6 Expenses

About expense amounts

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

Write at label B Foreign resident withholding expenses all expenses that directly relate to income subject to foreign resident withholding. Don't include these amounts at other expense 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 item 7 – label U Non-deductible exempt income expenditure.

Other expenses, to the extent that they are not deductible in 2023–24, which have been included at item 6 – labels A to S, are added back at item 7 – label W Non-deductible expenses. 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 2023–24, make adjustments at item 7 – labels W Non-deductible expenses or X Other deductible expenses.

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 the ATO or specifically named in the income tax law. All receipts issued for gifts to 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 abr.business.gov.auExternal Link or phone 1300 130 248.

The company may elect to spread a deduction for a gift over 5 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.

B – Foreign resident withholding expenses

Only complete item 7 – label B Foreign resident withholding expenses if the company is a foreign resident. An Australian resident should not include expenses, such as expenses incurred in deriving foreign sourced income, at label B.

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

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

Don't include at this label expenses in relation to foreign resident capital gains withholding.

A – Cost of sales

Consider cost of sales, for:

• Small business entities
• All companies.

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 item 6 – label A Cost of sales 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 CODE box at the right of the amount at label A. Don't 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 (i.e. containers, labels, etc) held by a manufacturer, wholesaler or retailer are trading stock.

Don't include input tax credit entitlements in cost of sales.

For more information, see Accounting for business trading stock.

C – Contractor, sub-contractor and commission expenses

Write at label 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
• consultant fees.

Don't include the following at label C:

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

Keep a record of the following:

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

D – Superannuation expenses

Write at label 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 4 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 Caps, limits and tax on super contributions.

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
• 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 item 7 – label W Non-deductible expenses.

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

In addition, contributions made to a non-complying fund don't 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 multiple entry consolidated (MEC) groups

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

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

For more information, see Key super rates and thresholds.

E – Bad debts

Write at label E the bad debts expense incurred for the income year:

• Include recovery of bad debts at item 6 Income – label R Other gross income.
• 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.
• Don't include accounting provisions for doubtful debts at label E – include these at item 6 Expenses – label S All other expenses and add them back at item 7 Reconciliation to taxable income or loss – label W Non-deductible expenses.
• 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 sections 63E to 63F of the ITAA 1936 are satisfied. Under these sections, 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
  • 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
  • Law Companion Ruling LCR 2019/1 The business continuity test – carrying on a similar business.

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.

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.

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

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

• the debtor's 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 item 6 – label F Lease expenses within Australia the expenditure incurred through both finance and operating leases on leasing assets, including motor vehicles and depreciating assets such as plant. However, don't include the expenditure at label F if it is incurred under a hire-purchase agreement. Such expenses are referred to in Appendix 4.

Don't 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 5 year straight-line deduction 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 item 7 – label X Other deductible expenses. See Worksheet 2 and Note 6, and Tax deductions for depreciating assets and capital expenses.

I – Lease expenses overseas

Write at item 6 – label I Lease expenses overseas the lease expenses incurred through both finance and operating leases on leasing depreciating assets, including motor vehicles. However, don't include the expenditure at label I if it is incurred under a hire-purchase agreement. See, Appendix 4.

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 item 6 – label F Lease expenses within Australia.

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 2024 a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report.

H – Rent expenses

Write at item 6 – label 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 item 6 – label V the interest expenses incurred on money borrowed from Australian sources.

If the TOFA rules apply to the company, show at label 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 item 7 – label W Non-deductible expenses.

For information on thin capitalisation, see Appendix 6.

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 item 6 – label J the interest expenses incurred on money borrowed from overseas sources.

If an amount is reported at label J, complete and attach an International dealings schedule 2024 to your company tax return.

For more information, see Practical Compliance Guideline PCG 2017/4 ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions.

If the TOFA rules apply to the company, show at label 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 by 31 October 2024.

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 item 7 – label W Non-deductible expenses.

For information on thin capitalisation, see Appendix 6.

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, see Guide to the debt and equity tests.

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

• names and addresses of recipients
• amount of interest paid or credited
• documents that identify the substance of the financial arrangement and support the amount of interest expenses claimed, for instance, a signed copy of the loan agreement
• details of tax withheld, where applicable, and the date on which it was remitted to us.

U – Royalty expenses overseas

Write at item 6 – label U the royalty expenses incurred during the income year to non-residents.

If an amount is reported at label U, complete and attach an International dealings schedule 2024 to your company tax return.

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 2024.

Keep a record of the following:

• names and addresses of recipients
• amounts paid or credited
• documents that identify the nature of the benefit derived – for example, a signed 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 item 6 – label W the royalty expenses paid during the income year to Australian residents.

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 using simplified depreciation.

Otherwise, go to All other companies.

Small business entities using simplified depreciation

Show the depreciation expenses of small business entities using the simplified depreciation rules as tax values, at item 6 – label X Depreciation expenses. See Small business entities for how to calculate this amount.

Small business entities using simplified depreciation should complete item 10 Small business entity simplified depreciation, as applicable.

Don't complete item 7 – label F Deduction for decline in value of depreciating assets.

All other companies

Show at item 6 – label X Depreciation expenses the book depreciation expenses for depreciating assets.

Don't include:

• profit on the sale of a depreciating asset, include at Income, item 6 – label R Other gross income
• loss on the sale of a depreciating asset, include at Expenses, item 6 – label S All other expenses.

If an amount is written at item 6 – label X Depreciation expenses, make reconciliation adjustments at item 7 even if the depreciation expense is the same amount as the deduction for decline in value.

You need to complete:

• item 7 – label W Non-deductible expenses
• item 7 – label F Deduction for decline in value of depreciating assets.

For reconciliation purposes, split the amount written at item 6 – label X into R&D and non-R&D amounts when adding back. Include non-R&D amounts at item 7 – label W Non-deductible expenses and include R&D amounts at item 7 – label D Accounting expenditure in item 6 subject to R&D tax incentive when adding back.

Write the deduction for decline in value of most depreciating assets at item 7 – label F Deduction for decline in value of depreciating assets. If a depreciating asset is subject to the R&D tax incentive, this amount will form part of your notional R&D deduction and not be included at item 7 – label F. Eligible companies can claim this notional R&D deduction amount as an R&D tax offset.

For more information, see:

• 21 Research and development tax incentive
• Research and development tax incentive schedule and instructions 2024.

Simplifying tax obligations for business

Law administration 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 2 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

How to complete this section if you are a small business entity and have chosen to use the simplified depreciation rules.

• Small business concessions changes to simplified depreciation rules
• Calculating depreciation deductions for small business entities
• Five year restriction.

Small business concessions changes to simplified depreciation rules

In 2023–24, the instant asset write-off applies to small business entities using the simplified depreciation rules.

If the company is an eligible small business entity and has chosen to use the simplified depreciation rules, write at item 6 – label X Depreciation expenses the total depreciation deductions being claimed under the simplified depreciation rules and the uniform capital allowances (UCA) rules. You must also complete:

• item 10 – label A Deduction for certain assets (costing less than the relevant instant asset write-off threshold) for eligible assets where the instant asset write-off applies
• item 10 – label B Deduction for general small business pool to record the deduction claimed for your small business pool.

Some depreciating assets are excluded from the simplified depreciation rules, but a deduction may be available under the UCA or other capital allowance (such as the R&D depreciating asset regime). For more information, see Assets and exclusions. Special rules also apply if the depreciating asset is a passenger vehicle.

For more information about the small business entity depreciation rules, see Simpler depreciation for small business or phone us.

Calculating depreciation deductions for small business entities

Use calculations 1 to 5 in Appendix 11 to calculate the depreciation deductions only if the company is an eligible small business entity and has chosen to use the simplified depreciation rules.

Transfer the tax values to the Worksheet.

Five year restriction

The 5-year 'lock out' rule is suspended until 30 June 2024. This rule prevented small business entities from re-entering the simplified depreciation regime if they opted out.

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 2024.

To notify the Commissioner of the choice, lodge the company tax return and keep relevant records for the required period of time. The company is not required to lodge any other form to notify of their choice.

Y – Motor vehicle expenses

Write at item 6 – label Y Motor vehicle running expenses only. These expenses include fuel, repairs, registration fees and insurance premiums. They don't include the expenses shown at item 6 – labels:

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

Z – Repairs and maintenance

Write at item 6 – label Z the expenditure on repairs and maintenance of plant, machinery, implements and premises.

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

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 label 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 Reconciliation to taxable income or loss.
• An unrealised loss that is not deductible is added back at item 7 – label W Non-deductible expenses.
• Any net capital gain for taxation purposes is included at item 7 – label A Net capital gain.
• Any net capital loss is included with any unapplied capital losses carried forward to later income years and is written at item 13 – label V Net capital losses carried forward to later income years.

S – All other expenses

Write at item 6 – label S the total of all other expenses. This includes losses on the disposal of depreciating assets, including assets used in R&D activities subject to the R&D tax incentive.

Include at label 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
• any extraordinary expenses, that is, expenses or losses from events outside ordinary operations of the company that don't recur – an extraordinary loss that is not deductible is added back at item 7 – label W Non-deductible expenses.

Don't include at Label S amounts included at item 6 Expenses – labels B to G.

Calculation of some deductions may be affected by the commercial debt forgiveness provisions, see Appendix 5.

Q – Total expenses

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

If there is a negative amount at item 6 – label A (marked with code L) that exceeds the total of labels B and C to S, print L in the CODE box at the right of the amount at item 6 – label Q.

T – Total profit or loss

Write the company’s total profit or loss at item 6 – label T. Total profit or loss is the amount written at item 6 Income – label S Total income, less the amount written at item 6 Expenses – label Q Total expenses. If this amount is a loss, print code L in the box at the right of the amount at label T.

Continue to: 7 Reconciliation to taxable income or loss

Return to: Instructions to complete the Company tax return 2024