Amounts to include at 5
The amounts you include here, at business income – label C to G and D to H, and expenses – label P to N, are accounting system amounts subject to 2 exceptions for small business entities. These exceptions relate to the expenses and apply where small business entities choose to use:
- the simplified trading stock rules – they should use tax values for their closing stock in calculating their cost of sales shown at label E
- the simpler depreciation rules – they should use tax values for their depreciation expenses at label K.
For more information on small business entities, see Appendix 14.
The accounting system amounts are shown or included on the business profit and loss statements and form the basis of the calculation of the business net profit or loss. Make adjustments to these accounting amounts for tax purposes at item 5 Reconciliation items.
Goods and services tax (GST) is payable by entities that are registered, or required to be registered, for GST. If GST is payable on income, exclude the GST from the income derived. Exclude input tax credit entitlements on outgoings from deductions. Some GST adjustments (for example, occurring where the percentage of business use of an asset changes) may be included in assessable income or allowed as deductions.
Only include at item 5:
- business income amounts derived directly by the partnership. Include distributions received from other partnerships and trusts at item 8 Partnerships and trusts
- Australian-sourced income.
Include foreign source income at:
- item 22 Attributed foreign income
- item 23 Other assessable foreign source income.
Income and expenses are divided into 3 columns:
- primary production, showing relevant amounts of income and expenses from primary production
- non-primary production, showing relevant amounts of income and expenses from non-primary production
- totals, showing the total of the amounts within the previous 2 columns.
Income subject to foreign resident withholding is shown only at label B in the 'Non-primary production' column and the 'Totals' column.
If the partnership is eligible and is continuing to use the simplified tax system (STS) accounting method, see Former STS taxpayers. Otherwise, see the information for All partnerships.
For more information, see Information for primary producers 2023.
Former STS taxpayers
Continued use of the STS accounting method
Although the STS has now ceased, a partnership may continue using the STS accounting method for 2022–23 if it:
- was an STS taxpayer continuously from the income year that started before 1 July 2005 (that is from 2004–05) until the end of 2006–07
- used the STS accounting method from 2006–07 to 2022–23, and
- is a small business entity for 2022–23.
If the partnership meets these 3 requirements, it can continue using the STS accounting method until it chooses not to, or is no longer a small business entity.
The STS accounting method recognises most income only when received. A partnership that is eligible to continue using the STS accounting method can claim deductions for the following expenses only when they are paid:
- general deductions, for example, stock purchases, wages and rent of business premises
- tax-related expenses
- expenses for repairs.
If the partnership is registered or required to be registered for GST, exclude GST payable from income amounts and input tax credit entitlements from deductions.
The STS accounting method does not apply to income or deductions that receive specific treatment in the income tax law, for example, dividends, depreciation expenses, bad debts and borrowing expenses.
In addition, if another provision of the income tax law apportions or alters the assessability or deductibility of a particular type of ordinary income or general deduction, the timing rule in the specific provision overrides the received or paid rule under the STS accounting method, for example, double wool clips or prepayment of a business expense for a period greater than 12 months. Because of these specific provisions you may need to make adjustments at item 5 Reconciliation items.
Accordingly, base the amounts at item 5 Reconciliation items on the STS accounting method where applicable. If the partnership is continuing to use the STS accounting method and its profit and loss statement does not reflect the STS accounting method rules, you may need to make additional adjustments to show the correct amounts at labels Q, R and S for Net income or loss from business. For more information on these adjustments, see item 5 Reconciliation items.
Ceasing use of the STS accounting method
If the partnership has discontinued using the STS accounting method, business income and expenses that have not been accounted for (because they have not been received or paid), will be accounted for in this year. You may need to make additional reconciliation adjustments; see Appendix 14.
Income (all partnerships)
This section deals with:
- Gross payments where ABN not quoted
- Gross payments subject to foreign resident withholding (excluding capital gains)
- Assessable government industry payments
- JobMaker hiring credit reporting
- Other business income
- Total business income
Gross payments where ABN not quoted
Show at label C and D, as appropriate, gross income received by the partnership that was subject to withholding where an ABN was not quoted. This includes amounts of tax withheld.
If you show an amount at label C or D, complete a Non-individual PAYG payment summary schedule 2023 and attach the completed schedule to the partnership tax return. For instructions on completing this schedule, see Non-individual PAYG payment summary schedule.
If you complete label C or D, show the corresponding amount of tax withheld where an ABN was not quoted at item 6 – label T.
Gross payments subject to foreign resident withholding (excluding capital gains)
Complete only if a partnership received gross payments subject to foreign resident withholding.
Show at label B gross payments to the partnership that were regulated foreign resident income. Gross payments includes amounts withheld.
Regulated foreign resident income refers to payments which are prescribed in the Taxation Administration Regulations 2017External Link (and former Tax Administration Regulations 1976) as being subject to the foreign resident withholding measure.
Do not include payments where the amount was varied to nil under the foreign resident withholding measure because the income was not taxable under a tax treaty (also referred to as double tax agreement).
Do not show at this item amounts subject to foreign resident capital gains withholding.
If an amount is shown at label B, complete a Non-individual PAYG payment summary schedule 2023 and attach the completed schedule to the partnership tax return. For more information on tax withheld where ABN was not quoted, and for instructions on completing this schedule, see Non-individual PAYG payment summary schedule.
Broadly, the foreign resident withholding regime applies to foreign residents who engage in certain regulated categories of activities in Australia, such as foreign residents involved in sport, entertainment, and building and construction. Only foreign residents should complete this entry. An Australian resident should not include an amount, such as foreign sourced income, at this entry.
Show gross distributions of regulated foreign resident income from other partnerships and trusts at item 8. A Non-individual PAYG payment summary schedule 2023 is not required for these distributions because they do not have an associated payment summary.
You will not have any primary production amounts at this item.
Assessable government industry payments
Generally, government grants, rebates, bounties and subsidies are assessable income in the hands of the recipient if they are received in, or for, the carrying on of a business. This generally includes amounts of a capital nature. However, amounts relating to the starting or ceasing of a business may not be assessable.
However, in certain circumstances, a specific grant or payment is considered to be exempt income or non-assessable non-exempt income.
A number of Commonwealth, State and Territory government grants and payments have been made available to businesses in response to recent natural disasters and COVID-19. Only those grants and payments that are assessable income will need to be included at this item.
Do not include at this item the following grants and payments:
- Cash Flow Boost Payments (COVID-19) (non -assessable, non-exempt income). If cash flow boost payments have been included as income in the partnership accounts, they can be reported at G and H, as appropriate, item 5 other business income and then included in the calculation of the Income reconciliation adjustments amount shown at A as an income subtractions item.
- Commonwealth and State government grants and payments that are tax-free.
For more information, see Government grants, payments and stimulus during COVID-19.
Show at label E and F, as appropriate, the total amount of assessable government industry assistance. Examples are:
- bounties
- employee subsidies
- export incentives grants
- fuel tax credits
- industry restructure and adjustment payments
- JobMaker hiring credits
- JobKeeper payments (COVID-19)
- Apprentices and Trainees wage subsidy
- product stewardship (oil) benefit
- excise refund scheme for alcohol manufacturers
- producer rebate (wine equalisation tax).
If the amount at label E or F includes fuel tax credit, producer rebate (wine equalisation tax), excise refund scheme for alcohol manufacturers or a product stewardship (oil) benefit, print D in the CODE box at the right of the amount.
Medical practices should show their Medicare payments at H Other business income, not at F Assessable government industry payments.
JobMaker hiring credit reporting
The accounting basis you use determines the way you report JobMaker hiring credit payments.
Accruals accounting basis
JobMaker hiring credit payments are derived when the entity provides the ATO with a valid claim form after each JobMaker period.
JobMaker hiring credit payments relating to valid claim forms made during 2022–23 are assessable in 2022–23.
Cash accounting basis
JobMaker hiring credit payments are derived when the entity receives those payments. Payments received during 2022–23 are assessable in 2022–23.
For more information, see:
- TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business
- Government grants, payments and stimulus during COVID-19
Other business income
Show at label G and H, as appropriate, other business income, such as revenue from the sale of goods, services rendered, disposal of depreciated assets, work in progress amounts assessable under section 15–50 of the ITAA 1997, and royalties.
If the TOFA rules apply to the partnership, include other business income from financial arrangements subject to the TOFA rules at label G or H.
For partnerships carrying on a business of primary production, where all the partners are eligible individuals, in the partnership return include income from the disposal of eligible Australian Carbon Credit Units and income from eligible arrangements with carbon service providers as primary production income at label G.
All other income relating to ACCUs should be included at label H. To check eligibility, see Taxation of Australian carbon credit units for primary producers.
Do not include amounts that are shown at label C, D, B, E and F.
If the amount at label G or H is a loss, print L in the box at the right of the loss amount.
If you have included an amount for profit on the sale of depreciating assets at label G or H, see Balancing adjustment amounts in Appendix 6.
Total business income
Show the total of all income items at labels C, D, B, E, F, G and H.
If item 5 – label Total business income is greater than zero complete item 5 Expenses – label K Depreciation expenses for any book depreciation expenses for assets used in deriving that income even if that amount is zero.
Expenses
Complete in this section:
- Foreign resident withholding expenses
- Contractor, sub-contractor and commission expenses
- Superannuation expenses
- Cost of sales
- Bad debts
- Lease expenses
- Rent expenses
- Total interest expenses
- Total royalty expenses
- Depreciation expenses
- Motor vehicle expenses
- Repairs and maintenance
- All other expenses
- Total expenses
Apart from 2 exceptions for small business entities mentioned below, the amounts shown at item 5 – label P to N are amounts derived from the accounting system or financial statements of the partnership. Make any adjustments to these amounts for tax purposes at item 5 Reconciliation items – label B Expense reconciliation adjustments.
Small business entities using the simplified trading stock rules should use tax values for their closing stock in calculating their cost of sales shown at label E.
Small business entities using the simplified depreciation rules should use tax values for their depreciation expenses at label K.
If the partnership is registered or required to be registered for GST, exclude input tax credit entitlements on outgoings from deductions.
If any expenses have been prepaid, the prepayment provisions may affect the timing of the deduction that can be claimed. Generally, the partnership will need to apportion its deduction for prepaid business expenditure over the service period or 10 years, whichever is less. There are some exceptions to this under the 12-month rule for partnerships that are small business entities or would be small business entities if the aggregated turnover threshold was less than $50 million. If the amounts shown under any expense label at item 5 differ from the amount allowable as deductions in 2022–23, make a reconciliation adjustment at item 5 – label B.
For more information, see:
Foreign resident withholding expenses
Show at label P all expenses directly relating to gaining the income shown at item 5 – label B Gross payments subject to foreign resident withholding. These amounts should not be shown at any other expenses label in item 5. Do not include any expenses incurred in gaining income not assessable in Australia.
Do not include at this item expenses in relation to amounts subject to foreign resident capital gains withholding.
Only foreign residents should complete this entry. An Australian resident should not include expenses, such as expenses incurred in deriving foreign sourced income, at this entry.
You will not have any primary production amounts at this item.
Contractor, sub-contractor and commission expenses
Show 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
- commissions paid to people not receiving a retainer
- agency fees, for example, advertising
- service fees, for example, plant service
- management fees
- consultant fees.
Do not include the following at label C:
- expenses for external labour which are incorporated into the amount shown at label E Cost of sales
- expenses for accounting or legal services. Show these at label N All other expenses.
You must also keep records of these transactions. See Record-keeping requirements. Your records must include:
- name and address of the payee
- nature of the services provided
- the amount paid.
Superannuation expenses
Show at label D the employee superannuation expenses incurred for the income year.
Employers are entitled to a deduction for contributions made to a complying superannuation fund or retirement savings account (RSA).
You can claim a deduction in 2022–23 for contributions that your superannuation fund received in 2022–23. For more information on when the contributions are made, see TR 2010/1.
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 in respect of 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 Super contributions – too much can mean extra tax.
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 amount of the contribution required under an industrial award, determination or notional agreement preserving state awards, or
- the amount of the contribution that reduces an employer's charge percentage under the Superannuation Guarantee (Administration) Act 1992 in respect of the employee.
Employers can claim a deduction for superannuation contributions made in respect of a former employee where:
- the contribution reduces an employer's charge percentage under the Superannuation Guarantee (Administration) Act 1992
- the contribution is a one-off payment in lieu of salary or wages that relate to the employee’s period of service, or
- the contribution is made within 4 months after the employee has ceased employment (there is no time limit for contributions to a defined benefit fund).
Contributions made to a non-complying fund:
- are not allowable as a deduction
- do not count towards superannuation guarantee obligations.
Under the superannuation guarantee legislation, an employer needs to provide a minimum level of superannuation for employees by the quarterly due dates, or be liable for the superannuation guarantee charge (SGC). Where the SGC is incurred, an SGC statement needs to be lodged and the SGC is paid directly to us.
If you don't pay an employee's super on time, you are liable for the SGC, even if you make the payment later. The Commissioner has no discretion to remit any part of the SGC.
If you have paid late, you should either apply the late payments to future quarters or lodge SGC statements. You may be able to elect to apply late payment offsets (LPO) to reduce the SGC liability. LPO can only be used for those contributions paid before a SGC assessment is raised.
The SGC paid to us is not a superannuation contribution and is not tax deductible. Contributions paid to a complying super fund are deductible; however, late contributions lose their deductibility when the LPO is elected.
Contributions paid by an employer for employees to a non-complying superannuation fund are fringe benefits and may be subject to tax under the Fringe Benefits Tax Assessment Act 1986External Link.
Cost of sales
Small business entities
If the partnership is a small business entity using the simplified trading stock rules, it will need to know the value of its closing stock in order to calculate cost of sales. Small business entities only need to account for changes in the value of their trading stock in limited circumstances. If the partnership does not need to account for the change in value of closing stock, its closing stock will equal its opening stock value. If the partnership does need to account for the change in value of closing stock, or chooses to do so, then for information about how to calculate the closing stock value, see item 41. Closing stock.
All partnerships
Show at label E the total 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 recorded 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. Do not print brackets around the 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 TR 98/7 Income tax: whether packaging items (ie, containers labels, etc) held by a manufacturer, wholesaler or retailer are trading stock.
Bad debts
Show at label F the bad debts expense incurred for the income year.
- Show recovery of bad debts at label G or H as appropriate at Other business income.
- You can't claim a deduction for bad debts under subsection 25-35(1) of the ITAA 1997 unless the debt which is bad has previously been included in assessable income and it relates to money lent in the ordinary course of the business of lending of money by a partnership carrying on that business, or it represents a business loss or outgoing of a revenue nature.
- Do not include accounting provisions for doubtful debts at label F. Show these under all other expenses at label N, then add them back at label B Expense reconciliation adjustments. To calculate the amount of the expense reconciliation adjustment, see Worksheet 1.
- Before a bad debt can be claimed, it must be bad and not merely doubtful. The deduction depends upon the facts in each case and, where applicable, the action taken for recovery. For more information, see TR 92/18 Income tax: bad debts.
You can claim a deduction for partial debt write-offs where only part of a debt is bad and is written off. You can claim a deduction for the amount written off.
Deductions for bad debts may be reduced by the commercial debt forgiveness provisions. See Appendix 4.
You can claim a deduction for losses incurred in debt and equity swaps for debt written off. You may be able to claim a deduction for a debt and equity swap by the partnership, 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. 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.
If the TOFA rules apply to the partnership, include all the partnership's bad debts from financial arrangements subject to the TOFA rules at item 5 – label F.
Record keeping
If the partnership writes off bad debts during the income year, you must keep a statement for all debt in respect of which a write-off occurred. You are required to keep this statement for 5 years (longer in some cases). For each debt written off, the statement should show:
- the debtor's name and address
- the amount of the debt
- the reason why the debt is regarded as bad
- the year that the amount was reported as income.
For more information, see Overview of record keeping rules for business.
Lease expenses
Show at label G the expenditure incurred through both finance and operating leases on leasing assets, such as motor vehicles, plant or other equipment. Do not include the cost of leasing real estate (show this cost at label H Rent expenses).
If you include capital expenditure incurred to terminate a lease or licence, you will need to add back the amount at label B Expense reconciliation adjustments. Although capital expenditure to terminate a lease or licence is not deductible in one year, a 5-year straight-line write-off may be allowable (see section 25–110 of the ITAA 1997) for certain capital expenditure incurred to terminate a 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; see Worksheet 1.
Expenses incurred under a hire-purchase or instalment-sale agreement of goods are not lease expenses. Such expenses are referred to in Appendix 6.
In some circumstances, lease expenses may be debt deductions for the purposes of the thin capitalisation rules. For information on thin capitalisation, see Appendix 3.
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 us. This is also subject to the operation of any relevant tax treaty (also referred to as double tax agreement). 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 2023.
If an amount of lease expense is not allowable as a deduction, such as amounts disallowed under the thin capitalisation rules, or capital expenditure incurred to terminate a lease or licence, add back the amount at label B Expense reconciliation adjustments.
Record keeping
If a deduction is claimed for the cost of leasing depreciating assets, you must keep a record of the following for 5 years:
- a description of the items leased
- full particulars of the lease expenses for each item, including motor vehicles, showing
- to whom 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 the arrangement including to whom the payments were made
- details of use other than for producing assessable income
- any documentation on or relating to the lease of the items.
For more information, see Overview of record-keeping rules for business.
Rent expenses
Show at label H the expenditure incurred as a tenant for the rental or lease of land and buildings used in the production of income.
Total interest expenses
Show at label I the interest incurred on money borrowed within Australia and overseas that relates to producing Australian income and that is to acquire income-producing assets, to finance business operations or to meet current business expenses.
If the TOFA rules apply to the partnership, include all interest incurred on money borrowed within Australia and overseas to acquire income-producing assets, to finance business operations or to meet current business expenses from financial arrangements subject to the TOFA rules at label I.
Do not include interest expenses claimable against rental income. Interest deductions relating to rental income are shown at item 9 – label G.
An amount of tax (withholding tax) is generally withheld from interest paid or payable to non-residents and to overseas branches of residents. You must remit this to us. 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 2023.
If you are required to withhold an amount from interest paid or payable to non-residents and to overseas branches of residents, and either have not withheld or not remitted the amount to the ATO, you can't claim the interest deduction until the amount is paid to the ATO.
The thin capitalisation rules may apply to reduce interest deductions. These rules place a limit on the amount of interest and other loan costs that can be deducted for Australian tax purposes. For more information, see Appendix 3. Include the disallowed amount at label B Expense reconciliation adjustments.
You may not be able to claim interest in certain situations, for example, if it has been incurred for private or domestic purposes, or for vacant land.
Show the amount of interest not allowable at label B Expense reconciliation adjustments.
Record keeping
If interest is paid to non-residents or to overseas branches of residents, you must keep a record of the:
- name and address of recipient
- amount of interest paid or credited
- amount of withholding tax withheld and the date on which it was remitted to us
- period in which the payments were made
- ABN or TFN (if known).
For more information, see Overview of record-keeping rules for business.
Total royalty expenses
Show at label J the royalty expenses for the income year. Include royalties paid to residents and non-residents.
An amount of withholding tax is generally withheld from royalties paid or payable to non-residents and to overseas branches of residents. You must remit this to us. 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 2023.
If you are required to withhold an amount from royalties paid or payable to non-residents and to overseas branches of residents, and either have not withheld or not remitted the amount to the ATO, you can't claim the royalty deduction until the amount is paid to the ATO.
Record keeping
You must keep a record of the:
- name and address 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.
For more information, see Overview of record-keeping rules for business.
For more information, see Appendix 2.
Depreciation expenses
If the partnership is an eligible small business entity and has chosen to use the simplified depreciation rules, see Small business entities using simplified depreciation. Otherwise, see General information for partnerships.
General information for partnerships (excluding small business entities using simplified depreciation)
Show at label K the book depreciation expenses for depreciating assets other than for those assets allocated in a prior year to a general small business pool. For assets allocated to such a pool, include at this entry the amount of the pool deduction to be claimed for tax purposes.
The amount at label K does not include:
- profit on the sale of a depreciating asset – you show this at label G or H Other business income (under income at item 5)
- any loss on the sale of a depreciating asset – you show this at label N All other expenses.
The accounting or book depreciation may differ from the deduction for the decline in value of depreciating assets. Reconcile the deduction for the decline in value of depreciating assets with accounting depreciation at label B Expense reconciliation adjustments.
For more information on deductions for the decline in value of depreciating assets, see Appendix 6. You can also work out your decline in value by using the Depreciation and capital allowances tool.
Simplifying tax obligations for business
Our PS LA 2003/8 Practical approaches to low-cost business expenses provides guidance on 2 straightforward methods which can be used by taxpayers carrying on a business to help determine whether expenditure incurred to acquire certain low-cost items is to be treated as revenue or capital.
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. The threshold rule allows an immediate deduction for qualifying low-cost business items costing $100 or less. The sampling rule allows taxpayers with a low-value pool to use statistical sampling to determine the proportion that is revenue expenditure.
A deduction for expenditure incurred on low-cost tangible assets calculated in accordance with this practice statement will be accepted by us.
Small business entities not applying the simplified depreciation rules
Small businesses that choose not to apply the simplified depreciation rules can claim, under temporary full expensing, an immediate deduction for the business portion of the cost of eligible assets:
- first held and first used, or first installed ready for use, for a taxable purpose after 7:30 pm AEDT 6 October 2020 and by 30 June 2023, and
- where no balancing adjustment event has occurred in the income year in which the claim is made.
Eligible small businesses can also deduct the business portion of cost of improvements to those new eligible depreciating assets, and to existing eligible depreciating assets, incurred after 7:30 pm AEDT on 6 October 2020 and by 30 June 2023.
Small businesses that do not apply the simplified depreciation rules in 2022–23 can make a choice to opt out of temporary full expensing on an asset-by-asset basis. The choice is unchangeable once made and you must notify us on your 2022–23 income tax return.
The temporary full expensing measure is available to all entities with an aggregated turnover less than $5 billion, not just small business entities.
See Temporary full expensing for more details on eligible assets and eligible businesses.
Small Business entities using the simplified depreciation rules
Small businesses using the simplified depreciation rules must apply temporary full expensing. You cannot opt out of temporary full expensing for assets that the simplified depreciation rules apply to. For assets first held at a time between 7:30 pm AEDT on 6 October 2020 and 30 June 2023 inclusive, you deduct the taxable purpose portion of the cost of all eligible depreciating assets (irrespective value) in the income year the asset is first used, or installed ready for use, for a taxable purpose. The deduction amount is the taxable purpose proportion of the asset's cost less any decline in value between when you first held the asset and when it was first used or installed ready for use. These assets are not added to your small business pool.
Special rules apply if the depreciating asset is a passenger vehicle.
Under temporary full expensing you must also claim a deduction for the cost of improvements made between 7:30 pm AEDT on 6 October 2020 and 30 June 2023 inclusive to an asset that you have fully deducted under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction for the taxable purpose portion of the improvement cost and no threshold applies.
For income years ending between 7:30 pm AEDT on 6 October 2020 and 30 June 2023 inclusive, you deduct the entire balance of the small business pool (there is no threshold for that period).
See Temporary full expensing and Small business pool.
Small business entities that have previously elected out of the simplified depreciation rules are no longer subject to the ‘lock-out’ rule. The lock-out rule prevented small businesses from re-entering the simplified depreciation regime for 5 years after they had opted out. These small business entities may re-elect to use the simplified depreciation rules.
The suspension of the 5-year restriction applies only from 12 May 2015 to the end of the income year that includes 30 June 2023.
If the partnership is an eligible small business entity and has chosen to use the simplified depreciation rules, show at label K the total depreciation deductions being claimed by the partnership under the simplified depreciation rules and the uniform capital allowances (UCA) rules.
A small business entity choosing to use these simplified depreciation rules must use both the temporary full expensing and the pooling, where applicable. You can’t choose to use one and not the other.
Some depreciating assets are excluded from these simplified depreciation rules, but you may be able to claim a deduction under the UCA rules. Examples of assets excluded from the simplified depreciation rules are:
- horticultural plants (including grapevines) are deducted under special UCA provisions as specified in Appendix 6
- assets that are leased out, or will be leased out, by a small business entity for more than 50% of the time on a depreciating asset lease. You can generally claim a deduction under the UCA provisions.
Depreciation deductions are generally available only to the legal owner of the asset, that is, to the partnership. However, a partnership is not entitled to claim a deduction for the decline in value of a depreciating asset it leases out under a hire-purchase agreement as the hire-purchase is treated as a sale of the asset to the hirer.
For certain depreciating assets used by a small business entity in the course of carrying on a business of primary production, a taxpayer can choose whether to use these simplified depreciation provisions or specific UCA provisions. The specific UCA provisions are those applying to landcare operations, water facilities, fencing assets, fodder storage assets, electricity connections and phone lines. However, deductions for these assets are not claimed by the partnership (unlike partnership assets depreciated under the general depreciation rules) but are allocated to each partner who can then claim for their share of the expenditure. For more information on these specific UCA provisions, see Appendix 6.
As the small business entity depreciation rules apply only to depreciating assets, certain capital expenditure incurred by a small business entity which does not form part of the cost of a depreciating asset may be deducted under the UCA provisions. This includes capital expenditure on certain business-related costs and amounts directly connected with a project. Do not include these amounts at label K. Show the amount that you can claim as a deduction at label B Expense reconciliation adjustments.
For more information on the UCA provisions, see Appendix 6.
For more information on the small business entity depreciation rules, see Simpler depreciation for small business.
Calculating depreciation deductions for small business entities
Only use steps 1 to 4 below to calculate the depreciation deductions if the partnership is an eligible small business entity and has chosen to use these simplified depreciation rules.
If the profit and loss statement of the partnership provides the amounts to complete table 2, write these amounts in the table; otherwise, use steps 1 to 4 to calculate the depreciation deductions. You can also work out your decline in value by using the Depreciation and capital allowances tool.
The amounts you write in the table must be tax values and not accounting values.
|
Term |
Explanation |
|---|---|
|
Depreciating asset |
An asset with a limited effective life which declines in value over that life. |
|
Decline in value (previously ‘depreciation’) |
The value that an asset loses over its effective life. |
|
Adjustable value of a depreciating asset |
The cost of an asset (excluding input tax credit entitlements) less its decline in value since you first used it or installed it ready for use for any purpose, including a private purpose. |
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Taxable purpose |
Includes the purpose of producing assessable income. |
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Taxable purpose proportion |
The extent to which you use the asset for a taxable purpose, such as for the purpose of producing assessable income. |
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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. Excludes the GST component where the amount received is for a taxable supply. |
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Assessable balancing adjustment amount |
Arises where the termination value of the depreciating asset is more than the adjustable value. |
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Deductible balancing adjustment amount |
Arises where the termination value of the depreciating asset is less than the adjustable value. |
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Cost addition amounts |
Includes 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 costs of demolishing the asset). |
Steps to calculate the depreciation deductions
Step 1: Deduction for certain assets (using temporary full expensing)
For assets you start to hold any time between 7:30 pm AEDT on 6 October 2020 and 30 June 2023 inclusive, and first use (or have installed ready for use) for a taxable purpose in the 2022–23 year, you must immediately deduct the taxable purpose proportion of the asset's cost (less any decline in value since acquiring the asset) under temporary full expensing.
Under temporary full expensing, you must also claim a deduction for the cost of improvements made in the 2022–23 year to an asset that you have fully deducted under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You must claim an immediate deduction at this step for the taxable purpose proportion of the improvement cost and no threshold applies. Any later improvements are added to the small business pool.
For an asset which qualifies for a deduction under the small business simplified depreciation rules for 2022–23, 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 × asset's 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 partnership solely for non-taxable purposes.
For example, for a truck bought on 1 October 2022 at a cost of $149,990 (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 $149,990 × 70% = $104,993.
Add up these results and write the total at (a) in table 2
Do not include in this calculation amounts for depreciating assets which the partnership started to hold prior to commencing to use the simplified depreciation rules. (Allocate these assets to the general small business pool – see step 2 below.)
Step 2: General small business pool
Partnerships that used the simplified depreciation rules in 2021–22
Opening pool balance
The 2022–23 opening balance of the general small business pool is the 2021–22 closing pool balance, adjusted to reflect any changed business use of a pooled asset. However, as the partnership deducted the entire balance of the small business pool (if any) under temporary full expensing in 2021–22, the opening balance of the pool at the beginning of 2022–23 is $0.
Additions to the opening pool balance
Any assets that the partnership starts to hold during the relevant period (7:30 pm (AEDT) 6 October 2020 and 30 June 2023) and first uses, or instals ready for use, in the 2022 - 23 income year are fully deducted under temporary full expensing (see step 1). Therefore, no assets first used, or installed ready for use, in the 2022-23 income year are allocated to the pool.
If the partnership incurs improvement costs for an asset in 2022-23 and has already fully deducted the cost of that asset in an earlier income year (whether under temporary full expensing or another instant asset write-off threshold), the improvement costs are also fully deducted under temporary full expensing (see step 1). The improvement costs do not get allocated to the pool.
If the partnership has previously fully deducted an improvement cost for the asset in an earlier income year, and incurs further improvement costs for the asset in 2022-23, the asset is allocated to the pool. The value of the asset is equal to the cost of those further improvements.
If the partnership incurs costs associated with disposing of, or otherwise ceasing to hold, an asset allocated to the pool, those costs are added to the pool.
Subtractions from the opening pool balance
If the partnership ceases to hold an asset that has been allocated to the pool in 2022-23, or an earlier income year, the taxable purpose proportion of the termination value is subtracted from the pool balance (see step 4b).
If that subtraction results in pool balance going below zero, the amount below zero is included in the partnership's assessable income at item 5 Reconciliation items and there is no deduction under temporary full expensing with respect to the general pool balance in the 2023 income year.
However, if the pool balance at the end of 2023 is greater than zero (after any subtractions for balancing adjustment events happening to assets allocated to the general small business pool), under temporary full expensing, the partnership must deduct the then entire general pool balance in the 2023 income year.
Write the amount at item b table 2.
Closing pool balance
The closing pool balance for this year becomes the opening pool balance for 2023–24, after any adjustments to reflect the changed business use of a pooled asset. The partnership will have a closing pool balance for the 2022–23 year of $0.
Partnerships that started using the simplified depreciation rules in 2022–23
Opening pool balance
The 2022–23 opening balance of the general small business pool is the sum of the taxable purpose proportions of the adjustable values of those depreciating assets:
- that were held and used (or installed ready for use) on 30 June 2022, and
- that were not excluded from the simplified depreciation rules.
Additions/subtractions to the pool balance
Any assets that the partnership starts to hold during the relevant period (7:30 pm (AEDT) 6 October 2020 and 30 June 2023) and first uses, or instals ready for use, in the 2022–23 income year are fully deducted under temporary full expensing (see step 1). Therefore, no assets first used, or installed ready for use, in 2022–23 are allocated to the pool.
If the partnership incurs improvement costs in 2022–23 to an asset that was held just before the start of 2022–23 and allocated to the small business pool, the taxable purpose proportion of those costs are added to the pool.
If the partnership incurs costs associated with disposing of, or otherwise ceasing to hold, an asset allocated to the pool, those costs are added to the pool.
If the partnership ceases to hold an asset that was allocated to the small business pool, you subtract the taxable purpose proportion of the termination value of the asset from the pool balance (see step 4b). If consequently the pool balance dropped below zero:
- add the amount below zero to your assessable income at item 5 Reconciliation items
- there is no deduction under temporary full expensing for the general pool balance in 2022–23.
See step 4b below.
If the pool balance at the end of 2022–23 is greater than zero under temporary full expensing (after subtracting balancing adjustment events that happened to assets allocated to the general small business pool), you must deduct the general pool balance in 2022–23. Write that amount at b in table 2.
Closing pool balance
The closing pool balance for this year becomes the opening pool balance for 2023–24, after any adjustments to reflect the changed business use of a pooled asset. The company will have a closing pool balance at the end of the 2022–23 year of $0.
Do not write the closing pool balance in the partnership tax return.
Step 3: Other depreciating assets
Calculate the deduction for the decline in value of all other depreciating assets that are not included in steps 1 and 2. For more information, see Appendix 6 and Guide to depreciating assets 2023. Write the total deduction at (d) in table 2.
Step 4: Ceasing to hold depreciating assets
(a) Certain assets for which immediate deductions have been claimed
If a balancing adjustment event happens to a depreciating asset for which the partnership has claimed an immediate deduction either in step 1 for 2022–23 income year or in a prior income year under the relevant instant asset write-off threshold, include the taxable purpose proportion of the termination value at item 5 Reconciliation items.
A balancing adjustment event occurs when the partnership stops holding a depreciating asset. For example, when the partnership sells the asset, or the asset is lost or destroyed. Termination value includes:
- money received from the sale of an asset
- insurance money received.
For example:
- For an asset used only 60% for an income-producing purpose which you sold for $200 (excluding GST), only $120 is assessable and included as an income reconciliation adjustment.
- You acquired an asset on 1 February 2019 for $6,400 for 100% taxable use and claimed an immediate write-off under the instant asset write-off threshold which existed at that time. You disposed of this asset at arm's length on 1 February 2023 for $3,000 (excluding GST). Include $3,000 as an income reconciliation adjustment at item 5 Reconciliation items.
(b) Assets allocated to the general small business pool
If the partnership ceases to hold a depreciating asset that had been allocated to the general small business pool in this income year, or in a previous income year due to the instant asset write-off threshold that was in place at the time, the taxable purpose proportion of the termination value is subtracted from the pool balance. For example, for a pooled depreciating asset used only 60% for an income-producing purpose which was sold for $3,000 (excluding GST) only $1,800 will be subtracted from the closing pool balance.
If, after making the subtraction, the pool balance is more than zero, show this deduction against general small business pool assets at b in table 2 below (if you have not already done so at step 2).
If the pool balance is less than zero, you include the amount below zero in your assessable income at item 5 Reconciliation items (if you have not already done so at step 2).
If expenses are incurred in disposing of, or otherwise ceasing to hold, a depreciating asset, these expenses may be taken into account in step 2 by adding them to the pool balance.
(c) Other depreciating assets
See the Guide to depreciating assets 2023 for information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets. Include balancing adjustment amounts at item 5 Reconciliation items; see Worksheet 1.
Transfer the total amount from row e to item 5 – label K Depreciation expenses K .
Transfer the total amount from row a to item 49 – label S Temporary full expensing deductions.
Transfer the total of the amounts from row b and c to item 50 – label B.
5-year restriction
The law has been changed to suspend the 5-year 'lock out' rule that applies to small business entities that had previously chosen to use these simplified depreciation rules but have opted-out in a later year.
If you are a small business entity that had previously chosen to use these simplified depreciation rules but in a later year chose to stop using this concession, you can again choose to use the simplified depreciation rules until 30 June 2023.
To notify us of your choice, lodge your tax return and keep relevant records for the required period of time. You are not required to lodge any other form to notify us of your choice.
Motor vehicle expenses
Show at label L motor vehicle running expenses only. These expenses include fuel, repairs, registration fees and insurance premiums.
They do not include the following expenses shown at label:
- G Lease expenses
- I Total interest expenses
- K Depreciation expenses.
Special substantiation and calculation rules for car expenses apply to partnerships in which at least one partner is an individual.
Under these rules, you claim motor vehicle expenses using one of 2 methods where the expense is for a motor car, station wagon, panel van, utility truck or other road vehicle designed to carry a load less than one tonne and fewer than 9 passengers. For an explanation of these methods, see question D1 in Individual tax return instructions 2023.
Print N in the CODE box at label L if there is an amount shown at L and this amount relates to a:
- motorcycle
- taxi taken on hire
- road vehicle designed to carry a load of one tonne or more, or 9 or more passengers
- car expense where none of the partners is an individual.
In all other cases, print in the CODE box the code from table 3 that determines the method used to claim motor vehicle expenses applicable to the partnership.
If the partnership has more than one vehicle and uses a different method to claim motor vehicle expenses for each vehicle, use the code applicable to the largest claim.
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Code |
Method used |
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S |
Cents per km |
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B |
Logbook |
Show any adjustment for tax purposes to the motor vehicle expenses included in the profit and loss statement at item 5 – label B Expense reconciliation adjustments. To work out the amount of the expense reconciliation adjustment, see Worksheet 1.
Repairs and maintenance
Show at label M the expenditure on repairs and maintenance of plant, machinery, implements and premises.
Write back any non-deductible expenditure, such as items of a capital nature or amounts relating to private use of an item shown at label M, at label B Expense reconciliation adjustments. The following information will help you work out whether you should make an expense reconciliation adjustment.
Repairs
As long as it is not expenditure of a capital nature, you may deduct the cost of repairs to property (premises or part of premises, plant, machinery or equipment) used solely for producing assessable income or in carrying on a business. You can deduct only the percentage of the expenditure on repairs that relates to your use for business or income-producing purposes. For example, if the property is also used for private purposes, or also used in the production of exempt income, then the expenses for these activities are not deductible.
If items are newly acquired, including items acquired 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 as a repair.
You may be able to claim expenditure of a capital nature as capital works deductions. For more information on capital expenditure incurred to produce assessable income, see Appendix 5.
For more information on deductions for repairs, see TR 97/23 Income tax: deductions for repairs.
Record keeping
To support any claim for repairs, keep records showing full details of the nature and cost of repairs for each item.
For more information, see Overview of record-keeping rules for business.
All other expenses
Show at label N the total of all other business expenses for the income year which have not already been included at label P to M, for example, travel expenses.
- The capital and other non-deductible amounts included at label N must also be included at label B Expense reconciliation adjustments.
- If you have included an amount for a loss on the sale of a depreciating asset at label N, see Appendix 6.
- Calculation of some deductions may be affected by the commercial debt forgiveness provisions, see Appendix 4.
- Expenses that are costs associated with borrowing and servicing debt should only be included here if they relate to producing Australian income and have not already been included at label I. These amounts may not be allowable under the thin capitalisation rules. For more information, see Appendix 3. Include the non-deductible amount at label B Expense reconciliation adjustments.
- If what you show at label N includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).
- If the partnership carries on a business of primary production and all the partners are eligible individuals, deductions related to becoming the holder of, holding and disposing of eligible Australian Carbon Credit Units (ACCUs) held in the name of all the partners, or held on behalf the partnership by one or more of the partners, and income from eligible arrangements with carbon service providers, should be included at label N in the primary production column. All other deductions related to ACCUs should be included in the non-primary production column.
Total expenses
Show at label O the total of all expense items shown at label P to N.
If there is a negative amount at label E Cost of sales which exceeds the sum of expenses shown at label P to D and label F to N, print L in the box at the right of the amount shown at label O.
Continue to: Reconciliation items and net income or loss – item 5