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Income excluding foreign income

Last updated 29 May 2019

In this section:

5 Business income and expenses

The amounts you include here, at business income C to G and D to H, and expenses P to N, are generally accounting system amounts (which may require specific adjustment, for example to exclude GST) subject to two exceptions for small business entities.

Small business entities choosing to use:

  • the simplified trading stock rules should use tax values for their closing stock in calculating their cost of sales shown at E
  • the simplified depreciation rules should use tax values for their depreciation expenses at K.

For more information on small business entities, see Appendix 13.

The accounting system amounts are shown or included on the business profit and loss statements and form the basis of the calculation of the trust's business net income or loss for tax purposes. 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 (occurring, for example, 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 trust (include distributions received from other trusts and partnerships at item 8 Partnerships and trusts)
  • Australian-sourced income (include foreign source income at item 22 Attributed foreign income and 23 Other assessable foreign source income).

Income and expenses are divided into three 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 previous two columns.

Income subject to foreign resident withholding is shown at B in the Non-primary production column and the Totals column.

If the trust is eligible and is continuing to use the simplified tax system (STS) accounting method, see Former STS taxpayers. Otherwise, see the information for all trusts.

Ceasing use of the STS accounting method

If the trust 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) are accounted for in this year. You may need to make additional reconciliation adjustments. See Specific reconciliation adjustments – Former STS taxpayers.

Income

All trusts

Gross payments where ABN not quoted

Show at C and D item 5, as appropriate, gross income received by the trust that was subject to withholding where an Australian business number (ABN) was not quoted, this includes amounts of tax withheld.

If you show an amount at C or D, complete a Non-individual PAYG payment summary schedule 2019 and attach the completed schedule to the trust tax return. For instructions on completing this schedule see Non-individual PAYG payment summary schedule 2019.

If you complete C or D, show the corresponding amount of tax withheld where an ABN was not quoted at T item 6.

Gross payments subject to foreign resident withholding

Show at B item 5 gross payments to the trust that were regulated foreign resident income. Gross payments include amounts withheld.

Complete this entry only if the trust is a non-resident trust. For a resident trust, do not include an amount, such as foreign sourced income, at this entry.

'Regulated foreign resident income' refers to payments that are prescribed in the Taxation Administration Regulations 2017External Link (and former Tax Administration Regulations 1976External Link) 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.

Do not include at this label amounts subject to the foreign resident capital gains withholding. The capital gains should be included at item 21 Capital gains.

If an amount is shown at B, complete a Non-individual PAYG payment summary schedule 2019 and attach the completed schedule to the trust tax return. For instructions on completing this schedule, see Non-individual PAYG payment summary schedule 2019 (NAT 3422).

Show gross distributions of regulated foreign resident income from partnerships and other trusts at item 8. A Non-individual PAYG payment summary schedule 2019 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 credits, grants, rebates, bounties and subsidies are assessable income in the hands of the recipient if they are received in, or in relation to, the carrying on of a business. This generally includes amounts of a capital nature. However, amounts relating to the commencement or cessation of a business may not be assessable as income directly, but may give rise to a capital gain.

Show at 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
  • producer rebate (wine equalisation tax)
  • product stewardship (oil) benefit.

If the amount at E or F includes fuel tax credits 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.

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.

Other business income

Show at G and H as appropriate, other business income such as revenue arising 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 trust, include other business income from financial arrangements subject to the TOFA rules at G or H.

Do not include amounts that are shown at C, D, B, E and F.

If the amount at G or H is a loss, print L in the box to the right of the loss amount.

If you have included an amount for profit on the sale of depreciating assets at G or H, see Appendix 6.

If you acquired or disposed of cryptocurrency in carrying on your business in 2018 – 19, the funds or property received through the acquisition and disposal are likely to be ordinary assessable income. For more information see Tax treatment of cryptocurrencies.

Expenses

Apart from two exceptions for small business entities mentioned below, the amounts shown at P to N item 5 are amounts derived from the accounting system or financial statements of the trust. Make any adjustments to these amounts for tax purposes at Reconciliation items 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 E.

If the amount at E is a loss, print L in the box to the right of the loss amount.

Small business entities using the simplified depreciation rules should use tax values for their depreciation expenses at K.

If the trust 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 trust 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 small business entities. If the amounts shown as expenses at item 5 differ from the amount allowable as deductions in 2018–19, make a reconciliation adjustment at B item 5.

For more information, see Deductions for prepaid expenses 2019.

Foreign resident withholding expenses

Show at P item 5 all expenses directly relating to gaining the income shown at B Gross payments subject to foreign resident withholding, item 5. Do not show these amounts at any other expense entry in item 5. Do not include any expenses incurred in gaining income not assessable in Australia.

Do not include at this label any expenses incurred in relation to amounts subject to foreign resident capital gains withholding.

Complete this entry only if the trust is a non-resident trust. For a resident trust do 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, subcontractor and commission expenses

Show at 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 such as advertising
  • service fees such as plant service
  • management fees
  • consultant fees.

Do not include the following at C:

  • expenses for external labour which are incorporated into the amount shown at E Cost of sales
  • expenses for accounting or legal services; show these at N All other expenses.

Record keeping

Keep a record of the following:

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

Superannuation expenses

Show at D the employee superannuation expenses incurred for the income year.

Employers are entitled to a deduction for eligible contributions made to a complying superannuation, provident, benefit or retirement fund, or retirement savings account (RSA), where the contribution is to provide superannuation benefits for employees or to provide benefits to the employee’s dependants on the employee’s death.

Employers can claim a deduction for eligible superannuation contributions made in respect of a former employee within four months of the employee ceasing employment and at any time after the employee ceases employment for defined benefit interests.

Superannuation benefits mean payments for superannuation member benefits or superannuation death benefits.

You can claim a deduction in the income year in which the contributions are made.

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 or pay the superannuation guarantee charge (SGC) that is payable on the superannuation guarantee shortfall.

The SGC is not a superannuation contribution and is not tax deductible. Employers may not claim a tax deduction for any late contribution that they make to reduce the amount of SGC that they have to pay under the superannuation guarantee late payment measures.

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 1986.

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 the 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 following amounts:

  • the amount of the contribution required under an industrial award, determination or notional agreement preserving State awards
  • the amount of the contribution that reduces the employer’s charge percentage under the Superannuation Guarantee (Administration) Act 1992 for the employee.

For more information, see Key superannuation rates and thresholds.

Cost of sales

Small business entities

If the trust is a small business entity using the simplified trading stock rules, you 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 trust does not need to account for the change in value of closing stock, its closing stock will equal its opening stock value. If the trust does need to account for the change in value of closing stock, or chooses to do so, see item 40 Closing stock for information about how to calculate the closing stock value.

All trusts

Show at E item 5 the cost of anything produced, manufactured, acquired or purchased for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. This includes freight inwards and may include some external labour costs, if these are 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) then 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 (i.e. containers, labels, etc.) held by a manufacturer, wholesaler or retailer are trading stock.

Bad debts

Show at F item 5 the bad debts expense incurred for the income year.

Show recovery of bad debts at G or H as appropriate at Other business income.

You cannot claim a deduction for bad debts unless the debt that is bad has previously been included in your assessable income, or is for money lent in the ordinary course of the business of the lending of money by a trust carrying on that business. Accordingly, you cannot generally claim a deduction for an unpaid present entitlement that has been written off as a bad debt under section 25-35 of the ITAA 1997.

Under the Trust losses provisions of Schedule 2F to the ITAA 1936, certain rules have to be satisfied by a trust before the trustee can deduct bad debts or debt equity swap amounts. For more information about the trust loss provisions, see Trust loss provisions.

Do not include accounting provisions for doubtful debts at F. Show these under all other expenses at N then add them back at 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 trust 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 trust, include all the trust's bad debts from financial arrangements subject to the TOFA rules at F item 5.

Record keeping

If the trust writes off bad debts during the income year, keep a statement for all debtors in respect of which a write-off occurred, showing:

  • their name and address
  • the amount of the debt
  • the reason why the debt is regarded as bad
  • the year that the amount was returned as income.

Lease expenses

Show at G item 5 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 H Rent expenses).

If you include capital expenditure incurred to terminate a lease or licence you will need to add back the amount at B Expense reconciliation adjustments. Although capital expenditure to terminate a lease or licence is not deductible in one year, a five-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 treaties (treaties). If you have withheld amounts from payments to non-residents, you may need to lodge by 31 October 2019 a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report. For more information, phone 13 28 66.

If an amount of lease expense is not allowable as a deduction, such as amounts disallowed under the thin capitalisation rules, add back the amount at B Expense reconciliation adjustments.

Record keeping

If a deduction is claimed for the cost of leasing depreciating assets, keep a record of the following:

  • a description of the items leased
  • full particulars of the lease expenses for each item, including motor vehicles, showing
    • who the payments were made to
    • 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.

Rent expenses

Show at H item 5 (Rent expenses) the expenditure incurred as a tenant for the rental of land and buildings used in the production of income.

Total interest expenses

Show at I item 5 the interest incurred on money borrowed within Australia and overseas to acquire income-producing assets, to finance business operations or to meet current business expenses.

If the TOFA rules apply to the trust, 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 I.

Do not include interest expenses incurred in relation to deriving rental income, these interest deductions are shown at G item 9.

Interest paid or payable to non-residents

An amount of tax, withholding tax, is generally required to be withheld from interest paid or payable to non-residents and to overseas branches of residents by the resident payer.

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 B Expense reconciliation adjustments.

Distributions made by the issuer of a non-share equity interest are not deductible.

You may not be able to claim interest in certain situations, for example, if it has been incurred for private or domestic purposes.

Show the amount of interest not allowable as a deduction at B Expense reconciliation adjustments.

Record keeping

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

  • 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.

Total royalty expenses

Show at J the royalty expenses for the income year, include royalties paid to residents and non-residents.

Royalties paid or payable to non-residents

An amount of tax, withholding tax, is generally required to be withheld from royalties paid or payable to non-residents and to overseas branches of residents by the resident payer.

Record keeping

Keep a record of the following:

  • 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 Appendix 2.

Depreciation expenses

If the trust is an eligible small business entity and has chosen to use the simplified depreciation rules, see Small business entities and the information for All other trusts below.

All other trusts

Show at K the book depreciation expenses for depreciating assets, other than for pool assets (including assets reallocated to the pool from a former long life small business pool). For assets allocated to the pool, include at K the amount of the pool deduction to be claimed for tax purposes. For information about small business entity depreciation deductions, see Small business entities.

Include here claims for instant asset write off for businesses with a turnover from $10 million and less than $50 million for assets costing less than $30,000 purchased from 7.30pm (AEDT) on 2 April 2019 and first used or installed ready for use by 30 June 2019.

The amount at K does not include:

  • profit on the sale of a depreciating asset, shown at G or H Other business income
  • loss on the sale of a depreciating asset, shown at 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 B Expense reconciliation adjustments.

For more information about deductions for the decline in value of depreciating assets, see Appendix 6.

Simplifying tax obligations for business

PS LA 2003/8 Practical approaches to low-cost business expenses provides guidance on two 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 two 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

Small business concessions: changes to simpler depreciation rules

Under these rules, if you purchased assets from 7.30pm (AEST) on 12 May 2015 and first used or installed them ready for use:

From 7.30pm (AEST) on 12 May 2015 until 28 January 2019

From 29 January 2019 until before
7.30pm (AEDT)
2 April 2019

From 7.30pm (AEDT) on
2 April 2019 until 30 June 2020

You can immediately deduct the business portion of most depreciating assets costing less than $20,000 each (the instant asset write-off threshold).

You can immediately deduct the business portion of most depreciating assets costing less than $25,000 each (the instant asset write-off threshold).

You can immediately deduct the business portion of most depreciating assets costing less than $30,000 each (the instant asset write-off threshold).

Small businesses can also:

  • pool the business portion of most higher cost assets (those with a cost equal to or more than the relevant instant asset write-off threshold) and claim        
    • a 15% deduction in the year you buy them
    • a 30% deduction each year after the first year
     
  • deduct the balance of the small business pool at the end of the income year if the balance at that time (before applying the depreciation deductions) is less than $30,000 (the relevant threshold at 30 June 2019).

The 'lock out' laws have also been suspended for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they have opted out) until the end of 30 June 2020.

If the trust is an eligible small business entity and has chosen to use the simplified depreciation rules, show at K the total depreciation deductions being claimed by the trust 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 immediate write-off 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, for example horticultural plants (including grapevines) are excluded from the small business entity depreciation rules and 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 are specifically excluded from the simplified depreciation rules. You can generally claim a deduction under the UCA provisions.

This exclusion does not apply to depreciating assets a taxpayer leases out under a hire-purchase agreement or a short-term hire agreement.

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 telephone lines. 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 that does not form part of the cost of a depreciating asset may be deducted under the UCA provisions for deducting capital expenditure, this includes capital expenditure on certain business-related costs and amounts directly connected with a project.

Do not include these amounts at K. Show the amount that you can claim as a deduction at B Expense reconciliation adjustments, for more information see Appendix 6.

For more information, see Small business entity concessions.

Calculating depreciation deductions for small business entities

Only use steps 1 to 5 to calculate the depreciation deductions if the trust is an eligible small business entity and has chosen to use these simplified depreciation rules.

If the profit and loss statement of the trust provides the amounts to complete Table 4, write these amounts in the table. Otherwise, use steps 1 to 5 to calculate the depreciation deductions.

The amounts you write in the table must be tax and not accounting values.

Table 3: Explanation of terms

Term

Explanation

Depreciating asset

is an asset with a limited effective life, which declines in value over that life.

Decline in value (previously ‘depreciation’)

is the value that an asset loses over its effective life.

Adjustable value of a depreciating asset

is its cost (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.

Taxable purpose

includes the purpose of producing assessable income.

Taxable purpose proportion

is the extent to which you use the asset for a taxable purpose, such as for the purpose of producing assessable income.

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. Exclude the GST component where the amount received is for a taxable supply.

Assessable balancing adjustment amount

arises where the termination value of the depreciating asset is more than the adjustable value.

Deductible balancing adjustment amount

arises where the termination value of the depreciating asset is less than the adjustable value.

Cost addition amounts

include 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).

Step 1: Deduction for certain assets (costing less than the relevant instant asset write off threshold)

For each depreciating asset:

  • which the trust started to hold this income year and used (or installed ready for use) for a taxable purpose such as for producing assessable income
  • for which the cost at the end of the current income year is less than the relevant instant asset write off threshold (excluding input tax credit entitlements), and
  • which qualifies for a deduction under the small business entity depreciation rules

work out the extent it is used for the purpose of producing assessable income (taxable purpose proportion). Calculate the deduction for each eligible asset as follows:

Asset’s adjustable value × its taxable purpose proportion

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 trust solely for private purposes. For example, for computing hardware bought on 1 December 2018 at a cost of $8,000 (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 $8,000 × 70% = $5,600.

Add up these results and write the total at (a) in Table 4.

Do not include in this calculation:

  • amounts for depreciating assets that the trust started to hold prior to commencing to use the simplified depreciation rules and that cost less than the relevant instant asset write off threshold; allocate these assets to a general small business pool (see step 2)
  • amounts for depreciating assets that cost the relevant instant asset write off threshold or more, but the taxable purpose proportion determines an amount to be deducted of less than the relevant threshold. Such assets must be allocated to the general small business pool (see step 2). For example, if a vehicle cost $30,200, the taxable purpose proportion is $21,140 ($30,200 × 70%), which is less than the relevant threshold. However, the vehicle must still be allocated to the general small business pool because its cost is above the relevant threshold.

Step 2: General small business pool deduction

To calculate the deductions for the general small business pool, you must first calculate the opening pool balance of the pool.

The opening balance of the general small business pool is the closing pool balance for the previous income year except where an adjustment is made to reflect the changed business use of a pooled asset. The opening pool balance for trusts which have not previously used the simplified depreciation rules is the sum of the taxable purpose proportions of the adjustable values of those depreciating assets that are:

  • used, or held for use, just before the start of the 2018–19 income year, and
  • not excluded from the simplified depreciation rules.

When allocating each depreciating asset the trust holds at the start of the income year to the general small business pool, only include the taxable purpose proportion of the adjustable value of each depreciating asset. For example, for an asset with an adjustable value of $50,000, which is used only 50% for an income-producing purpose, add only $25,000 to the pool.

The trust can choose not to allocate an asset to the general small business pool if the asset was first used, or installed ready for use, for a taxable purpose before 1 July 2001. A trust making this choice would depreciate such assets under the normal uniform capital allowance (UCA) rules.

Calculate the opening pool balance for the general small business pool by adding the value of all depreciating assets allocated to the pool.

Calculate the deduction for the general small business pool as follows:

General small business pool deduction = opening pool balance ($) × 30%

If necessary, make a reasonable apportionment for the general small business pool deduction between primary production and non-primary production activities.

Write the result of the general small business pool deduction at (b) in Table 4.

If the pool balance (after taking into account additions and disposals but before calculating the deductions in steps 2 and 3) is less than $30,000 (the relevant threshold at 30 June 2019), calculate the deduction for the pool using Step 5(b).

Step 3: Depreciating assets first used for a taxable purpose during the income year and cost addition amounts for assets already allocated to the pool

Calculate the deduction at half the general small business pool rate for:

  • depreciating assets that the trust first used or installed ready for use for a taxable purpose during the year, and
  • cost addition amounts for assets already allocated to the pool.

Calculate the deduction for the income year as follows:

  • the taxable purpose proportion of the adjustable value of each depreciating asset first used for a taxable purpose this year × 15% for general small business pool assets, plus
  • the taxable purpose proportion of cost addition amounts × 15% for the general small business pool assets.

Write the total deduction for general small business pool assets at (c) in Table 4.

If the pool balance (after taking into account additions and disposals but before calculating the deductions in steps 2 and 3) is less than $30,000 (the relevant threshold at 30 June 2019), calculate the deduction for these assets using Step 5.

Step 4: Other depreciating assets

Calculate the deduction for the decline in value of all other depreciating assets that are not included in steps 1 to 3, for more information see Appendix 6 and Guide to depreciating assets 2019. Write the total deduction at (e) in Table 4.

Step 5: Disposal of depreciating assets

(a) Certain assets costing less than the relevant instant asset write off threshold (low-cost assets)

If the trust has disposed of a low-cost asset for which it has claimed an immediate deduction under step 1 this year or in a prior year, include purpose proportion of the termination value at Reconciliation items item 5; see Worksheet 1. For example, if a low-cost asset used only 50% for an income-producing purpose, and was sold for $2,000 (excluding GST), only $1,000 will be assessable and included as a reconciliation adjustment.

(b) Assets allocated to the general small business pool

If the trust disposes of depreciating assets allocated to the general small business pool, the taxable purpose proportion of the termination value is deducted from the closing pool balance. For example, if a pooled depreciating asset used only 50% for an income-producing purpose, and was sold for $3,000 (excluding GST), only $1,500 will be deducted from the closing pool balance.

If the balance of the pool (after taking into account any additions and disposals but before calculating the deductions in steps 2 and 3) is less than $30,000 (the relevant threshold at 30 June 2019) but more than zero, the trust claims an immediate deduction for this amount. Write this deduction against general small business pool at (b) in Table 4.

If the trust is lodging a part year return, or has an approved substituted period, for a period ending before 30 June 2019, the balance of the pool must be less than your relevant threshold to claim an immediate deduction.

If the closing pool balance is less than zero, the amount below zero is included in assessable income at Reconciliation items item 5; see Worksheet 1. For more information about closing pool balances, see Closing pool balance.

If expenses are incurred in disposing of a depreciating asset these expenses may be taken into account in step 3.

(c) Other depreciating assets

See Guide to depreciating assets 2019 for information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets. Include balancing adjustment amounts at Reconciliation items item 5; see Worksheet 1.

Table 4: Depreciation deductions (small business entities only)

Row

Calculation elements

Primary production

Non-primary production

Total

a

Certain assets (costing less than the relevant threshold)

$

$

$

b

General small business pool

$

$

$

c

General small business pool (15% rate)

$

$

$

d

Other assets

$

$

$

e

Depreciation expenses
(Add the amounts from rows a to d.)

$

$

$

Transfer the amount at row e to depreciation expenses K item 5.

Transfer the amount at row a to A item 49.

Transfer the total of the amounts at rows b and c to B item 49.

Closing pool balance

The closing balance of the general small business pool for an income year is:

  • the opening pool balance (see Step 2), plus
  • the taxable purpose proportion of the adjustable value of assets that were first used, or installed ready for use, for a taxable purpose during the year (see Step 3), plus
  • the taxable purpose proportion of any cost addition amounts for assets in the pool during the year (see Step 3), less
  • the taxable purpose proportion of the termination value of any pooled assets disposed of during the year (see Step 5(b)), less
  • the general small business pool deduction (see Step 2), less
  • the deduction for assets first used by the taxpayer during the year (see Step 3), less
  • the deduction for any cost addition amounts for pooled assets during the year (see Step 3).

If the closing pool balance is less than zero, see Step 5(b).

The closing pool balance for this year becomes the opening pool balance for the next income year, except if an adjustment is made to reflect the changed business use of a pooled asset.

The closing pool balance is needed to work out the pool deduction next year. Do not write the closing pool balance on the tax return.

Five-year restriction

The law has been changed to suspend the 5 year 'lock out' rule that applies to small business entities that have previously chosen to use these simplified depreciation rules but have then opted-out in a later year.

If the trust is a small business entity that has previously chosen to use these simplified depreciation rules but then, in a later year, has chosen to stop using this concession, the trust can again choose to use the simplified depreciation rules.

Motor vehicle expenses

Show at 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:

  • G Lease expenses
  • I Total interest expenses
  • K Depreciation expenses.

Repairs and maintenance

Show at 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 M, at 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, plant, machinery or equipment used solely for producing assessable income or in carrying on a business. You can only deduct expenditure on repairs to property used partially for business or income-producing purposes (for example, if the property is used for private purposes or in the production of exempt income) to an extent that is reasonable in the circumstances.

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.

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 source records showing full details of the nature and cost of repairs to each item.

All other expenses

Show at N the total of all other business expenses for the income year that has not already been included at P to M, for example, travel expenses.

  • Write back capital and other non-deductible items included at N at B Expense reconciliation adjustments.
  • If you have included an amount for a loss on the sale of a depreciating asset at N, see Appendix 6.
  • The calculation of some deductions may be affected by the commercial debt forgiveness provisions; see Appendix 4.
    • Expenses listed here that are costs associated with borrowing and servicing debt may not be allowable under the thin capitalisation rules; see Appendix 3. Include the non-deductible amount at B Expense reconciliation adjustments.
     
  • If what you show at N includes an amount that is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).

Total expenses

Show at O the total of all expense items shown at P to N.

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

Reconciliation items

The reconciliation adjustments reconcile operating profit or loss as shown in the profit or loss account (the accounts) with the trust's net income or loss from business for income tax purposes.

If the trust has included any amounts such as exempt income or non-deductible expenses in the accounts, or has not included amounts which are assessable income or expenditure that is deductible, work out the reconciliation adjustments.

Income reconciliation adjustments

Show at A the net income-related reconciliation adjustments. The amounts included here fall into two classes, which either increase or reduce the net adjustment, 'income add backs' and 'income subtractions'.

  • Income add backs are amounts not shown in the accounts, but are assessable income, including timing adjustments. These items increase the total shown at A. Examples include:
    • any excess of the tax value of closing stock over the tax value of opening stock (other than small business entities using the simplified trading stock rules)
    • assessable balancing adjustment amounts on depreciating assets; see Appendix 6
    • limited recourse debt amounts; see Appendix 6
    • other assessable income not included in the accounts, small business entities should see Appendix 6.
     
  • Income subtractions are income items shown in the accounts, which are not assessable income, including timing adjustments. These items reduce the total shown at A. Examples include:
    • exempt income, including income exempt from Australian tax under a double-tax treaty
    • profit on the sale of a depreciating asset; see Appendix 6
    • personal services income (PSI) included in the assessable income of an individual (attributed amount); see item 30 Personal services income
    • other income shown in the accounts which is not assessable for income tax purposes; former STS taxpayers should see Former STS taxpayers.
     

To calculate the net amount of the income-reconciliation adjustments, see Worksheet 1.

If the income subtractions exceed the income add backs, the total is a negative amount. Print L in the box at the right of the amounts shown at A.

Expense reconciliation adjustments

Show at B the net expense related reconciliation adjustments. The amounts included here fall into two classes that either increase or reduce the net adjustment, 'expense add backs' and 'expense subtractions'.

  • Expense add backs are expenses shown in the accounts, which are either not tax deductible or are only partly tax deductible, including timing adjustments. These items increase the total shown at B. Examples include:
    • additions to provisions and reserves
    • capital expenditure
    • certain expenses relating to personal services income that are not deductible; see item 30 Personal services income
    • debt deductions denied by the thin capitalisation provisions; see Appendix 3
    • depreciation expenses; see Note
    • expenses relating to exempt income, including expenses relating to tax treaty exempt income
    • hire-purchase payments; see Appendix 6
    • income tax expense
    • loss on the sale of a depreciating asset
    • luxury car lease payments
    • part of prepaid expenses not deductible this year
    • penalties and fines
    • other non-deductible expenses; former STS taxpayers should see Former STS taxpayers.
     

Note: Only add back amounts of depreciation expenses if the trust is not a small business entity using the simplified depreciation rules. However, exclude any small business pool deductions shown at K Depreciation expenses.

  • Expense subtractions are amounts not shown as expenses in the accounts but are tax deductible, including timing adjustments. These items reduce the total amount shown at B. Examples include:
    • any excess of the tax value of opening stock over the tax value of closing stock
    • any expenditure incurred under Subdivision 40-J of the ITAA 1997 to establish trees in carbon sink forests
    • deductible balancing adjustment amounts on depreciating assets; see Appendix 6
    • deduction for decline in value of depreciating assets (other than trusts using the small business entity depreciation rules); see Appendix 6
    • instant asset write off for medium sized business; see Appendix 6
    • deduction for environmental protection expenses; see Appendix 6
    • deduction for project pool; see Appendix 6
    • deduction for electricity connections and telephone lines; see Appendix 6
    • hire purchase agreements, interest component; see Appendix 6
    • deductions for landcare operations and decline in value of water facility, fencing asset and fodder storage asset; see Appendix 6
    • luxury car leases, accrual amount; see Appendix 6
    • part of prepaid expenses deductible this year, but not shown in accounts
    • section 40–880 deduction; see Appendix 6
    • other deductible items; former STS taxpayers should see Former STS taxpayers.
     

If the expense subtractions exceed the expense add backs, the total is a negative amount. Print L in the box at the right of the amount.

To calculate the net amount of the expense reconciliation adjustments, see Worksheet 1.

Specific reconciliation adjustments

Former STS taxpayers

If the trust is eligible and is continuing to use the STS accounting method, you may need to make additional adjustments; see Appendix 13.

You will need to make adjustments at Reconciliation items item 5 if the trust:

  • uses the STS accounting method, and the amounts shown at item 5 Income and Expenses are not based on the STS accounting method, or
  • stops using the STS accounting method.

These adjustments are explained in more detail below, Worksheet 1 will help with the calculations.

Trade debtors and creditors as at 30 June 2019

If the trust is eligible, has chosen to continue using the STS accounting method and has included, as income at item 5, amounts of ordinary income that have been derived but not received in 2018–19, the amounts not received (for example, trade debtors at 30 June 2019) are not assessable in 2018–19.

Show these amounts as income subtractions at A Income reconciliation adjustments.

If the trust is eligible, has chosen to continue using the STS accounting method and has included, as expenses at item 5, amounts of general deductions, repairs or tax-related expenses that have been incurred but not paid in 2018–19, then the amounts not paid (for example, trade creditors at 30 June 2019) are not deductible in 2018–19.

Show these amounts as expense add-backs at B Expense reconciliation adjustments.

Adjustments when ceasing to use the STS accounting method

If the trust has discontinued using the STS accounting method and changed to an accruals accounting method this year, read below.

If the trust has previously not included, as income at item 5, amounts of ordinary income that were derived but not received while using the STS accounting method (for example, trade debtors at 30 June 2018) these amounts are assessable this year.

Show these amounts as income add backs at A Income reconciliation adjustments.

If the trust has previously not included as expenses at item 5, amounts of general deductions, repairs or tax-related expenses that were incurred but not paid while using the STS accounting method (for example, trade creditors at 30 June 2018) these amounts are deductible this year.

Show these amounts as expense subtractions at B Expense reconciliation adjustments unless they are tax-related expenses. Include the deduction for tax-related expenses at item 18.

Disposal of depreciating assets

If the trust has disposed of depreciating assets during the income year, the following amounts (if any) are income add backs at A Income reconciliation adjustments:

  • taxable purpose proportion of the termination value of certain assets disposed of, for which an immediate deduction has been claimed
  • if the closing pool balance of the general small business pool is less than zero, amount below zero, and
  • assessable balancing adjustment amounts on the disposal of depreciating assets not subject to the small business entity depreciation rules.

Show any deductible balancing adjustment amounts on the disposal of depreciating assets not subject to the small business entity depreciation rules as expense subtractions at B Expense reconciliation adjustments.

Prepaid expenses (immediate deduction)

Small business entities are entitled to an immediate deduction for prepaid expenses if the expenditure is incurred for a period of service not exceeding 12 months and the eligible service period ends on or before the last day of the next year of income. If the eligible service period is more than 12 months, or ends after the next year of income, you must apportion the deduction for the expenditure over the eligible service period or 10 years, whichever is less.

For more information, see Deductions for prepaid expenses 2019. If expense amounts include prepaid expenses that differ from the amounts allowable as deductions in 2018–19, make the reconciliation adjustment at B Expense reconciliation adjustments.

Prepaid expenses (apportionment)

The trust’s total deduction for prepaid expenses in 2018–19 may comprise two components:

  • the part of prepaid expenses incurred in 2018–19 that relates to that income year
  • that part of the 2017–18 or earlier income year’s expenses was not deductible in that income year, but is deductible in 2018–19 under the prepayment rules.

For more information, see Deductions for prepaid expenses 2019.

If expense amounts include prepaid expenses that differ from the amounts allowable as deductions in 2018–19, make the reconciliation adjustment at B Expense reconciliation adjustments.

Trading stock on hand (other than small business entities using the simplified trading stock rules)

Reconciliation adjustments will be required where the tax values of trading stock on hand have not been used in calculating the amount shown at E Cost of sales item 5. Any excess of the tax value of closing stock over the tax value of opening stock would be an income add back. Any excess of the tax value of opening stock over the tax value of closing stock would be an expense subtraction. If you have used accounting values for trading stock on hand in calculating the amount shown at E Cost of sales, you will need to take further reconciliation adjustments from those amounts.

For more information on the tax value of trading stock, see item 38 Opening stock and item 40 Closing stock.

Net income or loss from business

The trust's net income or loss from business is the amount of the trust's net income or loss for tax purposes that is from business. It is the total business income less total expenses incurred in producing that income according to the accounting systems, adjusted by any tax reconciliation items.

Show the net income or loss from business at:

  • Q for primary production, and
  • R for non-primary production.

If the amount at Q or R is a loss, print L in the box at the right of the amount.

Show at S:

  • Total business income, minus
  • O Total expenses, plus or minus
  • A Income reconciliation adjustments and B Expense reconciliation adjustments.

The amount shown at S equals the sum of the net income or loss from business at:

  • Q for primary production, and
  • R for non-primary production.

If the amount at S is an overall loss, print L in the box at the right of the amount.

Net small business income

Is the trust a small business entity?

No

Go to Item 6.

Yes

Read on.

The trust must work out the net small business income. Beneficiaries who are individuals need to know their share of net small business income to claim the small business income tax offset on their own tax return if they are entitled to it.

An individual is only entitled to the offset in respect of a share of net small business income received from a small business entity trust in which they are a beneficiary, where the business income was derived by that trust from carrying on its own business activities.

Trustees and beneficiaries who are prescribed persons (under 18 years of age and not excepted persons) are not entitled to the offset.

The net small business income is the trust’s assessable income from carrying on a small business, less any deductions to the extent that they are attributable to that assessable income. If the trust carries on multiple businesses, combine the trust's assessable income and attributable deductions to work out the net small business income.

Do not include:

  • any net capital gains from assets used in carrying on the business
  • any personal services income that was attributed to another person
  • any of the following deductions:
    • tax-related expenses
    • gifts or contributions
    • tax losses from prior years.
     

Completing this item

Step 1

Did the trust have any business income or deductions shown at items other than S item 5 Net income or loss from business?

No

The amount at S item 5 Net income or loss from business is your net small business income. Show this amount at V item 5 Net small business income. You are finished with this item. Go to item 6.

Yes

Read on.

Step 2

If you had any of the following, use worksheet 1A to work out your net small business income:

  • foreign source business income at item 23 or attributed foreign business income at item 22
  • interest income earned in the course of carrying on the business shown at item 11
  • dividend income earned in the course of carrying on the business shown at item 12; for example, dividends earned in the course of carrying on a share trading business
  • any business income not already shown at this item
  • any business deductions not already show at this item; for example, debt deductions against foreign source business income claimed at item 18.

Show your net small business income at V item 5.

QC58674