S	$
c	Total of the amounts of deductions for section 40-880 expenditure, project pool and landcare operations, water facilities, fencing assets and fodder storage assets	$
d	Add the amount at row b to the amount at row c	$
e	Subtract the amount at row d from the amount at row a	$
f	Your primary production income reconciliation adjustment (if any)	$
g	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 2023–24

Row	Calculation elements	Amount
i	Your non-primary production total business income you show in the Non-primary production column at TOTAL BUSINESS INCOME – P8 Income	$
j	Your non-primary production total business expenses you show at P8 Expenses – label T	$
k	Total of the amounts of 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	Subtract the amount at row l from the amount at row i	$
n	Your non-primary production income reconciliation adjustment (if any)	$
o	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.

Net income or loss from business for 2023–24

Use Worksheet 5 and Worksheet 6 to work out your net income or loss from your primary and non-primary production businesses for 2023–24. Don't include any non-commercial business loss deferred from a prior year.

Completing this question

Step 1 Transfer the amount at row h on Worksheet 5 to P8 Income – label B. Don't 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 P8 Income – label C. Don't show cents. If the amount is a loss, print L in the box at the right of this amount.

Step 3 Add labels B and C and show the total in the adjacent Totals column. Don't include any non-commercial business losses deferred from a prior year (which are shown at label 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 label B or C includes details from more than one business activity, and any one of these activities resulted in a net loss, you need to complete sP3 Number of business activities and P9 Busines loss activity details in your schedule.

Deferred non-commercial business losses from a prior year

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 was carried out partly in Australia and partly overseas contact us or see How to defer your losses.

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

Your prior year deferred non-commercial business loss for a business activity may be reduced if you earned net exempt income in 2023–24.

If you became bankrupt (or received a relief from debt) the deferred losses will no longer be available. The loss can't be deducted in 2023–24 or a future year.

For more information, see How to offset your losses

Completing this question

Step 1 At P8 Income – label D in your schedule write the amount of primary production losses you deferred in a prior year from activities that are the same or similar to your 2023–24 activity. Don't show cents.

Step 2 At label E write the amount of non-primary production losses you deferred in a prior year from activities that are the same or similar to your 2023–24 activity. Don't show cents.

Step 3 Add up your primary and non-primary production deferred non-commercial business losses. Write 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 question

Step 1 If you have net income from primary production business in 2023–24 at label B, subtract from it the amount of your deferred non-commercial primary production business losses from a prior year shown at label D, and:

• write the answer at P8 – label Y Net income or loss from business
• if the amount at label Y is negative, print L in the box at the right of the amount.

If you have a loss from primary production business in 2023–24 at label B, add it to the amount of your deferred non-commercial primary production business losses from a prior year shown at label D, and:

• show the total at P8 – label Y Net income or loss from business
• 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 label Y, you also need to complete P3 Number of business activities and P9 Business loss activity details.

Step 2 If you have net income from non-primary production business in 2023–24 at label C, subtract from it the amount of your deferred non-commercial non-primary production business losses from a prior year shown at label E, and:

• write the answer at P8 – label Z Net income or loss from business
• if the amount at label Z is negative, print L in the box at the right of the amount.

If you have a loss from non-primary production business in 2023–24 at label C, add it to the amount of your deferred non-commercial non-primary production business losses from a prior year shown at label E, and:

• write the total at P8 – label Z Net income or loss from business
• 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 label Z, you also need to complete P3 Number of business activities and P9 Business loss activity details.

Step 3 Add up the amounts at label Y and Z.

Write 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) question 15 in your supplementary tax return.

Small business income tax offset

Answer the question below to complete this label.

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 know

You need to work out your net small business income so we can calculate your small business income 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.

For more information, see  P9 Business loss activity details.

Use your Y and Z amounts as your starting point for working out your net small business income. Prior year deferred non-commercial losses being claimed as a deduction in 2023–24 are already included in the amounts shown at labels Y and Z. You don't include them again in your net small business income calculation.

Don't 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 question

Step 1 Did you have either of the following:

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

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

If you answered:

• No – The amounts at P8 – labels Y and Z are your net small business income. Add labels Y and Z together, a negative amount will offset a positive amount. Write the total at question 15 – label A in your supplementary tax return. You are finished with this question. Go to P9 Business loss activity details.
• Yes – Go to step 2.

Step 2 Use the worksheet below to adjust your P8 – label Y and Z amounts. Write 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 write them at row h. If the loss includes a net capital gain, deduct the amount of net capital gain from the loss and write the result at row h.

Step 4 Add up all the amounts at rows a to h and subtract the amount at rows i and j. Write the result at row k. If the result is positive this is your net small business income. Write this amount at question 15 – label A in your supplementary tax return. If the result is a loss show zero. Don't show cents.

Worksheet 7

Worksheet 7a – Question 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 question 17 relating to the business	$
d	Foreign source business income from question 19 or 20	$
e	Business interest income (don't 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 question	$
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 question 17 relating to the business	$
j	Other business deductions not already claimed at this question	$

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 Worksheet 7b. Then subtract the amounts at row i and j in Worksheet 7c. Write the result at row k.	$

Continue to: Business loss activity details – P9

Return to: Instructions to complete the BPI schedule 2024