Business income and expenses – item 5

Amounts to include at 5

The amounts you include here, at business income – labels C to G and D to H, and expenses – labels 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 from label E
• the simplified depreciation rules – they should use tax values for their depreciation expenses from 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.
• Australian-sourced income.

Include distributions received from other partnerships and trusts at item 8 Partnerships and trusts.

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 Income (all partnerships).

For more information on primary production income and expenses, see Information for primary producers 2024.

Former STS taxpayers

Partnerships using the simplified tax system, find out about:

• Continued use of the STS accounting method
• Ceasing use of the STS accounting method.

Continued use of the STS accounting method

Although the STS has now ceased, a partnership may continue using the STS accounting method for 2023–24 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 2005–06 to 2022–23, and
• is a small business entity for 2023–24.

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 2024 and attach the completed schedule to the partnership tax return. For instructions, see Completing the 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 include amounts of tax withheld.

Regulated foreign resident income refers to payments which are prescribed in the Taxation Administration Regulations 2017External Link (and former Taxation Administration Regulations 1976) as being subject to the foreign resident withholding measure.

Don't 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).

Don't 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 2024 and attach the completed schedule to the partnership tax return. For more information on tax withheld where no ABN was quoted, and for instructions on completing this schedule, see Completing the 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 2024 is not required for these distributions because they don't 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.

In certain circumstances, a specific grant or payment may 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.

Don't 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 labels G and H Other business income, as appropriate, and then included as an income subtraction at item 5 – label A Income reconciliation adjustments.
• Commonwealth and State government grants and payments that are tax-free.

For more information, see What to exclude from your business's assessable income.

Show at labels 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 for oil program benefit
• excise refund scheme for alcohol manufacturers
• producer rebate (wine equalisation tax).

Print D in the CODE box if the amount at label E or F includes any fuel tax credit, producer rebate (wine equalisation tax), excise refund scheme for alcohol manufacturers or a product stewardship (oil) benefit.

Medical practices should show their Medicare payments at label H Other business income, not at label 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 2023–24 are assessable in 2023–24.

Cash accounting basis

JobMaker hiring credit payments are derived when the entity receives those payments. Payments received during 2023–24 are assessable in 2023–24.

For more information, see:

• Taxation ruling 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 labels G and H, as appropriate, other business income such as revenue from the sale of goods, services rendered, disposal of depreciating 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 labels G or H.

For partnerships carrying on a business of primary production, where all the partners are eligible individuals, include as primary production income at label G:

• income from the disposal of eligible Australian Carbon Credit Units (ACCUs)
• income from eligible arrangements with carbon service providers.

Include all other income relating to ACCUs at label H. To check your eligibility, see Taxation of Australian carbon credit units for primary producers.

Don't include at label G or H amounts that are shown at labels 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

This section deals with:

• Small business entity exceptions to item 5 Expenses
• 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
• Repairs
• All other expenses
• Total expenses

Small business entity exceptions to item 5 Expenses

Apart from 2 exceptions for small business entities mentioned below, the amounts shown at item 5 – labels P to N are amounts derived from the partnerships accounting system or financial statements. 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 label E Cost of sales.
• simplified depreciation rules should use tax values for their label K Depreciation expenses.

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 2023–24, make a reconciliation adjustment at item 5 – label B.

For more information, see:

• Deductions for prepaid expenses 2024
• Information for primary producers 2024

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. Don't include any expenses incurred in gaining income not assessable in Australia.

Don't 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.

Don't 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 Contractor and supplier records.

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 2023–24 for contributions that were received by a superannuation fund in 2023–24. For more information on when the contributions are made, see Taxation ruling TR 2010/1 Income tax: superannuation contributions.

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 Caps, limits and tax on super contributions.

If an employee has reached 75 years old, 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
• the contribution is made within the 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
• don't 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.

The SGC paid to us is not a superannuation contribution and is not tax deductible. For more information, see Late payment options for missed and late super guarantee payments.

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

Information on completing cost of sales for:

• Small business entities
• All other partnerships.

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 on how to calculate the closing stock value, see item 41 Closing stock.

All other 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. Don't 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. For more information, see Taxation ruling TR 98/7 Income tax: whether packaging items (ie, containers labels, etc) held by a manufacturer, wholesaler or retailer are trading stock.

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 or 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.

Don't 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 Taxation ruling 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.

Don't 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 item 5 Reconciliation items – 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 2024.

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 item 5 Reconciliation items – 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.

Don't include interest expenses claimable against rental income. Show interest deductions relating to rental income 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 2024.

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 item 5 Reconciliation items – 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 2024.

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.

For more information on completing royalty expenses in the tax return, see Appendix 2.

Record keeping

You must keep a record of the:

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

For more information, see Overview of record-keeping rules for business.

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 the simplified depreciation rules.

Otherwise, go to General information for partnerships.

General information for partnerships

Show at label K the accounting or 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 item 5 Income – label G or H Other business income
• any loss on the sale of a depreciating asset – you show this at item 5 Expenses – 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 item 5 Reconciliation items – 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

Law administration practice statement PS LA 2003/8 Practical approaches to low-cost business expenses provides guidance on 2 straightforward methods, which taxpayers carrying on a business can use to help determine whether expenditure they incur to acquire certain low-cost items is 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 you calculate in accordance with this practice statement will be accepted by us.

Small business entities using the simplified depreciation rules

If the partnership is an eligible small business entity show at label K Depreciation expenses the total depreciation deductions being claimed by the partnership under the simplified depreciation rules and the uniform capital allowances (UCA) rules. You must also complete:

• item 50 – label A Deduction for certain assets (costing less than the instant asset write-off threshold) for eligible assets where instant asset write-off applies
• item 50 – label B Deduction for general small business pool to record the total amount claimed relating to the general small business pool.

A small business entity choosing to use these simplified depreciation rules must use both the instant asset write-off and pooling where applicable. You can’t choose to use one and not the other.

Special rules apply if the depreciating asset is a passenger vehicle.

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. Don't include these amounts at label K. Show the amount that you can claim as a deduction at item 5 Reconciliation items – label B Expense reconciliation adjustments.

For more information on the:

• UCA provisions, see Appendix 6
• small business entity depreciation rules, see Simpler depreciation for small business.

Calculating depreciation deductions for small business entities

Use the calculations in Appendix 8 to calculate the depreciation deductions, if the partnership is an eligible small business entity and has chosen to use the simplified depreciation rules.

If the profit and loss statement of the partnership provides the amounts to complete Table 1, write these amounts in the table. Otherwise, use calculations in Appendix 8 to work out the depreciation deductions. Where necessary, apportion the deductions included in Table 1 between primary production and non-primary production amounts.

You can also work out your decline in value by using the Depreciation and capital allowances tool.

The amounts you write in Table 1 must be tax values and not accounting values.

5-year restriction

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

If 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 2024.

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 don't include expenses you show at labels:

• 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 car. A car is a motor vehicle designed to carry a load less than one tonne and fewer than 9 passengers, such as a station wagon, panel van, utility truck or other road vehicle, excluding motor cycles or similar vehicles. For an explanation of the 2 methods, see question D1 in Individual tax return instructions 2024.

Print N in the CODE box at label L if there is an amount at label 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.

Table 3: Motor vehicle expense claim methods

Code	Method used
S	Cents per km
B	Logbook

Show any adjustment for tax purposes to the motor vehicle expenses you include in the profit and loss statement at item 5 Reconciliation items – 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 at label M, at item 5 Reconciliation items – 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. You can only deduct the percentage of the expenditure on repairs that relates to producing your assessable income. For example, if the property is also used for private purposes, or used in the production of exempt income, then the expenses are not deductible to the extent they relate to those activities.

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 Taxation ruling 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 you have not included at labels P to M – for example, travel expenses.

The capital and other non-deductible amounts included at label N must also be included at item 5 Reconciliations items – 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.

If the 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 been included at label I. These amounts may not be allowable under the thin capitalisation rules. For more information, see Appendix 3: Thin capitalisation. Include the non-deductible amount at item 5 Reconciliations items – 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 labels P to N.

If there is a negative amount at label E Cost of sales which exceeds the sum of expenses shown at labels P to D and labels F to N, print L in the box at the right of label O.

Continue to: Reconciliation items and net income or loss – item 5

Return to: Instructions to complete the Partnership tax return 2024