7 Reconciliation to taxable income or loss

Completing item 7

These items are adjustments for tax purposes to reconcile item 6 – label T Total profit or loss with item 7 – label T Taxable/net income or loss.

Former STS taxpayers

If the company is eligible and is continuing to use the STS (simplified tax system) accounting method, the following might apply.

You might need to make additional adjustments at item 7, if either:

• the company is using the STS accounting method and the amounts the company has written at the item 6 Income and Expenses sections of Calculation of total profit or loss are not based on the STS accounting method
• the company stops using the STS accounting method.

These adjustments are explained in more detail below. Use Worksheet 2 to help you with the calculations.

Trade debtors and creditors as at 30 June 2024

If the company is eligible and has chosen to continue using the STS accounting method, and has included at any labels at item 6 Income amounts of ordinary income that have been derived but not received in 2023–24, (for example, trade debtors as at 30 June 2024), the amounts not received are not assessable this year.

Include these amounts at item 7 – label Q Other income not included in assessable income.

If the company is eligible and has chosen to continue using the STS accounting method and has included at any labels at item 6 Expenses amounts of general deductions, repairs or tax-related expenses that have been incurred but not paid in 2023–24, (for example, trade creditors as at 30 June 2024), the amounts not paid are not deductible this year.

Include these amounts at item 7 – label W Non-deductible expenses.

Ceasing to use the STS accounting method

You may need to make adjustments if the company has stopped using the STS accounting method and changed to an accruals accounting method this year.

If you have not included anywhere at item 6 Income amounts of ordinary income that the company derived but did not receive while using the STS accounting method (for example, trade debtors as at 30 June 2024), these amounts are assessable this year.

Include these amounts at item 7 – label B Other assessable income.

If you have not included anywhere at item 6 Expenses amounts of general deductions, repairs or tax-related expenses that the company incurred but not paid while using the STS accounting method, (for example, trade creditors as at 30 June 2024), these amounts are deductible this year.

Include these amounts at item 7 – label X Other deductible expenses.

Use Worksheet 2 to help you with the calculations.

Other reconciliation adjustments

Information to help you understand other reconciliation adjustments.

Ceasing to hold depreciating assets

If the company has ceased to hold depreciating assets during the income year, include the following amounts (if any) at item 7 – label B Other assessable income:

• the taxable purpose proportion of the termination value of low-cost assets which the company has ceased to hold and for which an immediate deduction has been claimed
• the amount below zero if the closing pool balance of the general small business pool is less than zero
• assessable balancing adjustment amounts on the disposal (or deemed disposal) of, or otherwise ceasing to hold, depreciating assets not subject to the small business entity depreciation rules.

Include at item 7 – label X Other deductible expenses any deductible balancing adjustment amounts where you ceased to hold depreciating assets not deducted under the small business entity depreciation rules.

Include at item 7 – label Q Other income not included in assessable income any profit on sale of depreciating assets included at item 6 Income – label R Other gross income.

Include at item 7 – label W Non-deductible expenses any loss on sale of depreciating assets included at item 6 Expenses – label S All other expenses item 6. See Worksheet 2.

Prepaid expenses

Generally, prepaid expenses are deductible over the eligible service period or 10 years whichever is less. Small business entities and entities that would be small business entities if the aggregated turnover threshold was less than $50 million are entitled to an immediate deduction for prepaid expenses if the 12-month rule applies, that is:

• the expenditure is incurred for a period of service not exceeding 12 months, and
• the eligible service period ends on or before the last day of the next year of income.

If the 12-month rule does not apply, apportion the deduction for the expenditure over the eligible service period or 10 years, whichever is shorter. The immediate deduction under the 12-month rule does not apply to expenditure incurred under a tax shelter agreement.

Broadly, the eligible service period is the period during which the thing is to be done under the agreement in return for the expenditure.

If you are an early balancer and, on a date that was both before 1 July 2024 and falls within 2023–24, you incurred expenditure under a forestry management agreement, phone us for further assistance.

For more information, see Deductions for prepaid expenses 2024.

If the labels at item 6 Expenses include prepaid expenses that differ from the amounts allowable as deductions in 2023–24, include the reconciliation adjustment at item 7 – label W Non-deductible expenses or label X Other deductible expenses as required, see Worksheet 2.

G – Did you have a CGT event during the year?

If a capital gains tax (CGT) event happened to the company during the income year, or the company received (or is treated as receiving) a capital gain amount from a trust, print X in the Yes box at item 7 – label G.

Otherwise print X in the No box.

CGT events are the different types of transactions or events that may result in a capital gain or capital loss. Many CGT events involve a CGT asset (for example, the disposal of a CGT asset) while other CGT events relate directly to capital receipts.

An Australian resident company makes a capital gain or capital loss if a CGT event happens to any of its worldwide CGT assets. A foreign resident company is only subject to CGT if a CGT event happens to assets that are taxable Australian property. For more information, see the Guide to capital gains tax 2024.

If the company ceases to hold or to use a depreciating asset that was used for both taxable and non-taxable purposes, a CGT event may happen to the asset. A capital gain or capital loss may arise to the extent that the asset was used for a non-taxable purpose.

For more information about CGT events, see the Guide to capital gains tax 2024.

For help completing the schedule and a copy of the schedule, see Capital gains tax schedule and instructions 2024.

You may also need the:

• Capital gain or capital loss worksheet 2024 – for calculating a capital gain or capital loss for each CGT event.
• CGT summary worksheet 2024 – for calculating a net capital gain or net capital loss for the income year.

The worksheets help in calculating a company’s net capital gain or net capital loss for the income year and completing the tax return labels that relate to CGT. Completion of the worksheets is not mandatory. Don't attach them to the company tax return, but keep them with the company’s tax records.

However, the company must complete a Capital gains tax schedule 2024 and attach it to the company tax return, if the company has either:

• total current year capital gains greater than $10,000
• total current year capital losses greater than $10,000.

Consolidated or multiple entry consolidated (MEC) groups

Transfers of assets between members of the same consolidated or MEC group are not recognised for the head company’s income tax purposes.

Any CGT events occurring between a subsidiary member of the consolidated or MEC group and parties external to the consolidated or MEC group, are taken to be CGT events of the head company of the consolidated or MEC group.

M – Have you applied an exemption or roll-over?

If you have disregarded or deferred a capital gain or capital loss because you are eligible to apply a CGT exemption or roll-over, print X in the Yes box at item 7 – label M. If you are required to lodge a CGT schedule, you may need to provide details of certain CGT exemptions and roll-overs.

If you answered yes at label M print in the CODE box the code from Table 4, for the CGT exemptions and roll-overs you have applied to disregard or defer a capital gain.

Choose the most specific roll-over and exemption that applies, such as Scrip for scrip roll-over (Subdivision 124-M), before you choose a more general roll-over and exemption, such as Replacement asset roll-overs (Division 124).

If you have applied more than one CGT exemption or roll-over, select all of the codes that apply.

If you are lodging by paper, write the code that represents the CGT exemption or roll-over that deferred or disregarded the largest amount of capital gain.

Note: use code T if you have either received or disposed of an asset under the small business restructure roll-over provisions.

If the company is required to lodge a CGT schedule, you may need to provide details of the capital gains deferred or disregarded as a result of applying certain CGT exemptions and roll-overs.

For more information, see Guide to capital gains tax 2024.

Add-back items

Add the following items to item 6 Calculation of total profit or loss – label T Total profit or loss:

• A – Net capital gain
• U – Non-deductible exempt income expenditure
• J – Franking credits
• C – Australian franking credits from a New Zealand franking company
• E – TOFA income from financial arrangements not included in item 6
• B – Other assessable income
• W – Non-deductible expenses
• D – Accounting expenditure in item 6 subject to R&D tax incentive

A – Net capital gain

Write at item 7 – label A the company’s net capital gain. If the company has used the CGT summary worksheet or CGT schedule this is the amount at either:

• part 6 – label 6A of the CGT summary worksheet
• part 6 – label A of the CGT schedule.

The company’s net capital gain is the total of the capital gains it made (that are not disregarded other than by one of the small business concessions listed below) reduced by current year capital losses (that are not disregarded), prior year unapplied net capital losses and, if applicable:

• 50% active asset reduction
• retirement exemption
• rollover provisions.

A company is not eligible for the CGT discount.

Any amount received by a company that is referable as NCMI capital gains or Excluded from NCMI capital gains would be included in the calculation of the amount at item 7 – label A Net capital gain.

For more information:

• on NCMI, see Stapled structures
• see Guide to capital gains tax 2024
• see Small business CGT concessions.

Include any net capital loss with any unapplied net capital losses carried forward to later income years and record it at item 13 – label V Net capital losses carried forward to later income years.

The company may need to complete either a:

• Consolidated groups losses schedule
• Losses schedule.

If you report a distribution from a trust at item 7 – label A, complete a Trust income schedule 2024 and attach it to the company tax return.

U – Non-deductible exempt income expenditure

Write at item 7 – label U, any expenditure incurred in deriving exempt income written at item 7 – label V Exempt income.

Don't include expenditure incurred in deriving exempt income from retirement savings accounts (RSAs) or debt deductions allowed by section 25–90 of the ITAA 1997.

J – Franking credits

Write at item 7 – label J the amount of franking credits attached to assessable distributions received from Australian corporate tax entities.

Don't include franking credits attached to:

• a distribution the company receives indirectly, through one or more partnerships or trusts (include these at item 6 – label D Gross distribution from partnerships or E Gross distribution from trusts)
• a distribution that is exempt income or non-assessable non-exempt income
• franked distributions received from a New Zealand franking company (include these at item 7 – label C Australian franking credits from a New Zealand company)
• a distribution where the shares are not held at risk as required under the holding period and related payments rules, if the dividend washing integrity rule applies, or there is other manipulation of the imputation system.

There is no entitlement to a franking tax offset in these circumstances.

Under the simplified imputation system, a company must include in its assessable income the amount of franking credits attached to assessable franked distributions received.

The maximum franking credit that can be allocated to a frankable distribution is based on the corporate tax rate for imputation purposes of the company making the distribution.

For 2023–24, a company's corporate tax rate for imputation purposes may be either 25% or 30%, depending on the company's circumstances. For more information, see Allocating franking credits.

For most companies, the amount of franking credits included at label J is allowable as a tax offset and should be claimed in the Calculation statement at label C Non-refundable non-carry forward tax offsets. If the company is an eligible resident income tax exempt entity or life insurance company or organisation entitled to claim a refund of excess franking credits, claim the refundable amount in the Calculation statement at label E Refundable tax offset.

Trans-Tasman imputation

Australian shareholders may benefit from the Australian franking credits attached to distributions made by a New Zealand resident company that has elected into the Trans-Tasman imputation measure (referred to as a ‘New Zealand franking company’). This allows the New Zealand franking company to join the Australian imputation system. The New Zealand franking company then maintains an Australian franking account and attaches Australian franking credits to its frankable distributions one month after it makes an election.

C – Australian franking credits from a New Zealand franking company

Write at item 7 – label C amounts of Australian franking credits from a New Zealand franking company that are included in assessable income because of a franked distribution paid to the company by a New Zealand franking company or because of its receipt indirectly through a partnership or trust. To work out whether the distribution is included in assessable income, see the Foreign income return form guide.

To calculate the amount to write at label C, the Australian franking credits received directly or indirectly from a New Zealand franking company must be reduced by the amount of a supplementary dividend or the company’s share of a supplementary dividend if both:

• the supplementary dividend is paid in connection with the franked distribution
• the company is entitled to a foreign income tax offset because of the inclusion of the distribution in assessable income.

If the shares or interests are not held at risk as required under the holding period and related payments rules, or there is other manipulation of the imputation system, don't include the Australian franking credit in assessable income at label C and there is no entitlement to a franking tax offset.

For most companies the amount of Australian franking credits included at label C is allowable as a tax offset and should be claimed in the Calculation statement at label C Non-refundable non-carry forward tax offsets. If the company is a life insurance company or organisation entitled to claim a refund of excess franking credits, claim the refundable amount in the Calculation statement at label E Refundable tax offset.

A dividend from a New Zealand franking company may also carry New Zealand imputation credits. An Australian resident can't claim any New Zealand imputation credits.

E – TOFA income from financial arrangements not included at item 6

If the company has financial arrangements to which the TOFA rules apply, include at item 7 – label E assessable gains under the TOFA rules from financial arrangements which have not been shown at item 6.

For more information, see Guide to taxation of financial arrangements (TOFA).

B – Other assessable income

Write at item 7 – label B the total of the amounts that form part of assessable income if you have not included them as income at item 6 or at item 7 labels:

• A Net capital gain
• J Franking credits
• C Australian franking credits from a New Zealand company.

For example, attributed foreign income of a controlled foreign company (CFC), and timing adjustments such as that which reconciles interest receivable to assessable interest income. For more examples of specific items, see the list of items in Worksheet 2.

The following items are shown at item 7 – label B:

• The excess of the company’s foreign source income and attributed foreign income for taxation purposes over income from such sources shown in the accounts. Gross up foreign source income by the amount of foreign tax paid. Include any add-back or subtraction adjustment to expenses claimed against such income separately at item 7 – label W Non-deductible expenses or at item 7 – label X Other deductible expenses.
• Assessable foreign exchange (forex) gains to the extent that they have not been included at item 6 or at any other label of item 7, see Foreign exchange gains and losses for more information.
• Assessable balancing adjustment amounts for non-R&D assets.
• Clawback of the incentive component of the R&D offset where there are
  • assessable balancing adjustment amounts for assets used in R&D activities
  • R&D recoupment amounts arising from receiving or becoming entitled to receive a government recoupment (such as a government grant or reimbursement) that relates to expenditure for which you or a related entity have claimed a notional deduction under the R&D tax incentive
  • feedstock adjustment amounts as a result of expenditure on goods, materials or energy used, and claimed as notional R&D deductions on R&D activities that produce marketable products supplied or applied to the company's own use.
• If the company ceases to hold a depreciating asset, or permanently ceases using it (or ceases having it installed ready for use) for any purpose and expects (or has decided) never to use it again, a balancing adjustment event occurs – where
  • assets are subject to the small business entity depreciation rules, see Calculation 4: Ceasing to hold depreciating assets
  • assets are not subject to the small business entity depreciation rules, calculate a balancing adjustment amount to include in the company’s assessable income or to claim as a deduction
  • the asset was used for both taxable and non-taxable purposes, reduce the balancing adjustment amount by the amount attributable to the non-taxable use. A capital gain or capital loss amount may arise attributable to that non-taxable use. For more information, see the Guide to depreciating assets 2024.
• If a company receives a distribution from a partnership or trust and that partnership or trust claimed a deduction for a listed investment company (LIC) capital gain amount, then the company must add back as income its share of the deduction claimed by the partnership or trust. There is a modification for life insurance companies. For more information, see item 16 Life insurance companies and friendly societies only.
• Excessive deductions for capital allowances that are to be 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 limited recourse debt
  • the limited recourse debt is terminated after 27 February 1998 but has not been paid in full by the debtor, and
  • 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. ‘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 that has been financed by the debt or is security for the debt, or rights to such property.
    A debt is also 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 are capable of being so limited.
    Limited recourse debt includes a notional loan under a hire-purchase or sale agreement of goods to which Division 240 of the ITAA 1997 applies. See section 243-20. The rules in section 243-75 apply where Division 243 and Division 245 of the ITAA 1997 (commercial debt forgiveness, see Appendix 5) both apply to the same debt.
• Amounts assessable under Division 45 of the ITAA 1997. Broadly, if a taxpayer holds plant which has been used principally for leasing and some part of the lease period occurred on or after 22 February 1999, Division 45 and related amendments may apply from that date to include an amount in the assessable income of the taxpayer upon disposal of such plant, or an interest in the plant, or an interest in, or rights under, a lease of the plant, see section 45-5 of the ITAA 1997. Similar tax consequences arise for a partner in a partnership if the partnership holds plant which has been used principally for leasing and some part of the lease period occurred on or after 22 February 1999, see section 45-10 of the ITAA 1997.
  
  A subsidiary member of a wholly owned company group is treated under Division 45 as if it had disposed of and immediately reacquired plant that it holds where
  • the subsidiary has previously claimed or is eligible to claim deductions for the decline in value of the plant
  • more than 50% direct or indirect beneficial ownership in the shares of the subsidiary are acquired on or after 22 February 1999 by an entity or entities, none of which is a member of the wholly owned group
  • the main business of the subsidiary was to lease assets and the plant has been used principally for leasing and some part of the lease period occurred on or after 22 February 1999
  • at that acquisition time, the plant’s written down value is less than the plant’s market value
  • the main business of each acquiring entity is not the same as the main business of the wholly owned group immediately before the relevant acquisition, see section 45-15 of the ITAA 1997.
• Similar tax consequences arise if the subsidiary is a partner in a leasing partnership, see section 45-20 of the ITAA 1997.
• Each company in the wholly owned group may become jointly and severally liable for any outstanding amount of tax payable by the subsidiary (because of section 45-15 or 45-20) at the end of 6 months from the time such tax becomes due and payable by the subsidiary, see section 45-25 of the ITAA 1997.

W – Non-deductible expenses

Write at item 7 – label W expense-related adjustments that are added back to the amount written at item 6 – label T Total profit or loss to reconcile with the amount written at item 7 – label T Taxable/net income or loss.

The amount written at label W excludes:

• any amount included at item 7 – label U Non-deductible exempt income expenditure
• any amount included at item 7 – label D Accounting expenditure in item 6 subject to R&D tax incentive.

Generally, label W includes the amounts that are an expense for accounting purposes but are not deductible for income tax purposes, including timing variations. Examples are:

• debt deductions disallowed under the thin capitalisation rules
• unrealised losses on revaluation of assets and liabilities to fair value under international financial reporting standards
• any expenses (including interest or amounts in the nature of interest) incurred in deriving non-assessable non-exempt income such as foreign income that is non-assessable non-exempt income under section 23AH of the ITAA 1936
• a non-share dividend, to the extent that it is an expense for accounting purposes and therefore taken into account in determining total profit and loss, but which is not deductible for income tax purposes.

For more examples of specific items, see Worksheet 2.

If a foreign exchange (forex) loss for accounting purposes, included in item 6, exceeds the deductible forex loss, include the difference at label W. For more information, see Foreign exchange gains and losses.

If Australian and foreign source capital losses for accounting purposes are included at item 6 Expenses – labels G Unrealised losses on revaluation of assets to fair value or S All other expenses, also include them at label W. For Australian taxation purposes, include any net capital loss with any unapplied capital losses carried forward to later income years and write it at item 13 – label V Net capital losses carried forward to later income years.

D – Accounting expenditure in item 6 subject to R&D tax incentive

Write at label D, the expense amounts included at the expenditure labels at item 6 Calculation of total profit or loss, which relate to amounts that you are claiming as a notional R&D deduction under the R&D tax incentive provisions.

Also include at label D any book depreciation expenses for assets used in activities which are subject to the R&D tax incentive that were included at item 6 – label X Depreciation expenses (any amounts not subject to the R&D tax incentive must be included at item 7 – label W Non-deductible expenses).

At label D you also need to include amounts that you have written at the expenditure labels in item 6 Calculation of total profit or loss which you have incurred to your associates that are not yet paid or claimed and are to be carried forward.

For more information, see Research and development tax incentive schedule and instructions 2024.

If no expense amounts relating to notional R&D deduction have been included at item 6 (for example, amounts are capitalised) write 0 (zero) at label D.

The amount written at label D on the company tax return must be the same as the amount written at label D Preliminary calculation – Add-back of research and development (R&D) accounting expenditure on the Research and development tax incentive schedule 2024.

Subtotal

Write the sum of the amount transferred from item 6 – labels T Total profit or loss and the add-back items at item 7 – labels A, U, J, C, E, B, W and D.

If this amount is a loss, print L in the CODE box.

Subtraction items

Deduct the following items from the amount at Subtotal:

• C – Section 46FA deduction for flow-on dividends
• F – Deduction for decline in value of depreciating assets
• U – Forestry managed investment scheme deduction
• E – Immediate deduction for capital expenditure
• H – Deduction for project pool
• I – Capital works deductions
• Z – Section 40-880 deduction
• N – Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset
• O – Deduction for environmental protection expenses
• V – Exempt income
• Q – Other income not included in assessable income
• W – TOFA deductions from financial arrangements not included in item 6
• X – Other deductible expenses
• J – Small business skills and training boost
• K – Small business energy incentive
• R – Tax losses deducted
• S – Tax losses transferred in (from or to a foreign bank branch or a PE of a foreign financial entity)
• Subtraction items subtotal

C – Section 46FA deduction for flow-on dividends

Write at item 7 – label C any amounts claimed as a deduction during the income year that are deductible under section 46FA of the ITAA 1936. If an amount is reported at label C, complete and attach an International dealings schedule 2024.

This deduction is allowable in certain cases where a non-portfolio dividend that is not fully franked is on-paid by a resident company to its non-resident parent.

If a deduction is claimed under section 46FA, the claiming entity must maintain an unfranked non-portfolio dividend account under section 46FB of the ITAA 1936 and complete item 43 Do you have an unfranked non-portfolio dividend account (section 46FB ITAA 1936)? on the International dealings schedule 2024.

F – Deduction for decline in value of depreciating assets

If the company is not a small business entity using the simplified depreciation rules, write the deduction for decline in value of most depreciating assets for taxation purposes at item 7 – label F.

If you complete item 7 – label F, then you also need to consider and complete item 7 – label I Capital works deductions for any capital works items (Division 43) that are not eligible capital allowance items or assets even if that amount is zero – see, Capital works deductions.

If item 7 – label F is completed then you also need to complete item 9 Capital allowances – labels A, B, C, D, E, F, G, H and I.

This amount is often different from the amount of depreciation calculated for accounting purposes written at item 6 – label X Depreciation expenses and added back at item 7 – label W Non-deductible expenses.

If a depreciating asset is used in R&D activities, the notional decline in value amount will form part of your notional R&D deduction. Eligible companies can claim this notional R&D deduction amount in calculating the R&D tax offset.

For more information, see:

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

If a decline in value amount is included as a notional R&D deduction, add back at item 7 – label D Accounting expenditure in item 6 subject to R&D tax incentive any related depreciation expenses included at item 6 – label X Depreciation expenses.

If the company is a small business entity using the simplified depreciation rules, include deductions for depreciating assets at item 6 – label X Depreciation expenses.

If the company is not using the simplified depreciation rules, and is continuing to claim a deduction for any prior pool, this deduction should be included at item 6 – label X Depreciation expenses.

General depreciation rules

If the company has allocated depreciating assets to a low-value pool, include the deduction for decline in value of those assets at item 7 – label F.

If you use a depreciating asset in R&D activities, add the notional decline in value amount to your notional R&D deduction. Eligible companies can claim this notional R&D deduction amount in calculating the R&D tax offset. For more information, see:

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

If you have elected to use the hedging tax-timing method provided for in the TOFA rules and you have a gain or loss from a hedging financial arrangement used to hedge risks for a depreciating asset, work out separately:

• the deduction for decline in value of depreciating assets (include this at item 7 – label F Deduction for decline in value of depreciating assets), and
• your gain or loss on the hedging financial arrangement; include this at either
  • item 7 – label E TOFA income from financial arrangements not included in item 6, or
  • item 7 – label W TOFA deductions from financial arrangements not included in item 6.

Include the decline in value of water facilities at item 7 – label N Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset.

For information about how to work out deductions for decline in value, see Appendix 4.

Law administration and 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 of low-cost tangible assets that are revenue expenditure.

For more information, see Record keeping for capital expenses.

U – Forestry managed investment scheme deduction

For more information on the terms in this section, see Definitions.

The company may be able to claim a deduction at this item for payments made to an FMIS if:

• the company currently holds a forestry interest in an FMIS, or held a forestry interest in an FMIS during 2023–24
• the company paid an amount to a forestry manager of an FMIS under a formal agreement
• the forestry manager has advised the company that the FMIS satisfies the 70% direct forestry expenditure rule in Division 394 of the ITAA 1997
• the company does not have day to day control over the operation of the scheme
• there is more than one participant in the scheme or, the forestry manager or an associate of the forestry manager manages, arranges or promotes similar schemes, and
• the trees are established within 18 months of the end of the income year in which an amount is first paid under the FMIS by a participant in the scheme.

If the company is an initial participant in an FMIS it can claim initial and ongoing payments at this item. However, the company can't claim a deduction if it has disposed of its forestry interest in an FMIS within 4 years after the end of the income year in which it first made a payment. The deduction will be allowed if the disposal occurs because of circumstances outside of the company's control, provided the company could not have reasonably foreseen the disposal happening when they acquired the interest. Disposals that would generally be outside the company's control may include compulsory acquisition, insolvency of the company or the scheme manager, or cancellation of the interest due to fire, flood or drought.

If the company is a subsequent participant, it can't claim a deduction for the amount paid for acquiring the interest. The company can only claim a deduction for ongoing payments.

The deduction is claimed in the income year in which the payment is made.

Excluded payments

The company can't claim a deduction at this item for any of the following payments:

• payments for borrowing money
• interest and payments in the nature of interest (such as a premium on repayment or redemption of a security, or a discount of a bill or bond)
• payments of stamp duty
• payments of goods and services tax (GST)
• payments that relate to transportation and handling of felled trees after the earliest of the
  • sale of the trees
  • arrival of the trees at the mill door
  • arrival of the trees at the port
  • arrival of the trees at the place of processing (other than where processing happens in-field)
• payments that relate to processing
• payments that relate to stockpiling (other than in-field stockpiling)
• payments that relate to marketing and sale of forestry produce.

While the payments are not deductible FMIS payments, they may qualify as revenue or capital payments under another label.

Write at item 7 – label U Forestry managed investment scheme deduction the total amount of deductible payments made to an FMIS.

Non-deductible expenditure and the deductible payments made to an FMIS must also be included at item 7 – label W Non-deductible expenses to the extent that they have been included as an expense at item 6.

E – Immediate deduction for capital expenditure

Companies in the mining, petroleum and quarrying industries should write at label E the total amount of capital expenditure (other than on depreciating assets) claimed as an immediate deduction for:

• exploration and prospecting
• rehabilitation of mining or quarrying sites
• payment of petroleum resource rent tax.

For more information, see Guide to depreciating assets 2024.

H – Deduction for project pool

Write at item 7 – label H the total amount of the company’s deductions for project pools.

If a project is abandoned, sold or otherwise disposed of, the company can deduct the project pool value at that time. Include this deduction at label H.

Include the expenditure allocated to the project pool for the income year at item 7 – label W Non-deductible expenses to the extent that it has been included as an expense at item 6.

If the entity operates in mining (ANZSIC codes 06000 to 10900) and completes item 7 – label H, you should also complete item 9 – label J Total mining capital expenditure and/or transport capital that you allocated to a project pool and for which you can claim a deduction this income year.

For more information about project pools, see Appendix 4.

I – Capital works deductions

Write at item 7 – label I the deduction claimed for capital expenditure on buildings and structural improvements (such as bridges, pipelines, retaining walls and sealed roads), which includes eligible capital expenditure on extensions, alterations or improvements, and shop fitouts. Exclude capital expenditure for mining infrastructure buildings and timber milling buildings.

For more information on capital works deductions, see Appendix 3. Commercial debt forgiveness provisions may affect the calculation of some deductions, see Appendix 5.

Z – Section 40-880 deduction

Write at item 7 – label Z the total of the company’s deductions allowable under section 40-880 of the ITAA 1997.

The expenditure deductible under section 40-880 must be included at item 7 – label W Non-deductible expenses to the extent that it has been included as an expense at item 6.

For information on section 40-880 deductions, see Appendix 4.

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

Write at item 7 – label N the company’s total deductions for landcare operations expenses and for water facilities, fencing assets and fodder storage assets.

Don't include the deduction for the decline in value of water facilities at item 7 – label F Deduction for decline in value of depreciating assets.

The expenditure on landcare operations, water facilities, fencing assets and fodder storage assets must be included at item 7 – label W Non-deductible expenses to the extent that it has been included as an expense at item 6.

For information on deductions for landcare operations and water facilities, fencing assets and fodder storage assets, see Appendix 4.

O – Deduction for environmental protection expenses

Write at item 7 – label O the amount of allowable expenditure on environmental protection activities (EPA).

The deductible expenditure on EPA must also be included at item 7 – label W Non-deductible expenses to the extent that it has been included as an expense at item 6.

For information on deductions for expenditure on EPA, see Appendix 4.

V – Exempt income

Write at item 7 – label V all income that is exempt from Australian tax.

Don't include at label V amounts that are not assessable income and not exempt income. For example, any foreign income amounts that are treated as non-assessable non-exempt income under sections 23AH, 23AI, 23AK, 99B(2A) of the ITAA 1936 or Subdivision 768-A of the ITAA 1997. Include these amounts at item 7 – label Q Other income not included in assessable income.

Don't include at label V income exempt under an RSA. Exempt income from retirement savings accounts (RSAs) is taken into account in determining the Net taxable income from RSAs at item 19 – label V.

Q – Other income not included in assessable income

Write at item 7 – label Q income-related adjustments that have to be subtracted from item 6 – label T Total profit or loss to reconcile with item 7 – label T Taxable income or loss.

Don't include again amounts included at item 7 – labels C Section 46FA deductions for flow-on dividends to V Exempt income at item 7 – label Q.

Generally, the amounts that are included at label Q are income for accounting purposes, but not assessable for income tax purposes.

Write exempt income separately at item 7 – label V Exempt income.

Include the following items at label Q:

• any excess of gross foreign source income, shown in income at item 6, over the amount that represents assessable income
  • when calculating the excess, include dividends and other amounts that are not assessable because of sections 23AH, 23AI, 23AK, 99B(2A) of the ITAA 1936 or Subdivision 768-A of the ITAA 1997
  • complete and attach an International dealings schedule 2024 if the company received dividends or other amounts covered by any of these provisions
• any part of an unfranked distribution that is not assessable due to sections 802-15 or 802-20 of the ITAA 1997 (these provisions are relevant to conduit foreign income)
• other amounts of non-assessable non-exempt income (don't include demerger dividends or other amounts not shown at item 6)
• cash flow boost if you included it at item 6
• profits on disposal of assets used in R&D activities which are subject to the R&D tax incentive included at item 6 – label R Other gross income
• Australian and foreign source capital gains for accounting purposes that have been included at item 6 – labels J Unrealised gains on revaluation of assets to fair value or label R Other gross income (For Australian taxation purposes, include any net capital gain at item 7 – label A Net capital gain.)
• any excess of a forex gain for accounting purposes, included at item 6, over the assessable forex gain – for more information on the forex measures, see Foreign exchange gains and losses
• any Large Generation Certificate (LGC) shortfall charge refunds where the amount has been included in item 6 – label T Total profit or loss, that is, the amount included at label Q was income for accounting purposes, but non-assessable non-exempt income for income tax purposes.

For more examples of specific items, see Worksheet 2.

W – TOFA deductions from financial arrangements not included in item 6

If the company has financial arrangements to which the TOFA rules apply, include at item 7 – label W losses allowable under the TOFA rules from financial arrangements which have not been shown at item 6.

For more information, see the Guide to taxation of financial arrangements (TOFA).

X – Other deductible expenses

Write at item 7 – label X expense-related adjustments that are subtracted from item 6 – label T Total profit or loss to reconcile with item 7 – label T Taxable income or loss.

Don't include items included under item 7 – labels C to O at item 7 – label X. Generally, label X shows amounts, including timing differences, that are an allowable deduction for income tax purposes but are not shown in the accounts or specifically shown at item 7 – labels C to O.

For examples of specific items to be included, see Worksheet 2.

If the company is a life insurance company, include at label X:

• tax losses deducted in the complying superannuation class

the deduction it is entitled to if it receives a dividend from a LIC, which includes a LIC capital gain amount. For more information, see 16 Life insurance companies and friendly societies only. Other companies are not entitled to this deduction.

Show at X any capital expenditure you incurred under Subdivision 40-J of the ITAA 1997 for the establishment of trees in a carbon sink forest. Only costs incurred in establishing trees for the purpose of carbon sequestration are deductible. These costs are deductible over 14 years and 105 days at a rate of 7% per annum. If you are eligible to claim an extra deduction for the destruction of trees in a carbon sink forest, include the amount calculated under section 40-1030 of the ITAA 1997 at label X.

Include at label X deductible forex losses to the extent that they have not been included in item 6 or in any other label at item 7.

For more information on the forex measures, see Foreign exchange gains and losses.

Show at label X balancing adjustment losses for assets used for both R&D and non-R&D activities. If the company is otherwise eligible for an R&D tax offset under section 355-100 of the ITAA 1997, an additional balancing adjustment catch-up deduction is calculated under Subdivision 355-H of the ITAA 1997. See the Research and development tax incentive schedule 2024 and instructions for details about how you calculate the catch-up deduction and include it in your return.

J – Small business skills and training boost

Write at item 7 – label J the total bonus deduction amount for the small business skills and training boost.

Don't include the total skills and training expenditure amount at this label for which you claim an ordinary deduction.

When the bonus deduction is claimed

If you are a normal balancer – for eligible expenditure incurred between 1 July 2023 and 30 June 2024, you claim the bonus deduction at item 7 – label J.

If you are a late balancer – for eligible expenditure incurred between the start of your 2023–24 income year and 30 June 2024, you claim the bonus deduction at item 7 – label J.

If you are an early balancer:

• for eligible expenditure incurred in your 2023–24 income year, you claim the bonus deduction at item 7 – label J
• for eligible expenditure incurred in your 2024–25 income year (up until 30 June 2024), you claim the bonus deduction in your 2024–25 tax return.

For more information on small business bonus deductions, see Appendix 10.

K – Small business energy incentive

Write at item 7 – label K the total bonus deduction amount for the small business energy incentive.

Don't include here your ordinary deduction for expenditure on assets or improvements eligible for the energy incentive.

The small business energy incentive provides businesses with an aggregated annual turnover of less than $50 million with access to a temporary bonus deduction equal to 20% of the cost of eligible assets or improvements to existing assets that support more efficient energy use.

For more information on small business bonus deductions, see Appendix 10.

R – Tax losses deducted

You generally make a tax loss when the total deductions you can claim for an income year (except tax losses for earlier income years) exceed the total of your assessable and net exempt income for the year.

The company may need to complete either a

• Losses schedule 2024
• Consolidated groups losses schedule 2024.

Include at item 7 – label R those tax losses of prior income years that are deducted for 2023–24 under section 36-17 of the ITAA 1997.

Foreign losses are not quarantined from domestic assessable income (or from assessable foreign income of a different class). Resident taxpayers are not required to make an election to deduct domestic tax losses against assessable foreign income.

Therefore, for the purposes of loss utilisation, no distinction is made regarding the source of the assessable income, deductions and exempt income, whether foreign or domestic. A taxpayer combines both foreign and domestic deductions. Where the combined deductions exceed assessable income and net exempt income from all sources, the excess is a tax loss and can potentially be deducted from assessable income of a future income year.

Prior year tax losses are deducted in later income years in the order in which they were incurred, to the extent that they have not already been deducted or carried back under Division 160 of the ITAA 1997.

A prior year tax loss may be reduced by the ’net forgiven amount’ of debt forgiven under the commercial debt forgiveness rules. See Appendix 5.

What not to include in label R

Don't include at label R:

• tax losses deducted in the complying superannuation class of a life insurance company or the head company of a consolidated or multiple entry consolidated (MEC) group that has at least one subsidiary member that is a life insurance company. These tax losses should be included at item 7 – label X Other deductible expenses
• the film component of any tax loss (film loss). For information about deductions for film losses, see Division 36 and former Division 375 of the ITAA 1997. Film losses are only deducted from net exempt film income or net assessable film income for taxation purposes and are shown at either item 7 – labels W Non-deductible expenses or X Other deductible expenses
• pooled development fund (PDF) tax losses unless the PDF tax losses are deductible under Division 195 of the ITAA 1997
• capital losses as a capital loss is different from a tax loss. Capital losses may only be applied against any capital gains in the same income year or carried forward to be applied against future capital gains in accordance with Division 102 of the ITAA 1997.

Continuity of ownership and business continuity tests

A company can't deduct a tax loss of an earlier year unless it satisfies the continuity of ownership test as prescribed by section 165-12 of the ITAA 1997 (or the special alternative under section 165-215 of the ITAA 1997). If a company fails the continuity of ownership test, it may still deduct losses provided if it satisfies the 'business continuity test' as prescribed by section 165-13 of the ITAA 1997. The 'business continuity test' refers to the 'same business test' in 165-210 of the ITAA 1997 and the 'similar business test' in section 165-211 of the ITAA 1997.

As a test for accessing past year losses, the 'similar business test' will only be available for losses made in income years starting on or after 1 July 2015.

For more information, see:

• How to claim a tax loss – companies
• Law Companion Ruling LCR 2019/1 The business continuity test – carrying on a similar business
• 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.

Control

Additionally, even if a company satisfies the continuity of ownership test or the business continuity test, it may be prevented from deducting a tax loss where there has been a change in control of the voting power as prescribed by subsection 165-15(1) of the ITAA 1997. However, this will only occur where the company also fails to satisfy the ‘business continuity test’ in subsections 165-15(2) and (3).

Record keeping

Keep a record of tax losses and account for any adjustments, including those made by us. Keep these records until the amendment period for the assessment in which the tax losses of the company were fully recouped has lapsed (up to 2 or 4 years from the date of that assessment).

For more information, see: Keep records longer for losses.

Consolidated or MEC groups – tax losses deducted

The head company may need to complete a Consolidated groups losses schedule 2024.

Write at label R the tax losses deducted during the year of income under section 36-17 of the ITAA 1997.

A head company may be entitled to deduct tax losses broadly comprising:

• tax losses made by the consolidated or MEC group for prior income years (group tax losses), and
• tax losses that were originally made by an entity before it became a member of the consolidated or MEC group and that were transferred to the head company of that group (transferred tax losses). The amount of such losses that can be claimed by the head company is calculated by reference to an available fraction, which limits the annual rate at which these losses may be recouped by the head company.

Before deducting a ‘group tax loss’ or a ‘transferred tax loss’, the head company must satisfy the continuity of ownership test and control tests. If it does not, then it must satisfy the business continuity test.

For more information, see How to claim a tax loss – companies.

For more information on the business continuity test, see:

• sections 165-13 and 165-210 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
• Taxation Ruling TR 2007/2 Income tax: application of the same business test to consolidated and MEC groups, principally, the interaction between section 165-210 and section 701-1 of the ITAA 1997 (as at 20 June 2007)
• Law Companion Ruling LCR 2019/1 The business continuity test – carrying on a similar business.

S – Tax losses transferred in (from or to a foreign bank branch or a PE of a foreign financial entity)

Write at item 7 – label S the amount of tax losses transferred to the company from group companies under Subdivision 170-A of the ITAA 1997.

A company (the loss company) may transfer the whole or a part of a tax loss to another company (the income company) where:

• both companies are members of the same wholly owned group
• one of the companies is
  • an Australian branch of a foreign bank, or
  • an Australian PE of a foreign financial entity if the tax loss is for an income year commencing on or after 26 June 2005
• the other company is
  • the head company of a consolidated or MEC group, or
  • not a member of a consolidatable group, and
• further conditions in Subdivision 170-A of the ITAA 1997 are satisfied.

The tax loss transferred to the income company is deductible to the income company in accordance with the provisions of section 36-17 of the ITAA 1997 in the year of transfer (for example, the tax loss transferred to the income company is first deducted against the income company’s net exempt income, then against its assessable income).

The amount of tax loss that one member of the group (the loss company) can transfer is limited to an amount of loss that the loss company itself can't use. Tax losses transferred can't be used to create a tax loss in the income company.

The Commissioner has power in certain circumstances to amend assessments to disallow a deduction for an amount of a transferred tax loss despite section 170 of the ITAA 1936 – see section 170–70 of the ITAA 1997.

Consolidated or MEC groups

Don't show tax losses transferred from subsidiary companies under Subdivision 707-A of the ITAA 1997. These losses should be shown in Part A of the Consolidated groups losses schedule 2024 at item 1 or item 2.

Subtraction items subtotal

Write the total of the amounts from item 7 – labels C Section 46FA deductions for flow-on dividends to S Tax losses transferred in (from or to a foreign bank branch or a PE of a foreign financial entity) at Subtraction items subtotal.

T – Taxable or net income or loss

Write at item 7 – label T, all assessable income less deductions that equals the amount at item 6 – label T Total profit or loss plus or minus the reconciliation adjustments at item 7.

If this amount is a loss, print L in the CODE box at the right of the amount.

If the company has a taxable income of $1 or more, transfer the amount in the Calculation statement at labels T to A Taxable or net income.

The company’s tax loss at label T is the excess of its total deductions (except tax losses for earlier income years) over its total assessable income and net exempt income, see section 36–10 of the ITAA 1997. The company’s net exempt income is calculated under section 36-20 of the ITAA 1997 and is not necessarily equal to the amount written at item 7 – label V Exempt income. Check that the amount at item 7 – label B Other assessable income includes the amount of net exempt income taken into account in calculating the company’s tax loss. If the company has a tax loss at label T, write zero in the Calculation statement at label A Taxable or net income.

If the company has excess franking offsets that can be converted under section 36-55 of the ITAA 1997 into a tax loss to be carried forward (see Excess franking offsets), don't include at label T Taxable/net income or loss the amount of that tax loss. However, that amount should be taken into account in calculating the company’s tax loss at item 13 – label U – Tax losses carried forward to later income years. This means that a company may have a taxable income at label T and a tax loss carried forward at item 13. Alternatively, if the company’s total deductions exceed total assessable income and net exempt income, it would show an amount at label T that, disregarding section 36-55 of the ITAA 1997, would have been its tax loss for the income year.

Continue to: 8 Financial and other information

Return to: Instructions to complete the Company tax return 2024