Deductions – items 16 to 20

16. Deductions relating to Australian investment income

Show at label P the expenses incurred in earning interest and dividends.

If the partnership was paid a dividend by a Listed Investment Company (LIC) and the dividend included a LIC capital gain amount which is shown on the LIC’s dividend statement, the partnership can claim a deduction of half of the LIC capital gain amount.

Expenses listed here that are costs associated with borrowing and servicing debt may not be allowable deductions under the thin capitalisation rules. For more information, see Appendix 3. The disallowed amount reduces the amount that would otherwise go at label P.

Deductions for the decline in value of depreciating assets used to earn interest and dividends are generally shown at label P. However, if the partnership has allocated some of these assets to a low-value pool, you may need to show deductions at item 18 – label Q. For more information, see Appendix 6.

If you have incurred interest in respect of a collapsed MIS, then for information on your eligibility to claim a deduction for interest expenses see Collapse and restructure of agribusiness managed investment schemes – participant information.

If the TOFA rules apply to the partnership, include all deductions relating to Australian investment income from financial arrangements subject to the TOFA rules at label P.

Former STS taxpayers still using the STS accounting method

If the partnership is eligible and has chosen to continue using the STS accounting method, it can claim general deductions (for example, interest expense) only when they are paid. For more information on the STS accounting method, see Continued use of the STS accounting method.

17. Forestry managed investment scheme deduction

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

• it currently holds a forestry interest in an FMIS, or held a forestry interest in an FMIS during the income year
• it paid an amount to a forestry manager of an FMIS under a formal agreement
• the forestry manager advised the partnership that the FMIS satisfied the 70% direct forestry expenditure rule in Division 394 of the ITAA 1997
• the partnership does not have day to day control over the operation of the scheme
• there was more than one participant in the scheme or the forestry manager or an associate of the forestry manager managed, arranged or promoted similar schemes, and
• the trees were established within 18 months of the end of the income year in which an amount was first paid under the FMIS by a participant in the scheme.

The deduction is claimed in the income year in which the payment is made. However, where the partnership's investment in the FMIS results in it carrying on a forestry business of primary production, its payments under the FMIS may be subject to the non-commercial loss provisions in Division 35 of the ITAA 1997.

The partnership is an initial participant in an FMIS if:

• it obtained the forestry interest in the FMIS from the forestry manager of the scheme, and
• the payment to obtain the forestry interest results in the establishment of trees.

The partnership is a subsequent participant if it obtains an interest in an FMIS through secondary market trading. This means it acquired its interest other than as an initial participant, usually by purchasing that interest from an initial participant in the scheme.

If the partnership is an initial participant, it can claim a deduction for initial and ongoing payments at this item. The partnership 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. However, the deduction will be allowed if the disposal occurs because of circumstances outside of the partnership's control, provided the partners could not have reasonably foreseen the disposal happening when they acquired the interest. Disposals that would generally be outside the partnership's control may include compulsory acquisition, insolvency of one or more of the partners or the scheme manager, or cancellation of the interest due to fire, flood or drought.

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

The forestry manager of an FMIS is the entity that manages, arranges or promotes the FMIS.

A forestry interest in an FMIS is a right to benefits produced by the scheme, whether the right is actual, prospective or contingent, and whether it is enforceable or not.

Initial participants can claim at this item initial and ongoing payments made under an FMIS, which were made as an initial participant of the FMIS.

Subsequent participants can claim at this item ongoing payments made under an FMIS, which were made as a subsequent participant of the FMIS.

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

Relevant terms are explained at 10. Forestry managed investment scheme income.

Excluded payments

The partnership 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
• payments of stamp duty
• payments of GST
• payments that relate to transportation and handling of felled trees after the earliest of the following              
  • 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.

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

Show at label D the total amount of deductible payments made to an FMIS.

18. Other deductions

Show at label Q the total of any deductible losses and outgoings not already claimed by the partnership at any other items.

If the partnership is registered for GST, exclude any input tax credit entitlements for expenses incurred by the partnership from the amount shown at label Q.

The following information will help you to complete item 18:

• Former STS taxpayers still using the STS accounting method
• Losses and outgoings
• Tax-related expenses
• Losses on the disposal of traditional securities
• TOFA amounts from financial arrangements
• Payment of premiums to a non-resident insurer
• Gifts
• Deductions for political contributions and gifts
• Subscriptions
• Deductions for depreciating assets in a low-value pool

Former STS taxpayers still using the STS accounting method

If the partnership is eligible and has chosen to continue using the STS accounting method, it can claim deductions for the following expenses only when they are paid:

• general deductions, for example, interest expense
• tax-related expenses
• expenses for repairs.

For more information on the STS accounting method, see Continued use of the STS accounting method.

Losses and outgoings

The partnership can claim a deduction for losses and outgoings if they are incurred in gaining or producing its assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing its assessable income.

However, under section 25–90 of the ITAA 1997 a partnership may also be able to claim a debt deduction for costs such as interest and borrowing costs incurred in relation to a debt interest (as defined in the ITAA 1997) if the costs are incurred in earning foreign source income which is non-assessable non-exempt income under section 768-5 of the ITAA 1997, section 23AI or 23AK of the ITAA 1936. The amount of the deduction is subject to any reduction required by the thin capitalisation rules. Similar rules apply under subsection 230-15(3) of the ITAA 1997 for your debt interest that is a financial arrangement covered by the TOFA rules.

Debt deductions for foreign source income are not quarantined to foreign source income. Therefore, you can deduct these expenses against assessable income of the partnership, subject to any reduction required under the thin capitalisation rules. If these amounts relate to foreign source income, include the deduction for these expenses at label Q unless they are attributable to an overseas permanent establishment. Do not include them at item 23 Other assessable foreign source income or any other item. If the debt deductions are attributable to an overseas permanent establishment, see Net foreign source income at item 23 Other assessable foreign source income.

You can't claim a deduction for the following:

• losses or outgoings of capital or of a capital, private or domestic nature, except where special provision is made in the income tax law
• expenses incurred in gaining or producing exempt or non-assessable non-exempt income (except certain debt deductions under section 25–90 or subsection 230-15(3) of the ITAA 1997)
• penalties or fines
• income tax liabilities
• entertainment, except in very limited circumstances
• costs associated with borrowing and servicing debt to the extent that a deduction is denied under the thin capitalisation rules.

For more information, see Appendix 3. The disallowed amount reduces the amount that would otherwise be shown at label Q.

Tax-related expenses

Show at label Q any expenses incurred by the partnership in the management of its tax affairs. These expenses include:

• the cost of attending an ATO audit
• tax planning
• expenditure on your income tax affairs, that is, a fee or commission for professional advice, where the advice is provided by a registered tax agent, or a barrister or solicitor
• an interest charge imposed by us, and
• a penalty for underestimating a varied GST instalment or PAYG instalment.

Show a deduction for the decline in value of a depreciating asset used in managing the tax affairs of the partnership at label Q. For more information about working out decline in value, see Appendix 6.

You can't claim a deduction for costs for any offence-related matter, for example, the cost of defending a tax prosecution.

If expenditure allowed or allowable as a deduction is recouped, include the amount recouped in assessable income in the year of recoupment.

Losses on the disposal of traditional securities

Show at label Q any losses incurred upon the disposal or redemption of a traditional security which are deductible under section 70B of the ITAA 1936. For more information about gains and losses on traditional securities, including traditional securities that are convertible notes or exchangeable notes, see You and your shares 2023.

TOFA amounts from financial arrangements

If the TOFA rules apply to calculate an assessable gain or deductible loss on the partnership’s financial arrangements, include at this item any of those deductible losses relating to the financial arrangements.

TOFA amounts that have been included elsewhere should not be included here, for example, amounts that have already been included at:

• item 5 – label S Net income or loss from business
• item 9 – label G Interest deductions.

If what you show at label Q or any other deduction label includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).

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

Payment of premiums to a non-resident insurer

You can't claim a deduction for insurance premiums paid to a non-resident insurer for the insurance of property situated in Australia or of an event which can happen only in Australia, unless arrangements have been made to our satisfaction for the payment of any tax payable or may become payable for the premium. Keep a record of the details supporting any claim for a deduction.

Gifts

The partnership can only claim a deduction for gifts (including cash) made to an organisation which is a deductible gift recipient (DGR). DGRs are endorsed by us or specifically named in income tax law. Some of the types of bodies that can be endorsed as DGRs are public benevolent institutions, school building funds and approved overseas aid funds.

To check whether the organisation is a DGR, go to ABN LookupExternal Link.

Gifts of certain property valued at $2 or more as well as money may be deductible. This includes gifts of:

• property (including shares) valued by us at more than $5,000
• property (including trading stock and shares) purchased by the donor during the 12 months before the gift was made, and
• shares in a listed public company valued at $5,000 or less held by the donor for at least 12 months.

Show at label Q the deduction for gifts to DGRs. The deduction can't add to, or create, a tax loss. You may need to reduce the claim where the amount at item 20 Net Australian income or loss is a loss.

A partnership may elect to spread deductions over 5 income years or less, where the gift is money, or property valued by us at more than $5,000. Special requirements apply for spreading deductions for certain environmental, heritage and cultural property gifts.

For more information, see Gifts and fundraising.

Deductions for political contributions and gifts

Only individuals can deduct contributions and gifts to political parties and independent members and candidates. Individuals claiming the deduction must not have made the contributions or gifts in the course of carrying on a business.

Subscriptions

Show at label Q any expenses incurred for subscriptions paid to:

• trade, business or professional associations
• other organisations where the subscription expense is incurred in producing assessable income
• journals or magazines where these relate to producing assessable income.

Do not claim for fees paid for membership of a sporting or social club or a political party.

Deductions for depreciating assets in a low-value pool

If the partnership has allocated depreciating assets used for different income-producing purposes to its low-value pool (for example, some assets are used for producing rental income and others are used in carrying on a business) show the low-value pool deduction at label Q. For more information, see Appendix 6.

You can also work out your low-value pool deductions by using the Depreciation and capital allowances tool.

19. Total of items 16 to 18

Show at item 19 the total deductions relating to Australian income.

20. Net Australian income or loss

Show at label $ the net income or loss relating to Australian income, that is, total Australian income minus total deductions. If this amount is a loss, print L in the box at the right of the amount.

Continue to: Foreign income – items 22 to 24