6. Expenses

Write all expense amounts from the company’s financial statements at B to S, see relevant item names and labels.

Write at B Foreign resident withholding expenses all expenses that directly relate to income subject to foreign resident withholding. Do not include these amounts at other expenses labels.

Input tax credit entitlements that arise for outgoings are excluded from expenses, see 6 Calculation of total profit or loss.

Write non-deductible expenses incurred in deriving any exempt income at the appropriate expense labels. Add back these non-deductible expenses at U Non-deductible exempt income expenditure item 7.

Other expenses, to the extent that they are not deductible in 2017–18, which have been included at A to S item 6, are added back at W Non-deductible expenses item 7. This includes non-deductible expenses incurred in deriving any non-assessable non-exempt income.

Record prepaid expenses that appear in the company’s financial statements at the relevant expense label. Where the amounts of those expenses differ from the amounts which are deductible for income tax purposes in 2017–18, make adjustments at W or X item 7.

For a company to claim a deduction for gifts and donations made to an organisation, the organisation must be a deductible gift recipient (DGR). DGRs are endorsed by us or specifically named in the income tax law. All receipts issued for gifts by a DGR must include the name of the fund, authority or institution to which the gift has been made and the DGR’s ABN, and must state that the receipt is for a gift. To check whether an organisation is a DGR, go to abn.business.gov.au or phone 1300 130 248.

The company may elect to spread a deduction for a gift over five income years or less where the gift is money, property gifted to the Cultural Gifts Program, certain heritage property or property valued by us at more than $5,000.

In this section:

• B Foreign resident withholding expenses
• A Cost of sales
• C Contractor, sub-contractor and commission expenses
• D Superannuation expenses
• E Bad debts
• F Lease expenses within Australia
• I Lease expenses overseas
• H Rent expenses
• V Interest expenses within Australia
• J Interest expenses overseas
• U Royalty expenses overseas
• W Royalty expenses within Australia
• X Depreciation expenses
• Y Motor vehicle expenses
• Z Repairs and maintenance
• G Unrealised losses on revaluation of assets to fair value
• S All other expenses
• Q Total expenses

B Foreign resident withholding expenses

Only complete B if the company is a foreign resident. An Australian resident should not include expenses, such as expenses incurred in deriving foreign sourced income, at B.

Write at B all expenses directly relating to gaining income subject to foreign resident withholding (shown at Income, B Gross payments subject to foreign resident withholding, D Gross distribution from partnerships or E Gross distribution from trusts, item 6).

Any expenses written at B that directly relate to gaining income that is not assessable in Australia should also be written at U Non-deductible exempt income expenditure item 7.

Do not include at this label expenses in relation to foreign resident capital gains withholding.

A Cost of sales

Small business entities

Small business entities only need to account for changes in the value of their trading stock in limited circumstances; see Closing stock. If the company does not need to account for the change in value of closing stock, its closing stock value will equal its opening stock value. If the company needs to account for the change in value of closing stock, or chooses to do so, see Closing stock for information about how to calculate the closing stock value. For more information on calculating cost of sales, see below.

All companies

Write at A the cost of anything produced, manufactured, acquired or purchased for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. This includes freight inwards and may include some external labour costs, if these are included in the cost of sales account in the normal accounting procedure of the business.

If the cost of sales account is in credit at the end of the income year (that is, a negative expense) print L in the box at the right of the amount at A. Do not print brackets around this amount.

For more information on the circumstances in which packaging items held by a manufacturer, wholesaler or retailer are ‘trading stock’ as defined in section 70-10 of the ITAA 1997, see Taxation Ruling TR 98/7 Income tax: whether packaging items (ie, containers, labels, etc) held by a manufacturer, wholesaler or retailer are trading stock.

Do not include input tax credit entitlements in cost of sales.

C Contractor, sub-contractor and commission expenses

Write at C the expenditure incurred for labour and services provided under contract other than those in the nature of salaries and wages, for example:

• payments to self-employed people, such as consultants and contractors, this includes those who operate under a labour-hire arrangement or a voluntary agreement
• commissions paid to people not receiving a retainer
• agency fees, for example, advertising
• service fees, for example, plant service
• management fees
• consultants’ fees.

Do not include the following at C:

• expenses for external labour that are incorporated into the amount written at A Cost of sales item 6
• expenses for accounting or legal services. Include them at S All other expenses item 6.

Record keeping

Keep a record of the following:

• name and address of the payee
• nature of the services provided
• the amount paid.

D Superannuation expenses

Write at D the superannuation expenses incurred for the income year.

Employers are entitled to a deduction for contributions made to a complying superannuation, provident, benefit or retirement fund, or retirement savings account (RSA), if the contribution is to provide superannuation benefits for employees or to provide benefits to an employee’s dependants on the employee’s death. Superannuation benefits mean payments for superannuation member benefits or superannuation death benefits.

Provided certain conditions are met, employers can claim a deduction for superannuation contributions made for a former employee within four months of the employee ceasing employment and at any time after the employee ceases employment for defined benefit interests.

A deduction is allowable in the income year in which the contributions are made.

There is no limit on the amount of contributions that can be claimed as a deduction by an employer contributing to a complying superannuation fund or RSA for employees under the age of 75 years. However, the employee may be liable to pay additional tax if their concessional contributions exceed their concessional contributions cap. For more information, see Key super rates and thresholds.

If an employee has reached the age of 75 years, there is a restriction on the deduction that can be claimed for an employer contribution to a complying superannuation fund or RSA. For contributions made after the 28th day of the month following the employee’s 75th birthday, the deduction claimable is limited to the greater of the following amounts:

• 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 the employer’s charge percentage under the Superannuation Guarantee (Administration) Act 1992 for the employee.

The adjustments for taxation purposes are included at W Non-deductible expenses item 7.

No deduction is allowable if the fund is a non-complying fund.

In addition, contributions made to a non-complying fund do not count towards superannuation guarantee obligations. The superannuation guarantee charge is payable on the superannuation guarantee shortfall. As such, it is neither a superannuation contribution nor tax deductible.

Contributions made by employers to be offset against a superannuation guarantee charge liability are not deductible.

Contributions paid by an employer for employees to a non-complying superannuation fund may be fringe benefits and, as such, may be subject to tax under the Fringe Benefits Tax Assessment Act 1986.

Consolidated or MEC groups

The head company includes at D the employee superannuation expenses of all the members of the group.

The head company includes at W Non-deductible expenses item 7 any non-deductible employee superannuation expenses of all the members of the group.

E Bad debts

Write at E the bad debts expense incurred for the income year.

• Include recovery of bad debts at Income, R Other gross income item 6.
• A deduction for bad debts is not allowable under subsection 25-35(1) of the ITAA 1997 unless the debt that is bad has previously been included in assessable income, or is for money lent in the ordinary course of the business of lending money by a company carrying on that business.
• Do not include accounting provisions for doubtful debts at E. Include these at Expenses, S All other expenses item 6 and add them back at W Non-deductible expenses item 7.
• Before a bad debt can be claimed, it must be bad and not merely doubtful. The deduction depends on the facts in each case and, where applicable, the action taken for recovery. For more information, see Taxation Ruling TR 92/18 Income tax: bad debts.

A deduction can also be claimed for:

• partial debt write-offs where only part of a debt is bad and is written off
• losses incurred in debt-equity swaps for debt extinguished after 26 February 1992 if the provisions of sections 63E to 63F of the ITAA 1936 are satisfied. Under these provisions, a deduction may be allowable for the difference between the amount of the debt extinguished and the greater of the market value of the equity or the value at which the equity is recorded in the creditor’s books at the time of issue. Generally, the market value of the equity is the price quoted on the stock exchange or, if the equity is not listed, the net asset backing of the equity.

A deduction for a bad debt or loss on a debt-equity swap is only allowable if the company claiming the deduction satisfies:

• a continuity of ownership test (or we consider it unreasonable to have to satisfy the test), see Subdivision 165-C of the ITAA 1997
• the business continuity test (if the continuity of ownership test is not satisfied or it is not practicable to show that it is). For the operation of the business continuity test, see Subdivision 165-E of the ITAA 1997 and Taxation Ruling TR 1999/9 Income tax: the operation of sections 165-13 and 165-210, paragraph 165-35(b), section 165-126 and section 165-132.

Where a debt was incurred in an income year prior to that in which it is written off as bad, the company must satisfy the continuity of ownership test at all times from the date on which the debt was incurred through to the end of the income year in which it writes off the debt.

Where a debt was both incurred and written off as bad in the same income year, the company must satisfy the continuity of ownership test at all times during that income year. A company cannot deduct a debt that is both incurred and written off as bad on the last day of the income year.

The continuity of ownership tests applicable to bad debts are subject to:

• the anti-avoidance provisions in Subdivision 165-D of the ITAA 1997 relating to arrangements designed to affect the beneficial ownership of shares or enjoyment of rights attaching to shares
• the anti-avoidance provisions in Subdivision 175-C of the ITAA 1997 relating to schemes designed to obtain tax benefits from unused bad debt deductions.

For widely held companies and eligible Division 166 companies, the continuity of ownership test in Subdivision 165-C may be modified by Subdivision 166-C of the ITAA 1997, which provides a simplified method for determining the company’s ultimate majority ownership.

Deductions for bad debts may also be reduced by the commercial debt forgiveness provisions, see Appendix 1.

If the TOFA rules apply to the company, show at E all of the company’s bad debts. This includes amounts from financial arrangements subject to the TOFA rules.

Record keeping

If the company writes off bad debts during the income year, keep a statement for all debtors for which a write-off occurred, showing:

• their name and address
• the amount of the debt
• the reason why the debt is regarded as bad
• the income year that the amount was returned as income.

Consolidated and MEC groups

Special rules apply to determine if the head company of a consolidated or MEC group can deduct a bad debt that for a period has been owed to a member of a consolidated or MEC group and for another period has been owed to an entity that was not a member of that group, see Subdivisions 709-D and 719-I of the ITAA 1997.

F Lease expenses within Australia

Write at F the expenditure incurred through both finance and operating leases on leasing assets, including motor vehicles and depreciating assets such as plant. However, do not include the expenditure at F if it is incurred under a hire-purchase agreement. Such expenses are referred to in Appendix 6.

Do not include the cost of leasing real estate or the capital expenditure incurred to terminate a lease or licence. However, section 25-110 of the ITAA 1997 provides a five-year straight-line write-off for certain capital expenditure incurred to terminate an operating 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. Include the allowable deduction at X Other deductible expenses item 7. See worksheet 2 and note 6, and Other capital expenses (including capital works deductions).

I Lease expenses overseas

Write at I the lease expenses incurred through both finance and operating leases on leasing depreciating assets, including motor vehicles. However, do not include the expenditure at I if it is incurred under a hire-purchase agreement. Such expenses are referred to in Appendix 6.

Exclude the cost of leasing real estate, capital expenditure incurred to terminate a lease or licence, and expenditure on items other than depreciating assets leased from non-residents. For more information on capital expenditure incurred to terminate an operating lease or licence, see Lease expenses within Australia.

Record keeping

If a deduction is claimed for the cost of leasing depreciating assets, keep a record of the following:

• a description of the items leased
• where applicable, the country from which the items were leased
• full particulars of the lease expenses for each item of property, including motor vehicles, showing        
  • to whom the payments were made
  • where applicable, the country to which the payments were made
  • the terms of the payments, including details of any prepayments or deferred payments
  • if any assignment, defeasance or re-direction to pay the payments was entered into, full particulars of those arrangements, including to whom the payments were made
  • details of any use other than for producing assessable income
  • any documentation on or relating to the lease of the asset.
   

In certain cases, an amount of tax (withholding tax) is withheld from amounts paid or payable under equipment leases to non-residents and overseas branches of residents, and must be remitted to the ATO. If you have withheld amounts from payments to non-residents, you may need to lodge by 31 October 2018 a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report. For more information, phone 13 28 66.

H Rent expenses

Write at H the expenditure incurred as a tenant on rental of land and buildings used in the production of income.

V Interest expenses within Australia

Write at V the interest expenses incurred on money borrowed from Australian sources.

If the TOFA rules apply to the company, show at V all interest incurred on money borrowed from Australian sources. This includes interest on financial arrangements subject to the TOFA rules.

An amount of interest may not be an allowable deduction, for example, where the thin capitalisation provisions disallow an interest deduction. Include the amount of interest not allowable at W Non-deductible expenses item 7.

For information on thin capitalisation, see Appendix 3.

Distributions from a non-share equity interest are not deductible; see the Guide to the debt and equity tests. This provides an overview of the debt and equity rules and explains what a non-share equity interest is.

J Interest expenses overseas

Write at J the interest expenses incurred on money borrowed from overseas sources.

If an amount is reported at J, complete and attach an International dealings schedule 2018.

If the TOFA rules apply to the company, show at J all interest expenses incurred on money borrowed overseas. This includes interest on financial arrangements subject to the TOFA rules.

An amount of tax (withholding tax) is generally withheld from interest paid or payable to non-residents and to overseas branches of residents, and must be remitted to the ATO. If you have withheld amounts from payments to non-residents you may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report (NAT 7187) by 31 October 2018. For more information, phone 13 28 66.

An amount of interest may not be an allowable deduction, for example, where the thin capitalisation provisions disallow an interest deduction. Include the amount of interest not allowable at W Non-deductible expenses item 7.

For information on thin capitalisation, see Appendix 3.

Distributions from a non-share equity interest are not deductible. For an overview of the debt and equity rules and an explanation of a non-share equity interest, Guide to the debt and equity tests.

Record keeping

If interest is paid to non-residents, keep a record of the following:

• names and addresses of recipients
• amount of interest paid or credited
• amount of withholding tax withheld and the date on which it was remitted to the ATO.

U Royalty expenses overseas

Write at U the royalty expenses incurred during the income year to non-residents. If an amount is reported at U, complete and attach an International dealings schedule 2018.

An amount of tax (withholding tax) is generally withheld from royalties paid or payable to non-residents and overseas branches of residents, and must be remitted to the ATO. If you have withheld amounts from payments to non-residents, you may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report by 31 October 2018. For more information, phone 13 28 66.

Record keeping

Keep a record of the following:

• names and addresses of recipients
• amounts paid or credited
• nature of the benefit derived, for example, a copy of the royalty agreement
• details of tax withheld, where applicable, and the date on which it was remitted to us.

W Royalty expenses within Australia

Write at W the royalty expenses paid during the income year to Australian residents.

Record keeping

Keep a record of the following:

• names and addresses of recipients
• amounts paid
• nature of the benefit derived, for example, a copy of the royalty agreement
• details of amounts withheld, where applicable, and the date on which they were remitted to us.

X Depreciation expenses

If the company is an eligible small business entity and has chosen to use the simplified depreciation rules, see Small business entities. Otherwise see All other companies following.

All other companies

Write at X the book depreciation expenses for depreciating assets. This amount does not include:

• profit on sale of depreciating assets, shown at Income, R Other gross income item 6
• loss on sale of depreciating assets, shown at Expenses, S All other expenses item 6.

If an amount is written at X, make reconciliation adjustments at item 7 even if the depreciation expense is the same amount as the deduction for decline in value.

For reconciliation purposes, split the amount written at X into R&D and non-R&D amounts when adding back at item 7. Include non-R&D amounts at W Non-deductible expenses item 7 when adding back.

Include R&D amounts at D Accounting expenditure in item 6 subject to R&D tax incentive item 7 when adding back.

Write the deduction for decline in value of most depreciating assets at F Deduction for decline in value of depreciating assets item 7. If a depreciating asset is subject to the R&D tax incentive, this amount will form part of your notional R&D deduction. Eligible companies can claim this notional R&D deduction amount as an R&D tax offset.

See also:

• 21 Research and development tax incentive
• Research and development tax incentive schedule instructions 2018.

Our Practice Statement PS LA 2003/8 Practical approaches to low-cost business expenses provides guidance on the threshold rule and the sampling rule taxpayers can apply to determine if their business expenses on low cost items are to be treated as revenue 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. Under the threshold rule, low-cost items with a typically short life costing $100 or less are assumed to be revenue in nature and are immediately deductible. The sampling rule allows taxpayers with a low-value pool to use statistical sampling to determine the proportion of the total purchases on low-cost tangible assets that are revenue expenditure.

Small business entities

Small business concessions: changes to simpler depreciation rules

New laws have passed that allow small businesses to claim an immediate deduction for assets they first acquire and start to use, or have installed ready for use, provided each depreciable asset costs less than $20,000. This replaces the previous instant asset write-off threshold of $1,000.

This measure started at 7.30pm (AEST) 12 May 2015 and will end on 30 June 2018.

In the 2018 Budget, the government announced its intention to extend the end date of this measure to 30 June 2019. At the time of publishing, this change had not yet become law.

The balance of the general small business pool is also immediately deductible if the balance is less than $20,000 at the end of an income year that ends on or after 12 May 2015 and on or before 30 June 2018 (including existing general small business pool).

The 'lock out' laws have also been suspended for the simplified depreciation rules (these prevent small business from re-entering the simplified depreciation regime for five years if the they have opted out) until the end of 30 June 2018.

If the company is an eligible small business entity and has chosen to use the simplified depreciation rules, write at X the total depreciation deductions being claimed under the simplified depreciation rules and the uniform capital allowances (UCA) rules.

If you are a small business entity and have total depreciation deductions at X, you must also complete item 10 Small business entity simplified depreciation.

Small business entities can claim an immediate deduction for most depreciating assets costing less than $20,000 (excluding input tax credit entitlements) and pool most of their other depreciating assets in a general small business pool.

Some depreciating assets are excluded from these simplified depreciation rules but a deduction may be available under the UCA or the R&D depreciating asset regime.

An eligible company choosing to use these simplified depreciation rules must use both the immediate write-off and the pooling method where applicable. It cannot choose to use one and not the other.

For more information about the small business entity depreciation rules, see Simplified depreciation – rules and calculations or phone 13 28 66.

Calculating depreciation deductions for small business entities

Use the following steps 1 to 5 to calculate the depreciation deductions only if the company is an eligible small business entity and has chosen to use the simplified depreciation rules.

If the company’s profit and loss statement provides the amounts to complete worksheet 1, write these amounts in the worksheet. Otherwise, use steps 1 to 5 to calculate its depreciation deductions.

The amounts in the table must be tax and not accounting values.

Step 1: Deduction for certain assets costing less than $20,000 (‘Low-cost assets’)

For each depreciating asset:

• the company started to hold this income year and used, or installed ready for use, for a taxable purpose such as for producing assessable income
• whose cost at the end of this year is less than $20,000 (excluding input tax credit entitlements)
• which qualifies for a deduction under the small business entity depreciation rules

work out the extent it is used for the purpose of producing assessable income (taxable purpose proportion). The deduction for each eligible asset is calculated as:

asset’s adjustable value × its taxable purpose proportion

The adjustable value of an asset is its cost less its decline in value since it was first used, or installed ready for use, for any purpose, whether business or private. 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 company solely for non-taxable purposes. For example, for a vehicle bought on 1 December at a cost of $19,990 (excluding input tax credit entitlements) and used for producing assessable income from that date at an estimated 70% of the time, the immediate deduction would be $19,990 × 70% = $13,993.

Add up these results and write the total at (a) in worksheet 1.

Do not include in this calculation:

• amounts for depreciating assets that the company started to hold before starting to use the simplified depreciation rules and that cost less than $20,000. These assets are allocated to the general small business pool (see step 2).
• amounts for depreciating assets that cost $20,000 or more, but the taxable purpose proportion determines an amount to be deducted of less than $20,000. Such assets must be allocated to the general small business pool (see step 2). For example, if the vehicle bought above cost $20,200, the taxable purpose proportion is $14,140 ($20,200 × 70%), which is less than the $20,000 instant deduction threshold. However, the vehicle must still be allocated to the general small business pool because its cost is above $20,000.

Step 2: General small business pool deductions

To calculate the deduction for the general small business pool, first calculate the opening pool balance of the pool.

For companies previously using the simplified depreciation rules, the opening balance of the general small business pool is the closing pool balance for the previous income year, adjusted to reflect any changed business use of a pooled asset.

For companies which have not previously used the simplified depreciation rules, the opening pool balance is the sum of the taxable purpose proportions of the adjustable values of those depreciating assets that are used, or held for use, just before the start of 2017–18, and that are not excluded from the simplified depreciation rules.

When allocating each depreciating asset that the company holds 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.

For example, for an asset with an adjustable value of:

• $50,000 which is used only 50% for an income-producing purpose, add only $25,000 to the pool, or
• $20,200 which is used 70% for an income-producing purpose, add only $14,140 to the pool.

The company can choose not to allocate an asset to the general small business pool if the asset was first used, or installed ready for use, for a taxable purpose before 1 July 2001. A company making this choice would depreciate such assets under the normal UCA rules.

Calculate the opening pool balance for the general small business pool by adding the value of all depreciating assets allocated to the relevant pool.

Calculate the deduction for the general small business pool and complete as follows:

Opening pool balance $ × 30%

Write the result at b in worksheet 1.

If the pool balance (after taking into account additions and disposals but before calculating the deductions in steps 2 and 3) is below $20,000, the company calculates the deduction for the pool using step 5(b).

Step 3: Depreciating assets first used for a taxable purpose during the income year and cost addition amounts for assets already allocated to a pool

The company calculates the deduction at half the general small business pool rate for:

• depreciating assets that the company first used or installed ready for use for a taxable purpose during the year, and
• cost addition amounts during the year for assets already allocated to the pool. Cost addition amounts include the costs 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 cost of demolishing the asset).

The company calculates the deduction for the income year as follows:

• the taxable purpose proportion of the adjustable value of each depreciating asset first used for a taxable purpose this year multiplied by 15% for general small business pool assets, plus
• the taxable purpose proportion of the cost addition amounts multiplied by 15% for general small business pool assets.

Write the total deduction for general small business pool assets at c in worksheet 1.

If the pool balance (after taking into account additions and disposals but before calculating the deductions in steps 2 and 3) is below $20,000, calculate the company’s deduction for these assets using step 5(b).

Step 4: Other depreciating assets

Calculate the deduction for the decline in value of all the other depreciating assets of the company that are not included in steps 1 to 3. For information on how to calculate the decline in value of these assets, see the Guide to depreciating assets 2018.

Write the company’s total deduction at d in worksheet 1.

Do not include at d in worksheet 1 depreciating assets that 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 the company’s primary production business and for which the company has chosen to claim a deduction under these subdivisions and not under the small business entity depreciation rules. Include these deductions at N Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset item 7.

Step 5: Disposal of depreciating assets

Step 5a Certain assets less than $20,000 (Low-cost assets)

If the company has disposed of a low-cost asset for which it has claimed an immediate deduction in step 1 this year or in a previous year, it must include the taxable purpose proportion of the termination value at B Other assessable income item 7. 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, for example, for a low-cost asset used only 50% for an income-producing purpose that was sold for $200 (excluding GST) only $100 will be assessable and included as a reconciliation adjustment.

For example, the company acquired an asset on 1 February 2013 for $6,400 for 100% taxable use and claimed an immediate write-off under the threshold which existed at that time. The company disposed of the asset at arm's length on 1 February 2018 for $3,000. Include $3,000 as income at B Other assessable income item 7.

Step 5b Assets allocated to the general small business pool

If the company disposes 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 50% for an income-producing purpose which was sold for $3,000 (excluding GST) only $1,500 will be deducted from the closing pool balance.

If the balance of the pool (after taking into account any additions and disposals but before calculating the deductions in steps 2 and 3) is below $20,000 but greater than zero, the company claims an immediate deduction for this amount.

Write this deduction against general small business pool assets at b in worksheet 1.

If the closing pool balance is less than zero, include the amount below zero in the company’s assessable income at B Other assessable income item 7. For more information about closing pool balances, see Closing pool balance.

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

Step 5c Other depreciating assets

For information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets, see the Guide to depreciating assets 2018.

Include assessable balancing adjustment amounts at B Other assessable income item 7. Include deductible balancing adjustment amounts at X Other deductible expenses item 7. See worksheet 2.

Worksheet 1: Depreciation deductions (small business entities only)

Row	Calculation element	Total
a	Certain assets (less than $20,000)	$
b	General small business pool	$
c	General small business pool (½ rate)	$
d	Other assets	$
e	Depreciation expenses: add a to d	$

Transfer the amount at e to X Depreciation expenses item 6

Transfer the amount at a to A Deduction for certain assets item 10.

Transfer the total of the amounts at b and c to B Deduction for general small business pool item 10.

Closing pool balance

The closing balance of the general small business pool for an income year is:

• the opening pool balance (see step 2), plus
• the taxable purpose proportion of the adjustable value of assets that were first used, or installed ready for use, for a taxable purpose during the year (see step 3), plus
• the taxable purpose proportion of any cost addition amounts for assets in the pool during the year (see step 3), less
• the taxable purpose proportion of the termination value of any pooled assets disposed of during the year (see step 5b), less
• the general small business pool deduction (see step 2), less
• the deduction for assets first used by the taxpayer during the year (see step 3), less
• the deduction for any cost addition amounts for pooled assets during the year (see step 3).

If the company’s closing pool balance is less than zero, see step 5b.

The closing pool balance for this year becomes the opening pool balance for 2018–19, except where an adjustment is made to reflect the changed business use of a pooled asset.

The company will need its opening pool balance to work out the pool deduction next year. Do not write the closing pool balance on the company’s tax return.

Five-year restriction

The law has been changed to suspend the 5 year 'lock out' rule that applies to small business entities that have previously chosen to use these simplified depreciation rules but have opted-out in a later year.

If the company is a small business entity that has previously chosen to use these simplified depreciation rules but in a later year has chosen to stop using this concession, the company can again choose to use the simplified depreciation rules until the end of 30 June 2018.

Y Motor vehicle expenses

Write at Y motor vehicle running expenses only. These expenses include fuel, repairs, registration fees and insurance premiums. They do not include the expenses shown at:

• F Lease expenses within Australia item 6
• I Lease expenses overseas item 6
• V Interest expenses within Australia item 6
• J Interest expenses overseas item 6
• X Depreciation expenses item 6.

Z Repairs and maintenance

Write at Z the expenditure on repairs and maintenance of plant, machinery, implements and premises.

If the company has any item of a capital nature at Z, add it back at W Non-deductible expenses item 7.

Provided it is not expenditure of a capital nature, the company may deduct the cost of repairs to property, plant, machinery or equipment used for producing assessable income or in carrying on a business for that purpose. Deductions for expenditure on repairs to property must be reduced to reflect the extent to which the property is not used for an income-producing purpose, for example, where the property is also used for private purposes, or in the production of exempt income.

If items are newly acquired, including by way of a legacy or gift, the cost of remedying defects in existence at the time of acquisition is generally of a capital nature. Expenditure incurred in making alterations, additions or improvements is of a capital nature and is not deductible when incurred. However, it may be subject to depreciation under the UCA or another capital allowance regime. For more information on deductions for repairs, see Taxation Ruling TR 97/23 Income tax: deductions for repairs.

G Unrealised losses on revaluation of assets to fair value

Write at G the amount of any unrealised loss made on the revaluation of assets and liabilities to fair value that may arise as a result of the adoption of Australian equivalents to the international financial reporting standards.

• Include any unrealised loss on the revaluation of a financial arrangement to fair value deductible under the TOFA rules.
• Adjustments for tax purposes are made at item 7.
• An unrealised loss that is not deductible is added back at W Non-deductible expenses item 7.
• Any net capital gain for taxation purposes is included at A Net capital gain item 7.
• Any net capital loss is included with any unapplied capital losses carried forward to later income years and is written at V Net capital losses carried forward to later income years item 13.

S All other expenses

Write at S the total of all other expenses including losses on the disposal of depreciating assets (including assets used in R&D activities subject to the R&D tax incentive).

Include at S any losses from the company’s financial arrangements to which the TOFA rules apply, except where they have already been included at item 6.

Also include at S any extraordinary expenses, that is, expenses or losses from events outside the ordinary operations of the company and not of a recurring nature. An extraordinary loss that is not deductible is added back at W Non-deductible expenses item 7.

S excludes amounts included at Expenses, B to G item 6.

Calculation of some deductions may be affected by the commercial debt forgiveness provisions, see Appendix 1.

Q Total expenses

Write at Q the total of all expense items written at B to S item 6.

If there is a negative amount at A Cost of sales that exceeds the total of the Expenses at B and C to S, print L in the box at the right of the amount at Q.

T Total profit or loss

Write the company’s total profit or loss at T. Total profit or loss is the amount written at Income, S Total income, less the amount written at Expenses, Q Total expenses. If this amount is a loss, print L in the box at the right of the amount at T.