Guide for small business operators
Income and deductions
for small business
How to work out your assessable business income and deductions,
and lodge an annual tax return.
For more information
visit www.ato.gov.au
NAT 10710-06.2011
OUR COMMITMENT TO YOU
ABOUT THIS GUIDE
We are committed to providing you with accurate, consistent
and clear information to help you understand your rights and
entitlements and meet your obligations.
If you operate a small business as a sole trader, partnership,
company or trust, you can use this guide to help you:
■ work out your assessable income
■ work out your allowable deductions
■ claim common deductions
■ understand the credits and tax offsets that may be
available to you
■ lodge an annual tax return
■ access other useful publications and products.
If you follow our information in this publication and it turns out
to be incorrect, or it is misleading and you make a mistake as
a result, we must still apply the law correctly. If that means you
owe us money, we must ask you to pay it but we will not charge
you a penalty. Also, if you acted reasonably and in good faith we
will not charge you interest.
If you make an honest mistake in trying to follow our information
in this publication and you owe us money as a result, we will not
charge you a penalty. However, we will ask you to pay the
money, and we may also charge you interest.
If correcting the mistake means we owe you money, we will pay
it to you. We will also pay you any interest you are entitled to.
If you feel that this publication does not fully cover your
circumstances, or you are unsure how it applies to you,
you can seek further assistance from us.
We regularly revise our publications to take account of any
changes to the law, so make sure that you have the latest
information. If you are unsure, you can check for more recent
information on our website at www.ato.gov.au or contact us.
This publication was current at June 2011.
Throughout this guide you will find important notes (look for the
symbol) that will help you with key information you should note.
You will also find ‘more information’ boxes (look for the
symbol) that will show any further steps you may need to
take or supplementary information you may need to refer to.
This guide supplements Tax basics for small business
(NAT 1908), which contains important tax information you
should know if you are new to business.
For more information about your tax obligations as
a small business operator, refer to:
■ Record keeping for small business (NAT 3029)
■ GST for small business (NAT 3014)
■ Home-based business (NAT 10709)
■ PAYG withholding (NAT 8075)
■ Super – what employers need to know (NAT 71038)
■ Concessions for small business entities – overview
(NAT 71398)
TERMS WE USE
When we say:
■ small business, we mean small business entity, which
is a business with an aggregated turnover less than $2 million
■ aggregated turnover, is broadly, your annual business turnover
for the income year plus the annual turnover of any business
that is connected with you or that is an affiliate of yours.
For more information on the aggregation rules and
working out aggregated turnover, refer to Am I eligible for
the small business entity concessions? on our website
www.ato.gov.au
© AUSTRALIAN TAXATION OFFICE FOR THE
COMMONWEALTH OF AUSTRALIA, 2011
You are free to copy, adapt, modify, transmit and distribute this material as
you wish (but not in any way that suggests the ATO or the Commonwealth
endorses you or any of your services or products).
PUBLISHED BY
Australian Taxation Office
Canberra
June 2011
JS 19808
CONTENTS
01
04
KEEPING PROPER RECORDS
3
CLAIMING COMMON DEDUCTIONS
23
Records you must keep
4
Advertising expenses
24
Record keeping tool
4
Business travel expenses
24
Fringe benefits tax
25
Expenses related to your home work area
25
Motor vehicle expenses
27
Phone expenses
31
02
WORKING OUT YOUR ASSESSABLE INCOME
5
Plant and equipment (depreciation)
31
What to include in your assessable income
6
Super contributions
36
What not to include in your assessable income
7
Salary and wages
36
Small business concessions
7
Tax-related expenses
37
Trading stock
8
Repairs, maintenance and replacement expenses
37
Separating your business and personal income
10
Accounting methods
10
Contractors and consultants
11
Capital gains
12
05
Primary producer or special professional income
14
CREDITS AND OFFSETS
39
Income you earned from outside Australia
16
25% Entrepreneurs’ tax offset (ETO)
40
Foreign income tax offset
40
Other tax offsets
41
03
06
WORKING OUT YOUR
ALLOWABLE DEDUCTIONS
17
Claiming expenses
18
LODGING AN ANNUAL TAX RETURN
43
Expenses you can claim in the income year you incur them 19
Lodging as a sole trader, partnership or trust
44
Expenses you can claim over time
20
Lodging as a company
45
Expenses you can never claim
20
Working out which form to report on
46
Special deductions
21
PAYG instalments
47
Businesses that run at a loss
21
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
1
CONTENTS
SUPPORT FOR SMALL BUSINESS
48
Online services
48
Payment methods
48
Face-to-face
48
Phone
49
DEFINITIONS
50
HOW TO ACCESS OUR PUBLICATIONS
52
Obtain our publications online
52
Order our publications by phone
52
Other useful products
52
INDEX
53
MORE INFORMATION
2
inside back cover
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
KEEPING PROPER
RECORDS
01
01 KEEPING PROPER RECORDS
RECORDS YOU MUST KEEP
RECORD KEEPING TOOL
You must keep records of your business transactions for five
years after they are prepared or obtained, or the transactions
are completed, whichever occurs later. These records include:
■ sales and expense invoices
■ sales and expense receipts
■ cash register tapes
■ credit card statements
■ bank deposit books and cheque butts
■ bank account statements
■ employee records such as copies of tax file number
declarations, wages books, time sheets and super records.
Use our record-keeping calculaton tool to help work out your
business record-keeping needs.
You may also need to keep the following specific income
tax records for each financial year:
■ motor vehicle expenses, including logbooks
■ debtors and creditors lists
■ records of depreciating assets
■ stocktake records
■ records of any use of any business purchases or
assets for private purposes
■ records of assets for capital gains tax purposes.
Based on the information you provide, the tool will produce:
■ a list of business records you should keep
■ a report that shows how well you are keeping your
business records
■ suggestions for improvement.
To access the Record keeping evaluation tool, visit
our website at www.ato.gov.au/businesses and select:
Your business situation – Record keeping & invoicing –
Record Keeping Evaluation Tool.
For more information about record keeping, refer to
Record keeping for small business (NAT 3029).
You can store records in either paper or electronic form.
However, all your business records must be readily accessible
and available in English.
For capital gains tax, you must keep records for at least five
years after the relevant capital gains tax event – for example,
the sale of an asset. You may have purchased the asset many
years before you sold it. To streamline record keeping, you can
choose to enter information from your capital gains tax (CGT)
records into an asset register.
For more information, refer to the Guide to capital
gains tax (NAT 4151).
We recommend you talk to an experienced bookkeeper
about setting up a good record keeping system to help
keep track of your business records.
4
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
WORKING OUT YOUR
ASSESSABLE INCOME
02
02 WORKING OUT YOUR ASSESSABLE INCOME
WHAT TO INCLUDE IN YOUR
ASSESSABLE INCOME
Income that is subject to tax is called assessable income.
When calculating your assessable income for your business,
you generally include amounts you receive:
■ in the ordinary course of carrying on your business,
such as from selling trading stock or providing services
■ from isolated transactions outside the ordinary course
of your business, if you intend to make a profit
■ to replace something that would have had the character
of business income
■ from the sale of depreciating assets – if more than
their written down value
■ as compensation, such as workers’ compensation
or payments for trading stock losses, interruption to
business or cancellation of contracts
■ from fuel tax credits
■ from recovered bad debts for which you have received
a tax deduction
■ as commission income
■ as dividends and franking credits earned on business
investments
■ as fees for services
■ as grants, such as an amount you receive under the
new apprenticeship incentives program
■ as incentive payments, such as a cash payment to
enter into a lease of business premises
■ as income earned outside Australia – if you’re an
Australian resident for tax purposes
■ as interest on business investments, and interest on
overpayment or early payment of tax
■ as lease payments, including hire charges for plant
■ as net capital gains from the sale of certain capital assets,
such as land or buildings
■ as payments for selling know-how
■ as prizes or awards related to your business, such as
a cash prize for being the best business in your region
■ as profit when you dispose of leased cars and other equipment
■ as profit on the sale or lease of a business
■ as refunds of rates, taxes and other items
■ as rental income from property owned by the business
■ as royalties, such as an amount you receive for the
use of a patent
■ as subsidies for carrying on a business.
6
You must also include the:
■ value of goods you take from trading stock for your
own private use
■ value of trading stock on hand at the end of the income
year if it is more than at the start of the year
■ market value of any transactions not involving money,
such as barter transactions.
Make sure you include your gross earnings or
proceeds, not just your profit.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
02 WORKING OUT YOUR ASSESSABLE INCOME
WHAT NOT TO INCLUDE IN
YOUR ASSESSABLE INCOME
SMALL BUSINESS
CONCESSIONS
The following amounts are not assessable and you do not
include them in your assessable income:
■ amounts you earned from a hobby
■ gifts or amounts bequeathed to you
■ lottery winnings
■ prizes that are not related to your business
■ betting and gambling wins, unless you carry on a business
of betting or gambling
■ goods and services tax (GST) you have collected
■ any money you have borrowed
■ maintenance and child support payments you receive
■ exempt government pensions, allowances and payments,
such as family tax benefit payments
■ assessable income from a payout from your own personal
income protection insurance policy.
If you operate a business with an aggregated turnover of less
than $2 million, you may be eligible for a range of concessions
to help reduce your taxable income. The small business
concessions include:
■ CGT concessions
■ simpler trading stock rules
■ simplified depreciation rules
■ immediate deductions for prepayments.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
■
■
■
For more information, refer to:
our website at www.ato.gov.au/sbconcessions
Concessions for small business entities – overview
(NAT 71398)
Guide to capital gains tax concessions for small business
(NAT 8384).
7
02 WORKING OUT YOUR ASSESSABLE INCOME
TRADING STOCK
Trading stock is anything you produce, manufacture,
acquire or purchase for manufacture, sell or exchange for
your business, including livestock.
For more information about the definition of trading
stock, refer to Taxation Ruling No. IT 2670 Income tax:
meaning of ‘trading stock on hand’.
If the value of your stock varies by more than $5,000 between
the beginning and the end of the income year, you must:
■ value each item of trading stock on hand at the end of
the income year
■ account for the change in value in your assessable income.
See ‘Valuing trading stock’ below.
If the value of your trading stock varies by $5,000 or less, you
do not have to account for this difference. This is because the
value of the trading stock you have on hand at the end of the
year is deemed to be the same as at the start of the year. See
‘Concession – simpler trading stock rules’, on this page.
VALUING TRADING STOCK
Conducting a stocktake usually involves physically counting your
stock and valuing each item using one of these three methods:
Method
Valuation basis
Cost
Include all costs associated with
bringing the stock into its existing
condition and location. This may
include cost price plus freight,
insurance, customs and excise
duties, and delivery charges.
Market
selling value
Current value of stock if sold in
the normal course of business.
Replacement
value
What it would cost to obtain a
substantially identical item that is
available in the market on the last
day of the income year.
If you want to, you can use a different method for different
items of stock each year.
The closing value for an item of trading stock at the end of
one income year automatically becomes its opening value
at the beginning of the next income year.
8
ACCOUNTING FOR CHANGES IN THE VALUE
OF TRADING STOCK
If you operate a small business and your stock level changes
by more than $5,000, you must take into account the change
in value of your trading stock when you work out your
taxable income for the year.
This is worked out using one of the following methods:
■ if the value of your trading stock at the end of the income
year is more than at the beginning of the year, you must
include the difference in your assessable income
■ if the value of stock at the end of the year is less than at
the beginning of the year, you can claim a deduction for
the difference.
To do this, you need to assess the value of trading stock
you have on hand at the beginning of the income year
(generally 1 July) and at the end of the income year (generally
30 June). In most cases, you do this by conducting an annual
stocktake as close as possible to the end of the income year.
The value of your stock at the end of an income year will be
the same as its value at the start of the next income year,
except for the first year you are in business. The value at the
start of the year is zero if you do not have an end-of-year
value for trading stock on hand at the end of the previous year.
CONCESSION – SIMPLER TRADING STOCK RULES
If you operate a small business and your stock level does not
change by more than $5,000 you may, if you want to, use the
simpler trading stock rules.
By using this concession, you only need to conduct a stocktake
and account for changes in the value of trading stock if there
is a variation of more than $5,000 between the following:
■ the value of your stock on hand at the start of the income year
■ a reasonable estimate of the value of your stock on hand at
the end of that year.
Your estimate is reasonable in either of the following situations:
■ you maintain a constant level of stock each year and have
a reasonable idea of the value of your stock on hand
■ your stock levels fluctuate, but you can make an estimate
based on your records of the stock you have purchased.
For more information, visit our website at
www.ato.gov.au/sbconcessions
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
02 WORKING OUT YOUR ASSESSABLE INCOME
USING STOCK FOR PRIVATE PURPOSES
If you take an item of trading stock for your private use, you
must account for it as if you had sold it and include the value
of the item in your assessable income. If you want to, you can
keep records of the actual value of goods you take from your
trading stock for your own private use and report that amount.
The following table sets out the amounts we will accept as
estimates of the value of goods you have taken from your
trading stock for your private use if you operated one of the
listed business types during the 2010 –11 financial year. We
update the amounts annually.
Type of business
Amount
(excluding GST)
for each adult/
child over 16
years ($)
Amount
(excluding GST)
for each child
4–16 years ($)
1,140
570
770
385
Restaurant/cafe
(licensed)
3,950
1,565
Restaurant/cafe
(unlicensed)
3,130
1,565
Caterer
3,390
1,695
Delicatessen
3,130
1,565
820
410
Takeaway
food shop
2,970
1,485
Mixed business
(includes milk bar,
general store and
convenience store)
3,750
1,875
Bakery
Butcher
Fruiterer/
greengrocer
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
If you are a primary producer and you slaughter
livestock for your own consumption, you must account
for it as though you disposed of it at its cost.
■
■
For more information about:
how to value trading stock you have used for private
purposes, refer to Practice Statement PS LA 2004/3 (GA)
The valuation of goods taken from trading stock for
private use by sole traders or partners in a partnership
how we work out the figures in the previous table, refer to
Taxation Determination TD 2011/11 Income tax: value of
goods taken from stock for private use for the 2010–2011
income year.
9
02 WORKING OUT YOUR ASSESSABLE INCOME
SEPARATING YOUR BUSINESS
AND PERSONAL INCOME
If you have other personal assessable income, you
must account for it separately to your business income.
Personal income includes:
■ salary and wages
■ interest
■ dividends
■ rental income from personal investments.
ACCOUNTING METHODS
The amounts you include as assessable income in any
income year depend on how you account for your taxable
income, as shown in the following table.
Accounting
method
What to include in your assessable
income
Cash basis
Only income you received during that
income year.
Non-cash
(accruals)
basis
Include all amounts you have issued an
invoice for during the income year, even
if you haven’t received the payment.
You show your personal income in your personal tax return.
If you operate your business as a sole trader
or partnership, we recommend you open a separate
business bank account for your business income. This
means you can keep your business income separate
from any other assessable income you receive. If you
operate your business as a company or trust, you must
have a separate bank account for your business income.
10
For example, if you sent out an invoice
for $724 in June but weren’t paid by
the end of the income year, you must
include the $724 (less any GST) in your
assessable income for that year.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
02 WORKING OUT YOUR ASSESSABLE INCOME
CONTRACTORS
AND CONSULTANTS
If you are a contractor or consultant and you earn personal
services income, special tax rules may affect what amounts
you include in your assessable income and what deductions
you can claim. Personal services income rules can apply to
sole traders, partnerships, companies and trusts.
PERSONAL SERVICES INCOME
Personal services income (PSI) is income that is mainly
a reward for, or the result of, your personal efforts or skills.
Examples of PSI include income you earn:
■ as a consultant by exercising your personal expertise
■ as a professional practitioner in sole practice
■ under a contract that is wholly or principally for your
labour or services
■ as a professional sportsperson or entertainer by
exercising your professional skills.
PSI does not include income you earn mainly:
for supplying or selling goods
■ for granting a right to use property
■ using an income producing asset, such as income derived
from the use of a truck
■ through a business structure, such as a large accounting firm.
■
When you are affected by PSI
If you are conducting a personal services business or you
hold a personal services business determination from us,
the personal services income rules do not apply to you.
You qualify as a personal services business if any of the
following apply:
■ you meet the results test
■ less than 80% of your personal services income in
an income year comes from each client and you meet
one of the other three personal services business tests –
the unrelated clients test, employment test or business
premises test
■ you obtain a determination from us confirming that
you are a personal services business.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
You can apply for a determination in any of the following
situations:
■ you are not sure whether you meet one or more of
the personal services business tests
■ you do not meet the results test and 80% or more of
your personal services income comes from one client
■ unusual circumstances prevent you from meeting one
or more of the tests.
If you do not meet the results test and 80% or more of your
personal services income comes from one client, the PSI rules
affect you unless you get a determination from us.
How PSI affects you
If you are a sole trader, the PSI rules limit the deductions
you can claim. For example, claims are limited for:
■ rent, mortgage interest, rates or land tax on your residence
■ wages or super payments for associates.
If you operate your business as a company, partnership or trust:
■ there are limits on the deductions you can claim
■ we treat the income (less certain reductions) as your personal
income and you must include it in your personal assessable
income
■ your business has an additional pay as you go (PAYG)
withholding obligation on the income we treat as your
personal income.
■
■
■
For more information about these rules, refer to:
What is personal services income for sole traders
(NAT 72511)
What is personal services income for companies,
partnerships and trusts (NAT 72510)
your tax adviser.
11
02 WORKING OUT YOUR ASSESSABLE INCOME
CAPITAL GAINS
You must include any net capital gain you made during
the income year in your assessable income.
Your net capital gain is the total of your capital gains for
the year, less:
■ your total capital losses for the year or earlier years
■ any concessions you can use.
You will make a capital gain or capital loss if you sell a business
asset, such as your business premises or goodwill.
If you operate your business as a company or trust, you make
a capital gain or capital loss if you sell your shares or trust
interest.
Some assets are exempt from capital gains tax. These include:
assets you purchased or acquired before 20 September 1985
■ your main residence, unless you are carrying on your business
from home
■ trading stock
■ cars and motorcycles.
■
Capital gains tax generally doesn’t apply to depreciating assets
you use in your business, such as tools or motor vehicles.
WHEN CAPITAL GAINS OR CAPITAL LOSSES OCCUR
Under tax law, a capital gain or loss occurs for each capital
gains tax event. For example, if you sell a business asset
under a contract, the capital gain or capital loss occurs when
you enter into the contract, not when the contract is settled.
If you have a net capital loss at the end of the income year,
you cannot use it to reduce your total assessable income.
However, you can carry it forward until the next year you
have a capital gain and offset it against that gain.
If you are:
■ an individual or trust, and you hold an asset for at least
12 months before disposing of it, you qualify for the 50%
discount. This means you include only 50% of the capital
gain in your assessable income
■ a company, you are not entitled to a discount
■ in a partnership, the partnership does not pay tax on capital
gains; instead, the individual partners include their share
of the capital gain when working out their net capital gain
to include in their assessable income.
12
CAPITAL GAINS TAX CONCESSIONS
There are four CGT concessions you may be eligible to use to
reduce the capital gain you make when you dispose of business
assets or your ownership interest in a small business.
To qualify for any of the CGT concessions, you must meet
one of the following conditions:
■ you are a small business
■ you are a partner in a partnership that is a small business
and the CGT asset is the partnership’s asset.
You are a small business if you are carrying on a business
and you meet one of the following:
■ your aggregated turnover for the previous income year was
less than $2 million
■ you estimate your aggregated turnover for the current year to
be less than $2 million (you cannot use this estimate if your
aggregated turnover for each of the two previous income
years was $2 million or more).
If you cannot meet either of the above conditions, you will still
be a small business if your actual aggregated turnover for the
current year is less than $2 million.
You may also be eligible for the CGT concessions where your
aggregated turnover is more than $2 million if you meet the
maximum net asset value test.
The maximum net asset value threshold is $6 million and the
capital gains tax concessions are as follows.
CGT 15-year exemption
By using this concession, any capital gain you make from
disposing of an asset is exempt from CGT if you have owned
the asset for 15 years and either of the following apply:
■ you are aged 55 years or over and retiring
■ you are permanently incapacitated.
CGT 50% active asset reduction
By using this concession, if you dispose of an asset you
have used in your business, any capital gain you make is
reduced by 50%.
CGT retirement exemption
By using this concession, any capital gain you make from
disposing of an asset when you retire is exempt from CGT
up to a lifetime limit of $500,000. If you are under 55 years
of age, the capital gain is only exempt from CGT if you pay it
into a complying super fund or a retirement savings account.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
02 WORKING OUT YOUR ASSESSABLE INCOME
CGT rollover
By using this concession, you can defer a capital gain from
disposing of a business asset for two years or longer if
you do either of the following:
■ purchase or acquire a replacement asset
■ make a capital improvement to an existing asset.
While the rollover allows you to defer a capital gain to a later
income year, you may be able to use other CGT concessions
to exempt or reduce your capital gain.
KEEPING RECORDS FOR CAPITAL GAINS TAX
You must keep records of everything that may be relevant to
working out whether you have made a capital gain or capital
loss from an asset. The main capital gains tax records you
need to keep are:
■ records of the date you purchased or acquired an asset
and the asset price, such as the purchase contract
■ records of the date you disposed of the asset and any
proceeds you received by doing so, such as the sales
contract
■ details of commissions or legal expenses you paid when
purchasing or acquiring the asset
■ details of improvements made to an asset, such as
building costs
■ any other records you used to work out your capital
gain or capital loss.
You must keep these records for five years after you sell
or dispose of an asset, unless you keep an asset register.
■
■
For more information about capital gains tax, refer to:
Guide to capital gains tax (NAT 4151)
Guide to capital gains tax concessions for small business
(NAT 8384).
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
13
02 WORKING OUT YOUR ASSESSABLE INCOME
PRIMARY PRODUCER OR
SPECIAL PROFESSIONAL
INCOME
If you are a primary producer or a special professional, there
are special tax concessions that may affect what amounts you
include in your assessable business income for an income year.
The special concessions also affect when you have to pay
your income tax as you may be able to make two PAYG
instalments each year, instead of four. We will send you a letter
if you are eligible for this option.
PRIMARY PRODUCERS
The non-commercial business losses rules may also not apply
to you in some circumstances – see ‘Businesses that run at a
loss’ on page 21.
To use the special concessions for primary producers, you
must meet our definition of ‘carrying on a business of primary
production’. To work out whether you are a primary producer,
we will consider:
■ the size or scale of your business
■ whether your business is profitable or, if not, whether
you genuinely believe it will be profitable
■ whether you carry on your business in the same way
that your type of business is ordinarily carried on.
Examples of primary production businesses include farming,
fishing and aquaculture.
For more information about primary production
businesses, refer to Taxation Ruling TR 97/11 Am I carrying
on a business of primary production?
Special tax concessions that may affect what primary
production income you include in your assessable business
income in an income year include the following:
■ under certain circumstances, you can choose to spread
profit from the forced disposal or death of livestock in either
of the following ways
– over five years
– by deferring the profit and using it to reduce the cost of
replacement stock in the disposal year or in any of the
next five income years, or 10 years if you disposed of the
stock to control bovine tuberculosis, and including any
unused part of the profit in your assessable business
income in the fifth income year
■ where you have an assessable insurance recovery for losing
livestock or for loss by fire of trees that were assets of your
primary production business carried on in Australia, you can
choose to include the amount in your assessable business
income in equal instalments over five years
■ where you sell two wool clips in an income year because
of an early shearing caused by drought, fire or flood, you
can choose to defer the profit on the sale of the clip from
the advanced shearing to the next year
■ you may be able to average your income over a number
of years – see ‘Income averaging’ on this page.
14
Income averaging
If you are a primary producer, you can use tax averaging to
even out your income and the tax you are liable to pay over
a maximum of five years to allow for good and bad years.
You do not need to register to access income averaging as
it applies automatically to you unless you tell us in writing that
you want to opt out. If you choose to opt out of the averaging
system, you can’t reverse your decision.
You can only start averaging your income when your income
in the current year is equal to or more than your income in the
previous year.
When your average income is less than your taxable income
(excluding capital gains), you may receive an averaging tax offset.
When your average income is more than your taxable income
(excluding capital gains), you may have to pay extra tax, which
is included in the tax assessed.
Farm management deposits scheme
The farm management deposits scheme can help you deal
with uneven income streams. The scheme allows you to claim
a deduction for farm management deposits made in the year
you deposit.
If you withdraw a farm management deposit, you have to
include the amount of the deduction previously allowed in
your assessable income in the year you withdraw it.
For more information about primary production income,
visit our website at www.ato.gov.au/primaryproducers
or refer to:
■ Information for primary producers (NAT 1712)
■ Tax averaging for primary producers (NAT 8914)
■ Farm management deposits scheme (NAT 8776).
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
02 WORKING OUT YOUR ASSESSABLE INCOME
SPECIAL PROFESSIONALS
If you are one of the following special professionals, in certain
circumstances you may also qualify for income averaging:
■ an artist
■ an author
■ a composer
■ an inventor
■ a performing artist
■ a production associate
■ a sportsperson.
You may also be able to make two PAYG instalments a year,
instead of four. We will send you a letter if you are eligible for
this option.
Special professional averaging applies to you if you are an
Australian resident individual who earned more than $2,500
in taxable professional income in this or an earlier income year.
Taxable professional income is the net income you earned
from the special professional activities listed above.
Special professional averaging applies for a maximum of
five years and once you are eligible, you cannot withdraw
from special professional averaging.
For more information about when you are considered
to be carrying on a professional arts business, refer to:
■ Taxation Ruling TR 2005/1 Carrying on a business as
a professional artist
■ Income averaging for special professionals (NAT 2475)
■ PAYG instalments for primary producers and special
professionals (NAT 4352).
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
15
02 WORKING OUT YOUR ASSESSABLE INCOME
INCOME YOU EARNED FROM
OUTSIDE AUSTRALIA
If you are an Australian resident, you must include income from
all sources in your assessable income, regardless of whether
you earned the income in Australia or in another country.
You must include your assessable foreign income, even if tax
was taken out in the country where you earned it. In some
cases, foreign income that is exempt from Australian tax may
still be taken into account to work out the amount of tax you
have to pay on your other income.
You must also convert your foreign income and deductions
to Australian dollars. You must generally convert deductions
at the exchange rate that applies when you either incur or pay
the expense you can claim a deduction for, whichever occurs
first. You must generally convert income at the exchange rate
that applies when you either derived or received it, whichever
occurs first.
You can use an average exchange rate to convert your income
and deductions into Australian dollars if that rate is reasonably
similar to the rate you would have had to use.
You may receive a foreign income tax offset in your income
tax assessment for any taxes you paid in another country on
income you earned there – see page 40.
■
■
■
■
For more information about foreign income, refer to:
Foreign exchange (forex): the general translation rule
(NAT 9339)
Foreign exchange (forex): general information on average
rates (NAT 13434)
Foreign source income – other than employment,
pensions and annuities (NAT 9382)
www.ato.gov.au/internationalbusiness
EXAMPLE: Working out assessable income
Sole trader
Bill is a sole trader. During the income year, he received
the following:
Assessable income
Sale of toys (excluding GST)
Interest on business bank account
Total assessable business income
$ 110,405
$
45
$ 110,450
Other assessable income
Income from rental property
Franked dividends
Total assessable income
$ 13,000
$
980
$ 124,430
Non-assessable income
Hobby income (home-baked bread)
Lotto win
$
$
1,200
3,280
When working out his assessable income, Bill does
not include the $1,200 from the sale of his home-baked
bread or his $3,280 lottery winnings as these amounts
are not assessable.
While the $13,000 from his rental property and the
$980 from franked dividends are not business income,
as a sole trader, Bill must include these amounts in his
assessable income on his tax return. However, he
records the amounts separately for accounting purposes.
He did not make any capital gains and he is not entitled
to any of the special concessions for primary producers
or special professionals. Also, he did not earn any
income from outside of Australia. Therefore, Bill’s total
assessable income is $124,430.
Bill is not taxed on his assessable income, but on his
taxable income. This includes all his assessable income,
less the deductions he can claim.
16
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
WORKING OUT
YOUR ALLOWABLE
DEDUCTIONS
03
03 WORKING OUT YOUR ALLOWABLE DEDUCTIONS
CLAIMING EXPENSES
You can claim most expenses you incur in running your
business as deductions to reduce your assessable income.
For deduction purposes, your expenses can be divided
into three main groups – that is, expenses you can:
■ claim in the income year you incur them
■ claim over a number of years
■ never claim.
Any expense you incur must be directly related to earning
assessable income before you can claim it as a deduction.
There may also be limits on the amount you can claim for
a specific expense.
You cannot claim an income tax deduction for the GST
you paid in the price of something you purchased if you are
entitled to claim it as a GST credit on your activity statement.
If you earn personal services income, there are rules which
limit the deduction you can claim.
■
■
■
For more information about these rules, refer to:
What is personal services income for sole traders
(NAT 72511)
What is personal services income for companies,
partnerships and trusts (NAT 72510)
your tax adviser.
NON-BUSINESS OR PART-YEAR USE
You cannot claim a deduction for expenses you incur when
you use an asset for private purposes only. If you incur an
expense that relates to both business and private use of an
asset, you can only claim a deduction for the business portion
of the expense. This also applies to deductions you claim for
the depreciation of an asset.
If you use an item in your business for only part of a year,
you may need to restrict your claim to the period it was used
for the business.
WHEN YOU CAN CLAIM AN EXPENSE
You can generally claim a deduction for an expense you incur
in the everyday running of your business in the year you incur
it in. For example, an expense is incurred when you receive an
invoice, even if you haven’t actually paid it. This is known as the
accruals method of accounting.
However, if you are using the cash (receipts) accounting
method, if it is your usual practice to do so, you can claim
a deduction in the year you pay the expense in, rather than in
the year you incurred it in.
For more information, refer to Taxation Ruling TR 97/7
– Income tax: section 8-1 – meaning of ‘incurred’ – timing
of deductions.
CLAIMING EXPENSES YOU PAY IN ADVANCE
There are different rules for expenses you pay in advance
(prepaid expenses). A prepaid expense is one you incur
now for goods or services you will receive (in whole or in part)
in a later income year.
As a small business, you can use the prepayments concession.
This means you can claim a deduction for the total expense
you prepaid if you receive the goods or services in full within
12 months. This applies even if the 12-month period extends
into the next income year.
If you will not receive the goods or services in full within
12 months, you must apportion the expense across the
whole supply or service period.
■
■
18
For more information:
visit our website at www.ato.gov.au/sbconcessions
refer to Concessions for small business entities
(NAT 71874).
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
03 WORKING OUT YOUR ALLOWABLE DEDUCTIONS
EXPENSES YOU CAN
CLAIM IN THE INCOME
YEAR YOU INCUR THEM
Working or operating expenses you incur for the everyday
running of your business are called revenue expenses. Revenue
expenses can include office stationery, rent of office premises
and salary or wages. You can generally claim a deduction for
these expenses in the year you incur them.
■
You can claim a deduction for most expenses you incur for
the everyday running of your business in the same income
year as you incur them.
■
These include expenses you incur as:
■ advertising/sponsorship expenses
■ bad debts
■ bank fees and charges
■ business motor vehicle expenses
■ business operating expenses
■ business travel expenses
■ clothing (corporate wardrobes and uniforms,
occupation-specific clothing, protective clothing) expenses
■ education, technical or professional qualification expenses
■ electricity costs
■ fringe benefits – the cost of any fringe benefit provided
and fringe benefits tax on the benefit
■ home office expenses where the home is used as
business premises
■ insurance premiums, including workers’ compensation, fire,
burglary, professional indemnity, public risk, motor vehicle,
loss of profits
■ interest on money borrowed
– for income tax
– for employer super contributions
– for late payment or lodgment of tax
– to produce assessable income
– to purchase income producing assets
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
land tax on business premises
legal expenses, such as those you incur to defend future
income earning, borrow money, discharge a mortgage,
or obtaining tax advice
losses from a previous year
luxury car lease expenses
office stationery
costs for operating a commercial website, such as site
maintenance, content updating, internet service provider fees
parking fees
advertising or public relations costs
phone expenses
rates on business premises
registered tax agent/accountant fees
rent or lease of business premises
repairs and maintenance of income producing property
costs for replacing income producing property costing
$300 or less
salary, wages, bonuses or allowances paid
subscription costs for business or professional journals,
information services, newspapers and magazines
costs for sunglasses, sunhats and sunscreen where your
activities entail working outside
super contributions
tax preparation costs, such as income tax or GST
tender costs, even if the tender is unsuccessful
costs for trading stock, including delivery charges
transport and freight expenses
travel expenses related to relocating employees
union dues and periodical subscription fees to trade,
business or professional associations
water rates on business premises.
19
03 WORKING OUT YOUR ALLOWABLE DEDUCTIONS
EXPENSES YOU CAN
CLAIM OVER TIME
EXPENSES YOU CAN
NEVER CLAIM
The cost of assets that have a longer life (usually longer than
one income year) or that relate more to establishing, replacing,
enlarging or improving the structure of your business are
called capital expenses.
You can never claim:
■ private or domestic expenses, such as childcare fees
or clothes for your family
■ expenses relating to income that is not taxable,
such as money you earn from a hobby
■ expenses that are specifically non-deductible under
the tax law, such as parking fines.
These assets have a limited life expectancy (effective life) and
can reasonably be expected to decline in value over the time
you use them. They are called depreciating assets, and include:
■ computers
■ electrical tools
■ furniture
■ carpet and curtains
■ motor vehicles
■ plant and equipment.
Land and items of trading stock are not depreciating assets.
However, improvements to land and fixtures on land, such
as windmills and fences, may be depreciating assets.
Your business assets start to depreciate from the time you
first use them, or install them ready for use, for any purpose,
including a private purpose. However, you can only claim
deductions for depreciation for the time you use the assets
to produce assessable income.
Generally, you cannot claim the total cost of a capital asset in
the income year you pay it. Instead, you can claim an amount
for the decline in value of the asset each year over a number
of years.
The amount you can claim will be less if you:
only own the asset for part of a year
■ only use the asset in part for business purposes; that is,
if you only use it for 60% business purposes, you can only
claim 60% of its total depreciation for that year
■ owned the asset for some time before you started business.
In this case, you must work out how much the asset
depreciated before you started business and use the reduced
value as your starting base value for the asset.
■
Generally, you can only claim a deduction for the
depreciation of assets you legally own or are purchasing
under a hire purchase agreement.
If you are not sure whether an asset is a depreciating
asset, phone us on 13 28 66 or talk to your tax adviser.
20
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
03 WORKING OUT YOUR ALLOWABLE DEDUCTIONS
SPECIAL DEDUCTIONS
If you are a primary producer or you operate a company
involved in research and development, you may be able to
reduce your assessable income using special tax concessions.
TAX CONCESSIONS FOR PRIMARY PRODUCERS
As a primary producer, you are eligible to use special rules
to work out the depreciation of:
■ water facilities
■ horticultural plants.
You may also be able to claim deductions for capital
expenses you incur on landcare operations, electricity and
phone line connections.
You can claim the special deduction even if you
only lease the land.
Under the farm management deposits scheme, you
can claim a deduction for farm management deposits
you make.
BUSINESSES THAT
RUN AT A LOSS
You incur a tax loss when the total of the deductions you can
claim for an income year (excluding tax losses from earlier income
years) is more than your total assessable income and net exempt
income. The difference is your tax loss. However, there are some
deductions you cannot use to create or increase a tax loss,
including donations or gifts and personal super contributions.
NON-COMMERCIAL LOSS RULES
This information applies to you if you operate a business
as a sole trader or as an individual partner in a partnership.
Although you are in business, you may have income from other
sources. For example, you may have income from salary or
wages as well as your business.
If you are a sole trader or a partner in a partnership and you
make a net loss from your business activity, you can claim that
loss by offsetting it against your other income if you meet certain
criteria.
HOW NON-COMMERCIAL LOSS RULES AFFECT YOU
For more information about deductions
for primary producers, visit our website at
www.ato.gov.au/primaryproducers or refer to:
■ Information for primary producers (NAT 1712)
■ Farm management deposits scheme (NAT 8776).
RESEARCH AND DEVELOPMENT (R&D)
TAX CONCESSIONS
If you operate a company and you incur R&D expenses,
you may be eligible to claim a tax offset or a tax deduction
to reduce your assessable income. The concession includes
increased rates of deduction.
You can only claim the tax concession for expenses you incur
on eligible R&D activities. The Industry Research & Development
(IR&D) Board and AusIndustry decide which R&D activities are
eligible. You must be registered with the IR&D Board through
AusIndustry for each year you want to claim the concession.
For more information about R&D expenditure and
claiming the concession:
■ refer to
– Research and development tax concession schedule
instructions 2010 (NAT 6708)
– Guide to the R&D tax concession
■ visit www.ato.gov.au/businesses and select ‘Tax Topics
A–Z’ – ‘M–R’ – ‘Research & development tax concession’.
■ phone us on 13 28 66.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
Offsetting current year losses against other income
You can claim a business loss by offsetting it against your other
income if one of the following applies:
■ your business is a primary production business or a professional
arts business and you make less than $40,000 (excluding any
net capital gains) in an income year from other sources
■ your loss was solely due to a deduction claimed under the
small business and general business tax break (you cannot
use this exception to claim a loss caused by a deduction
claimed under the small business and general business tax
break for the 2008–09 year)
■ we allow you to offset the loss against other income
■ you meet the income requirement and one of the four tests.
Income requirement
You meet the income requirement if the total of the following
amounts is less than $250,000:
■ taxable income (ignoring any business losses)
■ total reportable fringe benefits
■ reportable superannuation contributions
■ total net investment losses – including financial investment
losses and rental property losses.
Tests
You meet one of the following four tests if:
■ the assessable income from your business is at least $20,000
in the income year – if you have not carried on your business
for a full year, you can make a reasonable estimate of what
you would have made over a full year
■ your business has made a profit in three of the past five years,
including the current year – a business makes a profit when its
assessable income is more than its tax deductions for the
income year
21
03 WORKING OUT YOUR ALLOWABLE DEDUCTIONS
■
■
your business uses or has an interest in real property worth
at least $500,000, and that property is used on a continuing
basis in a business activity. Real property includes land,
interests in land such as leases, and structures such as
buildings that are fixed to the land. Real property does not
include your private residence and adjacent land
the value of certain other assets (excluding motor vehicles)
you use in your business on a continuing basis is at least
$100,000. You can count the value of the following four types
of assets (which are valued in different ways)
– depreciable assets
– trading stock
– leased assets
– trademarks, patents, copyrights and similar rights.
If your business activity does not meet any of the above criteria,
you may still offset a loss against other income if we allow you to.
Commissioner’s discretion
If you meet the income requirement, we can exercise the
discretion if one of the following applies:
■ your business activity would have passed one of the four tests
but for special circumstances outside your control
■ because of the nature of the activity there is a lead time and
the activity does not satisfy any of the four tests – but there
is an objective expectation that within a commercially viable
timeframe for the industry it will
– meet one of the tests, or
– make a tax profit.
If you do not meet the income requirement, we can exercise the
discretion if one of the following applies:
■ your business activity would have passed one of the four tests
but for special circumstances outside your control
■ because of the nature of the activity
– there is a lead time before the business will make a tax
profit, and
– there is an objective expectation that within a commercially
viable timeframe for the industry it will make a tax profit.
If you do not meet any of these requirements, you cannot offset
your business loss against any of your other assessable income
for that income year; however, you can defer the loss or carry it
forward to future years. If your business makes a profit in a
following year, you can offset the deferred loss against the
amount of this profit.
■
■
For more information, refer to:
Non-commercial losses: overview (NAT 3379)
Non-commercial losses: Commissioner’s discretion (NAT 3386).
CLAIMING TAX LOSSES FROM PREVIOUS YEARS
When you carry forward tax losses, all of the following apply:
■ if you have tax losses from several previous years, you must
claim the entire loss you incurred from the earliest year before
you can claim all or part of a tax loss from a later year
■ you can use your tax losses from earlier income years to
reduce your Australian income to zero only – if your tax losses
from earlier income years are more than your Australian
income, you must keep a record of the tax losses to claim the
extra tax loss amount in a later year
■ you can carry forward most tax losses indefinitely.
If you have unclaimed foreign losses for the 1998–99 through
to 2007–08 income years, special deduction rules apply.
If you operate your business as a sole trader, partnership or
trust, you cannot choose the year or years to claim a deduction
for your tax losses from previous years in. You must carry the tax
loss forward from one year to the next until they are all claimed.
Incurring a loss as a trust
If you operate your business as a trust and you incur a tax loss,
you cannot distribute the loss to the trust’s beneficiaries.
There are special rules that restrict when you can claim
a deduction for a tax loss as a trust. We recommend you
seek more advice if you want to claim this kind of deduction.
Incurring a loss as a company
If you operate your business as a company, you cannot
distribute any loss you incur to your shareholders. The company
must carry the tax loss forward until it can offset the loss against
assessable income in a later year.
As a company, you cannot deduct a tax loss unless either
of the following applies:
■ you have the same owners and the same control throughout
the period from the start of the loss year to the end of the
income year
■ you carried on the same business throughout a specified period.
If you operate your business as a company, under certain
conditions, you may be able to:
■ choose the amount of a previous year’s tax loss you want
to claim
■ carry forward to a later year a tax loss you would have
incurred in a particular year had you not received income
from franked dividends.
For more information about claiming losses for
companies, refer to Taxation Ruling TR 1999/9 Income Tax:
the operation of sections 165-13 and 165-210, paragraph
165-35(b), section 165-126 and section 165-132.
If your business made tax losses in previous years, you can
carry forward those losses. In certain circumstances, you can
also claim a deduction for those losses in a later year subject
to applying the non-commercial loss rules.
22
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
CLAIMING COMMON
DEDUCTIONS
04
04 CLAIMING COMMON DEDUCTIONS
ADVERTISING EXPENSES
BUSINESS TRAVEL EXPENSES
You can claim a deduction for most advertising and
sponsorship expenses you pay if you incur these expenses to:
■ sell trading stock
■ hire employees
■ gain publicity for your business name.
You can only claim your business travel expenses if you have:
■ written evidence of all expenses, unless you did not stay
away from home overnight
■ travel records, if your business travel was for six or more
consecutive nights away from home.
You must use a diary or similar document to record the
particulars of each business activity before your travel ends,
or as soon as possible afterwards. You must record:
■ the nature of the activity
■ the day and approximate time the business activity began
■ how long the business activity lasted
■ the place you engaged in the business activity.
Your airline booking documents may show all the
details you need, including how much you paid for your
air fares. Generally, you must keep records of your
expenses for five years.
If your travel is for both business and private purposes,
you must exclude the private expenses from your claim.
If you operate your business as a company or trust, you
may have to pay fringe benefits tax if the travel includes
private activities.
24
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
04 CLAIMING COMMON DEDUCTIONS
FRINGE BENEFITS TAX
As a general rule, you can claim a deduction for the costs
you incur when you provide a fringe benefit to an employee.
This includes any fringe benefits tax you pay. However, if one
of your employees pays some or all of the costs of the fringe
benefit, you may have to include the amount they pay in your
assessable income.
For more information about fringe benefits, refer to
Fringe benefits tax for small business (NAT 8164).
EXPENSES RELATED TO
YOUR HOME WORK AREA
If you operate your business in full or in part from home,
you may be able to claim a deduction for:
■ occupancy expenses, such as rent, mortgage interest,
rates, land taxes and house insurance premiums
■ running expenses, such as phone rental and business
calls, internet fees, depreciation of office furniture and
equipment, and any extra heating, cooling, lighting
and cleaning expenses.
Whether you can claim both running expenses and
occupancy expenses depends on whether:
■ your home is your place of business and you have an
area set aside exclusively for business activities
■ your home is not your place of business but you have
an area set aside exclusively for business activities
■ you work at home but have no home work area – you work
when others are not present in a living area or garage but
your home is not your place of business.
If your home is your place of business and you have an area
set aside exclusively for business activities, you may be able
to claim both running and occupancy expenses.
If you carry on your business elsewhere and also do some
work at home, you cannot claim occupancy expenses even
if you have a home work area set aside.
The table on the next page shows the deductions you can
claim for the three ways you can work at home.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
25
04 CLAIMING COMMON DEDUCTIONS
What you can claim
How you operate your business
Home is your place
of business and you
have a home work area
Home is not your place
of business but you
have a home work area
You work at home
but do not have a
home work area
Yes
No
No
Running expenses
Cost of using a room (such as gas and
electricity)
Yes
Yes
Yes
Business phone costs
Yes
Yes
Yes
Decline in value of office plant and equipment
(such as desks, chairs and computers)
Yes
Yes
Yes
Depreciation of assets such as curtains,
carpets, light fittings
Yes
Yes
No
Occupancy expenses
Cost of owning or renting the house (such as
rent, mortgage interest, insurance and rates)
If your income includes personal services
income, you may not be able to claim a
deduction for occupancy expenses – see
page 11.
You can keep a diary to work out how much of your running
expenses relate to working at home. All you have to do to
support your claims is keep a diary for a representative period
of about four weeks each income year.
Before claiming expenses relating to your home
work area, we recommend you read Home-based
business (NAT 10709).
Alternatively, for home work area expenses such as heating,
cooling, lighting and depreciation of furniture, you can claim
a fixed rate of 34 cents an hour, instead of keeping details of
actual expenses.
For more information, refer to:
■ Taxation Ruling TR 93/30 Income tax: deductions for
home office expenses
■ Practice Statement PS LA 2001/6 Home office expenses.
If your home is your place of business, capital gains tax may
apply when you sell your home. For more information, refer to
Guide to capital gains tax (NAT 4151).
26
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
04 CLAIMING COMMON DEDUCTIONS
MOTOR VEHICLE EXPENSES
The amount of motor vehicle expenses you can claim depends
on your business structure.
If your income includes personal services income, you may
be able to claim a deduction for only one car you use for
private purposes – see page 11 for more information about
personal services income.
ODOMETER RECORDS
You must keep written odometer records during each year
for which you are making a claim. You must record:
■ the car’s odometer readings at the start and end of the period
■ the make, model, engine capacity and registration number of
the car.
COMPANY
Use our work related car expenses calculator. To do
so, visit our website at www.ato.gov.au and select: Find a
rate or calculator – Business – Income tax – Work related
car expenses calculator
If you operate your business as a company, you can claim a
full deduction for expenses you incur in running a motor vehicle
your company either leases or owns. If you also use the vehicle
for private purposes, you may have to pay fringe benefits tax
(FBT), which is also a deduction.
For help with working out how much FBT you may
have to pay, use our fringe benefits tax (FBT) car calculator.
To access the FBT car calculator, visit our website at
www.ato.gov.au and select: Find a rate or calculator –
Business – Fringe benefits tax.
SOLE TRADER OR PARTNERSHIP
If you operate your business as a sole trader or a partnership
that includes at least one individual, you can claim a vehicle
expense deduction for a vehicle you own, lease or hire under
a hire purchase agreement.
Vehicle types include:
■ ordinary cars, station wagons or four-wheel drives
■ most other vehicles designed to carry less than one
tonne or fewer than nine passengers.
There are four methods you can use to work out the amount
you can claim. When choosing a claim method, you:
■ can choose the method that will give you the best result
■ can use different methods for different vehicles
■ can change methods from year-to-year
■ must keep appropriate records.
METHODS OF CLAIMING YOUR VEHICLE
EXPENSES
The claim methods available to you depend on whether
you travel more or less than 5,000 business kilometres a
year in the vehicle.
If you travel 5,000 business km or less, you can use the:
■ cents-per-kilometre method
■ logbook method.
If you travel more than 5,000 business km, you can use the:
cents-per-kilometre method, although you can only claim
a maximum of 5,000km
■ logbook method
■ one-third of actual expenses method
■ 12% of original value method.
■
You cannot claim the cost of travelling between your
home and your place of business, except in certain limited
situations. However, if your home is your place of business,
you can claim the cost of trips you make between your
home and other places, provided you made the trip for
business purposes.
If your vehicle is a business purpose vehicle, you can claim
a full deduction for expenses you incur in running it for
business purposes in most situations. A business purpose
vehicle includes:
■ larger trucks or vans
■ smaller vehicles, such as utes, wagons or panel vans,
that have been heavily modified for business use, or where
private use is restricted to home-to-work travel and very
minor other use.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
27
04 CLAIMING COMMON DEDUCTIONS
METHOD 1 – Cents per kilometre
METHOD 2 – 12% of original value
If you use this method:
■ your claim is based on a set rate for each business kilometre
per car, per year
■ you can claim a maximum of 5,000 business kilometres
■ you do not need written evidence to show how many
kilometres you have travelled, but we may ask you to
show how you worked out your business kilometres
■ you cannot make a separate claim for depreciation.
If you use this method:
■ you can claim 12% of the original value of your car
(subject to the luxury car tax limits); that is, if you
– bought the car, you can claim 12% of the cost
– leased the car, you can claim 12% of its market
value from the first time it was leased
■ your car must have travelled more than 5,000 business
kilometres during the income year
■ you do not need written evidence to show how many
kilometres you have travelled, but we may ask you to
show how you worked out your business kilometres.
To work out how much you can claim, multiply the total
business kilometres you travelled by the number of cents
allowed for your car’s engine capacity – see the ‘Rates per
business kilometre’ table. Divide your answer by 100 to work
out the amount you can claim in dollars. This figure takes
into account all your vehicle running expenses.
The rates are adjusted each year and are contained in
TaxPack (NAT 0976) and on our website.
Rates per business kilometre – 2010–11
Ordinary car –
engine capacity
Rotary engine
car – engine
capacity
Cents per
kilometre
1600cc (1.6 litre)
or less
800cc (0.8 litre)
or less
63 cents
1601–2600cc
(1.601–2.6 litre)
801–1300cc
(0.801–1.3 litre)
74 cents
2601cc (2.601 litre)
and over
1301cc (1.301
litre) and over
75 cents
The luxury car tax limit was set at $57,466 for 2010–11.
This limit is updated each year.
EXAMPLE
Raji’s vehicle cost $20,000. She has the vehicle for the full
year and meets the requirements to make a claim under this
method. Raji works out she can claim $2,400 for her vehicle
expenses; that is, 12% × $20,000 = $2,400.
You cannot claim a deduction for your car’s
depreciation if you use either the ‘cents-per-kilometre’
or ‘12% of original value’ method to work out how much
you can claim for your car expenses.
EXAMPLE
Jane travelled 3000 business kilometres during the income
year. Her car has an 1800cc (1.8 litre) engine.
Jane works out she could claim $2,220 for her vehicle
expenses; that is:
3,000kms × 74 cents per km
100
28
=
$2,220
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
04 CLAIMING COMMON DEDUCTIONS
METHOD 3 – One-third of actual expenses
METHOD 4 – Logbook
If you use this method:
■ you can claim one-third of your car expenses
■ your car must have travelled more than 5,000 business
kilometres during the income year
■ you must have written evidence of your fuel and oil costs
or odometer records on which your estimates are based
■ you must have written evidence of all your other car
expenses.
If you use this method, you:
■ can claim the business use percentage of each car
expense, based on your logbook records
■ must keep a logbook so you can work out the percentage
■ must have written evidence of your fuel and oil costs
or odometer records your estimates are based on
■ must have written evidence for all your other expenses.
You must also keep records that show:
your car’s odometer readings at the start and end of
the period during which you owned or leased it during
the income year
■ the car’s engine capacity, make, model and registration
number
■ how you worked out your business kilometres and any
reasonable estimate you made.
EXAMPLE
■
At the end of the income year, Tim’s logbook shows he
travelled a total of 11,000 kilometres of which 6,600 were
business kilometres.
To work out the percentage he used the car for business
purposes, Tim completes the following calculation:
6,600
EXAMPLE
11,000
Kosta’s vehicle expenses totalled $9,000 for the income
year. These costs were for:
■ fuel and oil
■ registration and insurance
■ interest on a loan to buy the vehicle
■ repairs and maintenance
■ depreciation or lease payments.
×
100
=
60%
Tim’s total expenses, including depreciation, are $9,000
for the income year. To work out how much he can claim,
Tim completes the following calculation:
$9,000
×
60%
=
$5,400
Kosta met all the other requirements for claiming under
this method. He worked out he could claim $3,000; that is,
$9,000
÷
3
=
$3,000
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
29
04 CLAIMING COMMON DEDUCTIONS
YOUR LOGBOOK
■
Each logbook you keep is valid for five years.
■
If this is the first year you have used the logbook method, you must
keep a logbook during the income tax year for at least 12 continuous
weeks. If you started to use your car for business purposes less
than 12 weeks before the end of the income year, you can continue
to keep a logbook into the next year so it covers the required
12 weeks. If you want to use the logbook method for two or
more cars, the logbook for each car must cover the same period.
■
the total number of kilometres the car travelled during
the logbook period
the number of kilometres travelled for work activities based
on journeys recorded in the logbook – if you made two or
more journeys in a row on the same day, you can record
them as a single journey
the business use percentage for the logbook period.
If you established your business use percentage using a
logbook from an earlier year, you must keep that logbook
and maintain odometer records in the following years.
Each logbook you keep must contain the following information:
■ when the logbook period begins and ends
■ the car’s odometer readings at the start and end of the
logbook period
You can use pre-printed logbooks (available from stationery
suppliers) or make your own.
SAMPLE: Car logbook
Vehicle registration no
Period covered by logbook
from:
to:
Odometer readings for period
start:
end:
Odometer readings per journey
Date of travel
start
start
Kilometres
travelled
end
Total km for period:
end
Total business km:
Reason for journey
km
%
Odometer record
Make:
Model:
Engine capacity:
Registration no:
Engine capacity:
Registration no:
Odometer reading at start of year/period:
Odometer reading at end of year/period:
Replacement vehicle
Make:
Model:
Odometer reading of replacement vehicle at start of year/period:
Odometer reading of replacement vehicle at end of year/period:
Estimated business use is:
30
km
%
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
04 CLAIMING COMMON DEDUCTIONS
PLANT AND EQUIPMENT
(DEPRECIATION)
PHONE EXPENSES
If you use a phone exclusively for business, you can
claim a deduction for the phone rental and calls, but not
for installation costs.
If you use a phone for both business and private calls, you
can claim a deduction for business calls and part of the rental
costs. Use the following formula to work out the percentage
of phone rental expenses you can claim.
Number of business calls made and received
×
100
Number of total calls
You can identify business calls from an itemised phone account.
If you don’t have an itemised account, you can keep a record
for a representative four-week period to work how many
business calls you make on average for the entire year. You
can only use this method if the amount of business calls you
make does not change significantly from one month to another.
There are two sets of rules you can use to work out how
much you can claim for depreciating assets, such as plant
and equipment:
■ the simplified depreciation rules concession
■ the uniform capital allowances rules.
SIMPLIFIED DEPRECIATION RULES CONCESSION
Under the simplified depreciation rules, you can:
■ immediately write off most depreciating assets costing
less than $1,000 each
■ pool most other depreciating assets with an effective life
of less than 25 years in a ‘general small business pool’
and claim a 30% deduction for them
■ pool most other depreciating assets with an effective life
of 25 years or more in a ‘long life small business pool’
and claim a 5% deduction for them
■ claim a deduction for most assets you have newly purchased
or acquired at either 15% or 2.5% in the first year, regardless
of when you purchased or acquired them during that year.
For more information, see the table ‘Simplified
depreciation – general small business pool’ on page 32.
For certain depreciating assets, you must use
the uniform capital allowance rules rather than the
concessional rules.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
31
04 CLAIMING COMMON DEDUCTIONS
UNIFORM CAPITAL ALLOWANCE RULES
EXAMPLE: Simplified depreciation – general small
business pool
Calculation of general small
business pool balance
Depreciation
claim
Under these rules you can depreciate most business assets
using one of two methods:
■ the prime cost method, which you use to depreciate an
asset evenly over its effective life
■ the diminishing value method, which you use to depreciate
an asset more in the early years of its effective life
Closing pool balance
$ 10,000
Opening pool balance in
the following year (equals
your prior year balance)
$ 10,000
Add new asset purchases
$ 1,000
Sub total
$ 11,000
To use these depreciation methods, you have to work out the
effective life of an asset – see page 34.
Proceeds of disposal
$ 4,000
You can depreciate business assets that cost, or are
written down to, less than $1,000 through a low-value pool.
Subtotal
$ 7,000
Pool deduction claim
(30% × $10,000)
$ 3,000
Subtotal
$ 4,000
New asset deduction claim
(15% × $1,000)
$
Closing pool balance
$ 3,850
You can use either of the methods to work out how much
a business asset has depreciated. However, once you choose
a method for a particular asset, you cannot change to the other
method for that asset.
Less
■
■
$ 3,000
Comparing prime cost and diminishing value methods
150
$
150
$ 3,150
For more information about small business concessions:
visit our website at www.ato.gov.au/sbconcessions
refer to Concessions for small business entities (NAT 71874).
Amount of claim ($)
1800
1600
Diminishing Value
1400
Prime Cost
1200
1000
800
600
400
200
0
1
2
3
4
5
Claim Year
6
7
8
This graph shows the two methods you can use to work out
the depreciation of an asset costing $4,000 with an effective
life of five years. In this instance, the asset has been used for
12 months for business purposes only.
Both methods give you the same total deduction for the
depreciation, but the prime cost method does so over a
shorter time.
32
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
04 CLAIMING COMMON DEDUCTIONS
Working out the depreciation – prime cost method
Using the prime cost method, you can claim a fixed amount
each year. This means you can claim 20% of its cost for each
of the five years. In this instance you can claim $800 in each of
the five years.
Working out the depreciation – diminishing
value method
The formula for the diminishing value method is:
Base value
days held1
×
×
365
The formula for the prime cost method is:
200%
asset’s effective life
1 can be 366 in a leap year
Asset’s cost
days held1
×
×
365
100%
asset’s effective life
1 can be 366 in a leap year
$4,000
×
365
365
×
The claim for the first year is:
$4,000
100%
5
=
2 $800 per year for decline in value.
$4,000
5
= $8002
×
365
365
×
200%
5
=
$8,000
5
= $1,6003
3 $1,600 for decline in value in the first year.
The base value reduces each year by the decline in value of
the asset. This means the base value for the second year will
be $2,400; that is, $4,000 minus the $1,600 decline in value
in the first year.
The claim for the second year is:
$2,400
×
365
365
×
200%
5
=
$4,800
5
= $9604
4 $960 for decline in value in the second year.
In the third year, the base value is $1,440 and the claim is $576.
In the fourth year, the base value is $864 and the claim is $346.
This continues until the value reaches zero.
Once the value of the asset drops below $1,000, you can
transfer its remaining value to a low-value pool – see page 35.
By doing so, you can claim depreciation for the asset together
with any other low-value assets, rather than making separate
calculations for each – see ‘Use a low-value pool’ on page 35).
Use the Decline in value calculator to work out disposal
calculations and comparisons between the prime cost and
diminishing value methods.
To access the Decline in value calculator, visit our website
at www.ato.gov.au and select: Find a rate or calculator –
Business – Calculators – Income tax.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
33
04 CLAIMING COMMON DEDUCTIONS
WORKING OUT THE EFFECTIVE LIFE OF AN ASSET
The effective life of a depreciating asset is how long it can
be used to produce income, taking into account reasonable:
■ wear and tear under the circumstances you expect to use it in
■ levels of maintenance.
To work out the effective life of an asset, you must first
know how much the asset cost you and how many years
you expect it to last.
For most depreciating assets, you can work out what the
effective life will be or use the number of years we have already
worked out – examples are shown in the following table. These
are published every year and are available on our website.
For more information, refer to Taxation Ruling
TR 2010/2 Income tax: effective life of depreciating assets
(applicable from 1 July 2010).
TABLE: Depreciating assets – effective life examples
Depreciating asset
Effective life in years
Carpets
in commercial office buildings
■ in tenpin bowling centres
■
Cash registers
10
Chairs
10
Computers
■ generally
■ laptops
4
3
Curtains and drapes
6
Desks
20
Fire extinguishers
15
Floor coverings (linoleum and vinyl)
10
Hot water installations
15
Lawnmower
■ motor
■ self-propelled
6 23
Library (professional)
10
5
Motor vehicles, etc.
■ cars generally
■ hire and travellers’ cars
■ taxis
■ motorcycles and scooters
8
5
4
6 23
Photocopying machines
5
Power tools – hand-operated:
■ air
■ battery
■ electric
5
3
5
Refrigerators
10
Television receivers (not used for hire)
10
Tools (loose)
34
8
4
5
Vacuum cleaners (electric)
10
Washing machines
6 23
For residential property operators only:
■ electric heater
■ garbage units (compacting)
■ refrigerators
■ stoves
■ window blinds
15
6 23
12
12
10
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
04 CLAIMING COMMON DEDUCTIONS
USE A LOW-VALUE POOL
OTHER CAPITAL EXPENDITURE
You can work out the depreciation on certain low-cost and
low-value assets you hold by allocating them to a low-value
pool and depreciating them at a set annual rate.
You can claim a deduction under the uniform capital allowance
system for certain business related capital expenses you incur,
as long as you cannot claim a deduction for them under any
other part of tax law.
You start a low-value pool when you first choose to allocate
a low-cost or low-value asset to the pool.
Once you choose to create a low-value pool and you allocate
a low-cost asset to it, you must pool all other low-cost assets
you start to hold in that income year and in later income years.
Once you have allocated an asset to the pool, it must stay
there. You then calculate the depreciation of all the assets in
the low-value pool once a year at a rate of 37.5%. This rate is
equivalent to an effective life of four years.
If you purchase or acquire an asset and allocate it to the
pool during an income year, you calculate the deduction for
it at a rate of 18.75% – half the pool rate. You can use this
rate regardless of when you allocate the asset to the pool
during the year.
What is a low-cost asset?
A low-cost asset is a depreciating asset whose cost as at the
end of the year in which you start to use it or have it installed for
a taxable purpose is less than $1,000, excluding GST credits.
You may be able to claim a deduction for the following
expenses:
■ business related capital expenses
■ pre- and post-business related capital expenses, such
as the cost of setting up or ceasing a business.
You can claim a deduction of 20% of the expenses you incur
in the year you incur them and in each of the following four
years. You can also claim a deduction for certain capital
expenses directly connected with a project. These expenses
can be allocated to a pool and written off over the effective life
of the project using the diminishing value method. However,
you can only claim a deduction for your project expenses
using this method if both of the following apply:
■ you cannot claim a deduction for them using any other
method
■ the expenses are not part of the cost of a depreciating asset.
Examples of project amounts you can claim using this
method include feasibility studies or environmental
assessments for a project.
What is a low-value asset?
A low-value asset is a depreciating asset:
■ that is not a low-cost asset but has an opening adjustable
value of less than $1,000
■ for which you used the diminishing value method to work
out the decline in value for a previous income year.
■
■
For more information, refer to:
Guide to depreciating assets (NAT 1996)
Uniform capital allowance system: calculating the decline
in value of a depreciating asset (NAT 4814).
You cannot allocate the following assets to a low-value pool:
assets for which you previously calculated depreciation
deductions using the prime cost method
■ horticultural plants
■ assets for which you can claim deductions under the
simplified depreciation rules
■ assets costing $300 or less that you can claim an
immediate deduction for
■ certain assets you use in carrying on research and
development activities.
■
For more information, refer to Uniform capital allowance
system: low-value pools (NAT 4514).
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
35
04 CLAIMING COMMON DEDUCTIONS
SUPER CONTRIBUTIONS
SALARY AND WAGES
You can claim a deduction for super contributions you make
for your employees to a complying super fund or retirement
savings account. If you are self-employed, you may also be
able to claim a deduction in your individual tax return for your
personal contributions but, before you do so, you must give
a notice to your super fund and receive an acknowledgment.
If you operate your business as a company or trust, your
company or trust can claim a deduction for any salary and
wages it pays to you or any other employees.
■
■
■
For more information about super contributions:
visit our website at www.ato.gov.au/employersuper
refer to Super – what employers need to know (NAT 71038)
refer to Deduction for personal super contributions
(NAT 71121).
The amount you can claim for making super
contributions may be different if your income is personal
services income – see page 11.
36
If you operate your business as a partnership, you cannot
claim a deduction for any salary or wages paid to a partner
of the partnership.
If you operate your business as a sole trader, you cannot
claim a deduction for salary and wages you pay to yourself.
This means you cannot claim a deduction for any amount you
take from your business income for private purposes. However,
you can claim a deduction for salary and wages you pay to
other employees.
If your income includes personal services income, the amount
you can claim for payments you make to an associate may be
different – see page 11.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
04 CLAIMING COMMON DEDUCTIONS
TAX-RELATED EXPENSES
You can claim the expenses you incur in managing your
business taxes. These expenses include:
■ having a bookkeeper prepare your business records
■ having tax returns and activity statements prepared
and lodged
■ objecting or appealing against an assessment
■ attending an Australian Taxation Office (ATO) audit.
You may be able to claim the cost of obtaining tax advice
about the everyday running of your business as an ordinary
business expense deduction.
REPAIRS, MAINTENANCE AND
REPLACEMENT EXPENSES
You can claim a deduction for repairs to machinery, tools or
premises you use to produce business income, as long as the
expenses are not capital expenses. This includes the cost of:
■ painting
■ conditioning gutters
■ maintaining plumbing
■ repairing electrical appliances
■ mending leaks
■ replacing broken parts of fences or broken glass in windows
■ repairing machinery.
To repair something generally means to fix defects,
including renewing parts. It does not mean totally
reconstructing something. You do not have to own
the property or item that is repaired.
Repairs do not include:
■ substantial improvements to an item or property, such as
replacing a dilapidated ceiling with an entirely new and better
ceiling – you may be able to include this type of expense in
the cost base of the asset when working out capital gains
■ repairs you make to machinery, tools or property immediately
after you purchase or acquire them – this is because the price
you paid for an item reflects its condition, so the cost of any
such repairs are capital expenses.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
37
04 CLAIMING COMMON DEDUCTIONS
EXAMPLE: Deductions
Bill operates a toy shop that he runs as a sole trader.
The business expenses Bill incurs during the income year
for which he can claim a deduction are as follows:
Advertising
$
650
Rent
$ 10,000
Electricity
$
1,875
Insurance
$
2,900
Cost of trading stock
$ 48,000
Business phone use
$
720
Car expenses (business use)
$
1,500
Rental property expenses
$ 14,200
Total allowable deductions
$ 79,845
Bill can claim a deduction for all the expenses he incurred
to run his toy shop in the income year in which he incurs
them. This means he can claim total business deductions
of $65,645 and he can also claim the $14,200 expense
for his rental property.
Bill cannot claim the following expenses:
38
Parking fines
$
100
Home mortgage
$ 12,000
Domestic expenses
$ 20,000
Flour for bread making hobby
$
270
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
CREDITS AND OFFSETS
You may be able to reduce
the tax you have to pay using
credits or tax offsets.
05
05 CREDITS AND OFFSETS
25% ENTREPRENEURS’
TAX OFFSET (ETO)
FOREIGN INCOME
TAX OFFSET
You may be entitled to this offset if your business has an
aggregated turnover of less than $75,000. It allows you to
reduce the amount of income tax you are liable to pay on your
business income by up to 25%.
If you are an Australian resident and you earn income from
sources outside Australia, that income is subject to Australian
tax. You may be able to claim an offset for any foreign taxes
you paid on that income in another country.
For more information about the entrepreneurs’ tax offset:
visit our website at www.ato.gov.au/sbconcessions
refer to Concessions for small business entities –
overview (NAT 71874).
You can claim a foreign income tax offset if all of the following
apply:
■ you are an Australian resident
■ you earned foreign income that you are liable to pay tax
on in Australia
■ you paid foreign tax on the foreign income you earned.
■
■
The foreign income tax offset you claim in Australia cannot
be more than the amount of Australian tax you would have
been liable to pay had you earned that income in Australia.
If you were refunded any tax in the country where you paid
it, you cannot claim the foreign income tax offset.
You must keep written evidence of any foreign tax you have
paid to support your foreign income tax offset claims. Evidence
might include:
■ a notice of assessment from the foreign tax authority
and a receipt for the tax you paid
■ a statement from the foreign tax authority setting out the
particulars that would normally be recorded on a notice
of assessment and a receipt for the tax you paid
■ a certificate for tax withheld, issued by the person who
paid you the interest, dividend or any other income
subject to foreign tax.
40
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
05 CREDITS AND OFFSETS
OTHER TAX OFFSETS
There are several other tax offsets you can claim for things like:
■ maintaining a dependant
■ living in a remote area
■ heritage conservation work
■ super contributions you make on behalf of your spouse
■ net medical expenses you pay over the threshold amount.
For more information about what tax offsets are
available and whether you are eligible, visit our website
at www.ato.gov.au
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
41
05 CREDITS AND OFFSETS
42
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
LODGING AN ANNUAL
TAX RETURN
06
06 LODGING AN ANNUAL TAX RETURN
LODGING AS A SOLE TRADER,
PARTNERSHIP OR TRUST
SOLE TRADERS
ANNUAL ASSESSMENT
If you operate your business as a sole trader, you must lodge
an individual tax return to report your taxable income or loss.
This includes:
■ your assessable business income less the business
deductions you can claim
■ any other assessable income, such as salary and wages
(shown on a payment summary), dividends and rental
income, less any allowable deductions against this income.
After lodging your personal tax return, we will issue you with an
annual assessment showing either the amount of tax you have
to pay or your refund. The assessment takes into account any:
■ PAYG withheld amounts
■ PAYG instalments you have been credited with for the
income year
■ tax offsets you are entitled to claim.
You may also have to complete other forms and schedules –
see the table on page 46.
As a sole trader, partnership or trust, you only report
your taxable income and net income or loss. You do not
have to work out the amount of tax you are liable to pay –
we will do this for you.
For more information about lodging an individual tax
return that includes business income, refer to TaxPack
supplement (NAT 2677).
PARTNERSHIPS
If you operate your business as a partnership, the partnership
lodges a partnership tax return to show its net income.
This includes the partnership’s income less expenses and
deductions. The partnership may also have to complete
other forms and schedules – see the table on page 46.
As one of the partners, you must also report the following
on your individual tax return:
■ your share of any partnership net income or loss
■ any other assessable income, such as salary and wages
(shown on a payment summary), dividends and rental income.
TAX RATES
If you are an Australian resident, the rate at which you
pay personal income tax is shown in the following tables.
If you are a foreign resident, you must pay tax on all your
taxable income as you do not qualify for the tax-free
threshold of $6,000.
You may be eligible to claim a tax offset depending on:
■ whether you maintain a dependant
■ whether you live in a remote area
■ how much taxable income you earned.
The following rates do not include the Medicare levy of
1.5% or the Medicare levy surcharge of 1%, which can
apply in some circumstances.
TRUSTS
If you operate your business as a trust, the trust lodges a
trust tax return to show its net income or loss. This is the
trust’s income less expenses and deductions. The trust may
also have to complete other forms and schedules – see the
table on page 46.
As a trust beneficiary, you must also report the following on
your personal tax return:
■ any income you receive from the trust
■ any other assessable income, such as salary and wages
(shown on a payment summary), dividends and rental income.
44
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
06 LODGING AN ANNUAL TAX RETURN
LODGING AS A COMPANY
TABLE: Tax rates 2010–11 and 2011–12
Taxable income
Tax payable
$0–$6,000
Nil
$6,001–$37,000
15% of amount over $6,000
$37,001–$80,000
$4,650 plus 30% of amount
over $37,000
$80,001–$180,000
$17,550 plus 37% of amount
over $80,000
Over $180,000
$54,550 plus 45% of amount
over $180,000
If you operate your business as a company, you must lodge
a company tax return showing the company’s taxable income
and the amount of tax it is liable to pay on that income by:
■ reducing its assessable income by the deductions it can
claim to arrive at its taxable income
■ multiplying its taxable income by the company tax rate of
30% to work out the tax it is liable to pay.
The company’s income is separate from your personal
income.
MEDICARE LEVY
If you are an Australian resident and your taxable income is
above the ‘low income threshold’, it is likely you will have to pay
1.5% of your taxable income as a Medicare levy. You may also
have to pay the 1% Medicare levy surcharge if you do not have
a complying private health insurance policy and your taxable
income is more than the specified threshold. For the 2010 –11
income year the thresholds are:
■ $77,000 – if you are single with no dependent children
■ $154,000 – if you have a spouse or dependent child.
This amount increases by $1,500 for each dependent child
after the first.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
45
06 LODGING AN ANNUAL TAX RETURN
WORKING OUT WHICH
FORM TO REPORT ON
The form you use to report your taxable income and claim your
deductions depends on the way your operate your business.
Business
structure/
taxpayer
Reporting
form
Sole trader
■
■
■
Individual tax return (NAT 1371)
Tax return for individuals (supplementary section) (NAT 2679)
Business and professional items schedule (NAT 2816)
What information
to report
When to report –
this may be a later
date if you lodge
through a tax agent
Your business
income and other
assessable income
By 31 October
Partnership income
By 31 October
You may also have to complete a Capital allowances
schedule (NAT 4089)
Partnership
■
Partnership tax return (NAT 0659)
The partnership may also have to complete:
■ Personal services income schedule (NAT 3421)
■ Capital allowances schedule (NAT 4089)
■ Schedule 25A (NAT 1125)
Partner
■
■
Individual tax return (NAT 1371)
Tax return for individuals (supplementary section) (NAT 2679)
You may also have to complete a Business and professional
items schedule (NAT 2816)
Trust
■
Trust tax return (NAT 0660)
Your share of
the partnership’s
income and other
assessable income
Trust income
By 31 October
The trust may also have to complete:
■ Capital allowances schedule (NAT 4089)
■ Losses schedule (NAT 3425)
■ Capital gains tax (CGT) schedule (NAT 3423)
■ Personal services income schedule (NAT 3421)
■ Schedule 25A (NAT 1125)
Beneficiary
Company
■
Individual tax return (NAT 1371)
Tax return for individuals (supplementary section) (NAT 2679)
Your share of trust’s
income and other
assessable income
■
Company tax return (NAT 0656)
Company income
■
The company may also have to complete:
■ Capital allowances schedule (NAT 4089)
■ Losses schedule (NAT 3425)
■ Capital gains tax schedule (NAT 3423)
■ Personal services income schedule (NAT 3421)
■ Schedule 25A (NAT 1125)
■ Research and development tax concession schedule
(NAT 6708)
You can lodge the following together online using e-tax:
■ Individual tax return (NAT 1371)
■ Tax return for individuals (supplementary section) (NAT 2679)
■ Business and professional items schedule (NAT 2816).
46
By the date
we advised the
company to lodge
its return. Where
no date has been
advised, by
31 October.
To avoid penalties, lodge your returns with all the
required schedules by the due date.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
06 LODGING AN ANNUAL TAX RETURN
PAYG INSTALMENTS
If you operate your business as a sole trader or company,
it is likely you pay ‘pay as you go’ (PAYG) instalments
throughout the income year as you earn your income.
We credit these instalments against the total amount
of income tax you are liable to pay for the income year.
If you operate your business as a partnership or trust, you
do not have to pay PAYG instalments. However, you may
have to pay PAYG instalments on your individual share of your
partnership’s income or any income you receive from your trust.
Most small businesses pay quarterly PAYG instalments for the
four quarters ending on the last day of September, December,
March and June. However, some can pay a single annual
instalment.
If you are a primary producer or a special professional,
you can pay only two PAYG instalments a year; that is:
■ 75% of the total tax you are liable to pay for the income
year after the third quarter
■ the remaining 25% after the fourth quarter.
You must still lodge a tax return, even if you report your
PAYG instalments and any other obligations on an activity
statement each quarter.
EXAMPLE: Taxable income
Julius is a sole trader. He reports his assessable
business income of $110,450 and claims deductions
against that income of $65,645. He also reports other
assessable income of $13,980 (rent and dividends)
and claims deductions against that income of $14,200.
In total, Julius reports a total assessable income of
$124,430 and claims total deductions of $79,845. This
leaves him with a personal taxable income of $44,585.
Julius is not entitled to any tax offsets or rebates.
Once Julius lodges his annual tax return, we work out his
annual assessment and credit him for the PAYG instalments
he has paid during the income year. We then issue him with
an assessment notice to pay any outstanding amount.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
47
SUPPORT FOR
SMALL BUSINESS
ONLINE SERVICES
Business Entry Point at business.gov.au
Going online is a fast and convenient way to do business
with us. We offer a range of services to help you manage
your business tax affairs online.
This website offers convenient access to government information,
transactions and services. It is a whole-of-government service
providing essential information on planning, starting and running
your business.
Our website at www.ato.gov.au/businesses
Find out more about electronic record keeping software
and tax essentials for new and existing businesses.
PAYMENT METHODS
We offer a range of fast, convenient and secure online
calculators and tools to make it easier for you to comply
with your business tax obligations.
A range of payment options are available, including:
■ BPAY®
■ credit card
■ direct credit
■ direct debit
■ mail.
Business Portal at www.bp.ato.gov.au
Your payment slip will detail the payment options available
and the information you will need.
Online resources at www.ato.gov.au/onlineservices
The Business Portal can help reduce the time and paperwork
associated with your tax transactions. To apply for access,
visit www.ato.gov.au/onlineservices
You can use the Business Portal to:
■ lodge an activity statement and receive instant
confirmation that you’ve been successful
■ revise your activity statements online
■ view details of activity statements you have lodged
■ view your activity statements online
■ view your business registration details
■ update certain business registration details
(address, contact details)
■ request a refund for accounts in credit
■ request a transfer of amounts across your different
business accounts
■ send a secure message to us and receive a secure
response from us on selected topics.
For more information about making payments,
visit www.ato.gov.au/howtopay
A card payment fee applies to transactions made using
the credit card payment service.
FACE-TO-FACE
Business seminars and workshops
We run small business seminars and workshops on a range
of topics, including GST, PAYG, activity statements and record
keeping. Visit www.ato.gov.au or phone us on 1300 661 104
to find out whether there is a seminar or workshop near you or
to make a booking.
Australian Business Register at www.abr.gov.au
You can use this register to:
■ apply for a business tax file number
(except for sole traders)
■ register for or cancel an Australian business number (ABN)
■ register for goods and services tax (GST) and
pay as you go (PAYG) withholding
■ access your ABN details and update them as required
■ check the details of other businesses, such as their
ABN or GST registration
■ register for fuel tax credits.
Business assistance visits – no strings attached
If you would like personalised, specialist assistance or if you
are new to business, you can organise a business assistance
visit by phoning us on 13 28 66. Visits are confidential and
conducted at your place of business or preferred location.
® Registered to BPAY Pty Ltd ABN 69 079 137 518
48
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
SUPPORT FOR SMALL BUSINESS
PHONE
Individuals – 13 28 61
You can obtain more information by phoning us on one
of the following numbers.
Phone us from Monday to Friday, between 8.00am and 6.00pm,
for information about:
■ personal tax enquiries
■ TaxPack
■ e-tax
■ family tax benefit and baby bonus
■ HELP
■ your notice of assessment
■ your tax file number
Business – 13 28 66
Phone us from Monday to Friday, between 8.00am and 6.00pm,
for information about:
■ ABN and GST registration and change of details
■ activity statements and PAYG
■ fringe benefits tax, income tax, capital gains tax
■ fuel tax credits.
Account management – 13 11 42
Phone us from Monday to Friday, between 8.00am and 6.00pm,
for information about:
■ account queries, including payments and refunds
■ outstanding debts or lodgments.
ATO Business Direct – 13 72 26
This is a self-help service available at any time. Make
sure you have your ABN and tax file number (TFN) handy
when calling to:
■ verify an ABN
■ lodge a nil activity statement
■ arrange to pay a debt
■ find out about your refund
■ order PAYG withholding forms
■ register for fuel tax credits.
If you do not speak English well and need help from the ATO,
phone the Translating and Interpreting Service on 13 14 50.
If you are deaf, or have a hearing or speech impairment,
phone the ATO through the National Relay Service (NRS)
on the numbers listed below:
■ TTY users, phone 13 36 77 and ask for the ATO number
you need
■ Speak and Listen (speech-to-speech relay) users, phone
1300 555 727 and ask for the ATO number you need
■ internet relay users, connect to the NRS on
www.relayservice.com.au and ask for the ATO number
you need.
Super – 13 10 20
Phone us from Monday to Friday, between 8.00am and 6.00pm,
for information about:
■ super co-contributions
■ lost super
■ unpaid super
■ super guarantee
■ self-managed super funds, including trustee responsibilities
■ taxing of super, including employer termination payments,
pensions and annuities.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
49
DEFINITIONS
Accruals basis of accounting
If you account on an accruals basis, you include all income you
have received and any income you have issued an invoice for in
the income year. You include expenses once you have received
an invoice or paid for any part of them, whichever occurs first.
Assessable income
Income that is subject to tax is called assessable income.
as computers, electric tools, furniture and motor vehicles.
Fringe benefit
Basically, a fringe benefit is a benefit provided to an employee
(or their associate, such as a family member) because that
person is an employee. Benefits can be provided by an
employer, an associate of the employer, or by a third party
under an arrangement with the employer. An employee can
be a current, future or former employee.
Capital expenses
Capital expenses are expenses you incur to establish, replace,
enlarge or improve the business structure, as distinct
from working or operating expenses. Some capital expenses
may be deductible over a period of time, while some may be
deductible outright under specific provisions of the tax law.
Fringe benefits tax
Fringe benefits tax (FBT) is a tax paid on certain benefits
employers provided to their employees or their employees’
associates (typically family members). FBT is separate from
income tax and is based on the taxable value of the various
fringe benefits provided.
Capital gains tax concessions
There are four capital gains tax concessions that you may
be eligible to use to reduce capital gains you make when
you dispose of:
■ business assets
■ your interest in an entity that carries on the business.
Low-cost asset
Cash basis of accounting
A low-value asset is a depreciating asset that is not a low-cost
asset but has an opening adjustable value of less than $1,000,
and for which you used the diminishing value method to work
out the decline in value for a previous income year.
If you use a cash basis of accounting you include in your
income only amounts received in that income year. You can
generally claim a deduction for expenses in the income year
you incurred them in.
Company
For tax purposes, a company is an incorporated or
unincorporated body or association, but doesn’t include
a partnership or a non-entity joint venture. An incorporated
company is a distinct legal entity and pays tax on the
company’s income.
A low-cost asset is a depreciating asset whose cost as at the
end of the year in which you start to use it or have it installed for
a taxable purpose is less than $1,000 (excluding GST credits).
Low-value asset
Low-value pool
A low-value pooling arrangement for depreciating assets costing
less than $1,000 or having an undeducted cost of less
than $1,000. You can choose to allocate such assets to a lowvalue pool, which is depreciated at statutory rates.
Occupancy expenses
Decline in value is the new term for depreciation.
Occupancy expenses are expenses associated with
occupying your home, namely, rent, mortgage interest,
rates, land taxes and house insurance premiums.
Depreciating asset
Partnership
Decline in value
A depreciating asset is an asset that has a limited effective
life and can reasonably be expected to decline in value over
the time you use it. Depreciating assets include such items
50
For tax purposes, a partnership is an association of people
or entities that carry on business as partners or receive income
jointly. A partnership is not a separate legal entity and doesn’t
pay tax on the income the partnership earned.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
DEFINITIONS
PAYG instalments
Tax offsets
PAYG instalments is a system for paying instalments towards
your expected tax liability for business and investment income
for the income year. Instalments may be paid in four or two
instalments during the year or annually, at the end of the income
year, subject to you meeting the respective eligibility criteria.
Tax offsets reduce your tax payable but are not deductions.
As a general rule, tax offsets you are entitled to cannot exceed
the amount of tax you must otherwise pay and therefore will
not give you a refund.
PAYG withholding
PAYG withholding is the system whereby payers withhold
amounts from payments to payees and send the withheld
amounts to us.
Personal services business
You are considered to be conducting a personal services
business if you earn personal services income as an individual
and meet certain conditions.
If you earn your personal services income through an
entity (such as a company, partnership or trust), that entity
is considered to be conducting a personal services business
if it meets certain conditions.
Tax offsets generally do not reduce the Medicare levy you
have to pay. However, there are special tax offsets known
as refundable tax offsets that can be used to pay your
Medicare levy and you can even get a refund from them.
Taxable income
Your taxable income is your assessable income less
the deductions you can claim against that income.
Taxable sale
This term is widely defined to include most sales (goods,
services and anything else) you make in your business.
A sale is not a taxable sale if it is GST-free, input taxed or
otherwise non-taxable.
Trading stock
Revenue expenses
Working or operating expenses that relate to the everyday
running of your business (for example, office stationery, rent of
office premises, salary and wages) are called revenue expenses.
You can generally claim a deduction for these expenses in the
income year in which you incur them.
Trading stock is anything you produce, manufacture,
acquire or purchase for manufacture, sale or exchange by
your business. We consider livestock to be trading stock.
We consider you to have trading stock on hand if you
have the power to dispose of that stock (refer to Taxation Ruling
No. IT 2670 Income tax: meaning of ‘trading stock on hand’).
Running expenses
Trust
Running expenses include phone rental and business calls,
internet fees, decline in value of office furniture and equipment,
and any additional heating, cooling, lighting and cleaning
expenses.
A trust is an obligation on a person to hold property for the
benefit of others, who are known as ‘beneficiaries’. A trust
is not a separate legal entity.
Sole trader
A sole trader is an individual trading alone. The income of
the business is treated as the individual’s personal income.
Sole traders pay the same tax rate as individual taxpayers.
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
Uniform capital allowance system
From 1 July 2001 there are new rules for working out
deductions for your depreciating assets, such as plant
and equipment. These new rules are part of the uniform
capital allowance system.
51
HOW TO ACCESS
OUR PUBLICATIONS
OBTAIN OUR PUBLICATIONS ONLINE
Record keeping evaluation tool
To access one of our publications online (including forms)
quickly and easily, search using its name or NAT number.
This evaluation tool helps you understand what records you
need to keep and evaluate whether your record keeping
practices are adequate. It provides a list of records tailored
specifically for your business, a report on how well your
business is keeping its records, and suggested improvements
where appropriate. You can use it for an existing business or if
you are thinking about starting a business
To order copies of our publications online, visit our website
at www.ato.gov.au/onlineordering
ORDER OUR PUBLICATIONS BY PHONE
Automated ordering service
Phone our automated publication ordering service any time on:
■ 13 72 26 if you have an ABN
■ 13 28 65 if you don’t yet have an ABN.
You must know the name of the publication you want to order
to use this service.
Operator assisted ordering service
Phone our operator-assisted publications ordering service
on 1300 720 092 between 8.00am and 6.00pm weekdays
This service is not available on weekends or public holidays.
OTHER USEFUL PRODUCTS
Business Portal
A secure website you can use to:
■ lodge activity statements online
■ revise previous activity statements
■ check your tax accounts
■ view and update most of your business registration details
■ send us secure messages.
E-tax
Use e-tax to complete your tax return for individuals
electronically.
Product register
This register is a reliable source of information about
commercially available tax-related software. The software
listed on the register meets our requirements and will help
you meet your tax obligations.
You can access the register by visiting our website at
www.ato.gov.au/softwaredevelopers
Electronic calculators
We have a range of electronic calculators such as the:
■ tax withheld calculator
■ fringe benefits tax (FBT)
■ car calculator
■ super guarantee contributions calculator
■ home office expenses calculator
■ fuel tax credits calculator.
You may be eligible for a two-week deferral if you use the
Business Portal to lodge and pay your activity statement
online, subject to terms and conditions.
You will need an ABN, internet access, minimum computer
requirements, and a digital certificate to identify yourself.
To register for a digital certificate and to access the Business
Portal, visit our website at www.ato.gov.au/onlineservices
52
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
INDEX
A
ABN, 48, 49, 52
cancelling, 48
checking other businesses, 48, 49
registering for, 48
accident or disability insurance, 19
account management infoline, 49
accounting firms, 11
accounting methods, assessable income, 10
accruals basis accounting, 10, 18
definition of, 50
activity statements, 18, 37, 48
advance payments, expenses, 7, 18
advertising, 19, 24, 38
airline bookings, 24
allowable deductions, 18–22
example, shop (sole trader), 38
expenses claimed in income year incurred, 19
expenses claimed over time, 20
expenses paid in advance, 18
part-year use of asset, 18
special, 21
allowances
government, 7
paid, 19
uniform capital, 31, 35
annuities, 49
apprenticeship incentive program, 6
aquaculture, 14
artists, 15
assessable income, 6–16, 18, 19, 20, 44, 45, 46, 47, 51
accounting methods, 10
capital gains and losses, 12–13
contractors and consultants, 11
definition of, 50
example, sole trader, 16
foreign income 16
fringe benefits, 25
inclusions in, 6
losses and, 21, 22
primary producers, 14
small business concessions, 7
special professionals, 15
tax concessions, 21
trading stock and, 8–9
see also taxable income
assessments, annual, 16, 44, 47, 49
appealing against, 37
foreign, 40
asset register, 4, 13
assets, 22
capital gains tax, 12
capital improvement to, 13, 37
date of purchase and disposal, 13
depreciating, 12, 18, 20, 22, 25, 31–2
effective life of, 20, 33, 34, 35
improvements to, 13
income producing, 11, 19
low-cost, 35, 50
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
low-value, 33, 35, 50
maximum net value threshold, 12
new, 32
purchases, 13, 31, 32
private use of, 18, 20
replacement, 13, 14
sale/disposal of, 6, 12, 13, 14, 50
assistance, ATO, 48–9
associates
fringe benefit provided by, 50
fringe benefit provided to, 50
wages or super payments to, 11, 36
ATO Business Direct, 49
audits, ATO, 37
AusIndustry, 21
Australian Business Register, 48
Australian Taxation Office (ATO)
assistance, 48–9
business assistance visits, 49
Business Portal, 48, 52
online resources, 48
publications, 4, 7, 9, 11, 13, 14, 15, 16, 18, 21, 22, 25, 26, 32, 35,
40, 44, 52
reporting forms, 46
seminars and workshops, 48
authors, 15
averaging income, 14, 15
averaging tax offset, 14
awards and prizes, business, 6
B
baby bonus, 49
bad debts, 19
recovered, 6
bakery, 9
bank accounts
deposit books, 4
separate business, 10
statements, 4
banks
fees and charges, 19
interest received, 16
internet banking, 48
barter transactions, 6
beneficiaries of trusts, 22, 44, 51
reporting forms, 46
bequests received, 7
betting/gambling wins, 7
bonuses paid, 19
bookkeepers, 4, 37
bovine tuberculosis, 14
bread making hobby, 38
building(s), 22
fixtures and fittings, depreciation, 34
home office, 25–6
improvements to, 13
sale of, 6
see also business premises; property
burglary insurance premium, 19
53
INDEX
business
assistance visits, ATO, 48
ceasing, 35
registration, 48
starting, 35
structure, expenses, 50
travel, 19, 24
business, contact us, 49
Business Portal, 48, 52
business premises
land tax, 19
lease of, 6, 19
personal services income test, 11
rates, 19
rent of, 19
repairs and maintenance, 37
sale of, 12
water rates, 19
see also property
business, online government entry point, 48
business purpose vehicles, 27
butchery, 9
C
cafes, 9
calculators, electronic, ATO, 52
decline in value calculator, 34
record keeping evaluation tool, 4
work related car expenses calculator, 27
capital allowance rules, uniform, 33–4
capital allowances, 31
capital expenditure, 31–5
capital expenses, 20, 37
definition of, 50
capital gains tax, 4, 12–13
events, 12
exemptions, 12
15-year exemption, 12
50% discount, 12
records, 13
rollover, 13
capital gains tax concessions, 7, 12–13, 50
definition of, 50
capital losses, 12, 13
car parking fees, 19
carpet and curtains, 20, 34
cars
see motor vehicles
cash basis accounting, 10, 18
cash registers, 34
caterers, 9
cents-per-kilometre method, motor vehicle expenses, 28
chairs, 26, 34
see also furniture
child support payments received, 7
childcare fees, 20
cleaning expenses, 25, 51
clothes, family, 20
clothing, corporate or protective, 19
54
commission income, 6
Commissioner’s discretion, 22
commissions paid, 13
companies
capital gains, 12
definition of, 50
fringe benefits tax, 24, 27
losses, 22
motor vehicle expenses, 27
non-commercial loss rules, 22
PAYG instalments, 47
personal services income, 11, 51
reporting forms, 46
research and development, 21
salary and wages, 36
sale of shares, 12
separate bank account, 10
shareholders, 22
tax rate, 45
tax return lodgment, 45
compensation, 6
composers, 15
compulsory records, 4
computer programmers, 15
computers, 20, 50
tax-related software, 52
conditioning gutters, 37
consultants, 11
contact us, 49
contractors and consultants, 11
contracts
asset purchases, 13
asset sales, 12
cancellation of, 6
convenience store, 9
cooling, 25, 26, 51
copyrights, 22
creditors, 4
curtains, 20
customs and excise duties, 8
D
debtors, 4
decline in value, 50
calculator, 34
definition of, 50
see also depreciation; depreciating assets
deferred
activity statement, 52
capital gains, 13
losses, 22
profit, 14
definitions, 50–1
delicatessens, 9
delivery charges, 8
dependants, 41, 44
depreciating assets, 18, 20, 22, 25, 26, 31
capital gains tax and, 12
decline in value calculator, 34
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
INDEX
definition of, 50
diminishing value method, 33
effective life of, 20, 31, 33, 34, 35, 50
furniture, 25, 26, 34, 51
general small business pool, 31, 32
long life small business pool, 31
low-cost, 50
low-value, 50
low-value pool, 50
motor vehicles, 28, 29
plant and equipment, 31–5
pooled, 31, 32, 35
prime cost method, 33
sale of, 6, 12
small business and general business tax break, 32
depreciation (decline in value)
home office, 26
simpler rules concession, 7, 31–2, 35
desks, 26, 34
see also furniture
diary, 24, 25
diminishing value method, depreciation, 33, 34, 35, 50
direct credit payments to ATO, 48
disability insurance, 19
disposals
business assets, 6, 12, 13, 14, 50
forced, livestock, 14
dividends
business, received, 6, 22, 40
foreign, 40
franked, 16, 22
personal, received, 10, 16, 44, 47
domestic expenses, 20, 38
donations, 21
drawings, 36
drought, 14
E
early payment of tax, 6
education expenses, 19
effective life of an asset, 20, 31, 33, 35, 50
calculating, 34
electrical
appliances, repairing, 37
tools, 20, 34, 50
electricity, 19, 21, 38
electronic calculators, ATO, 52
electronic records, 4, 52
employees
advertising for, 24
fringe benefit provided to, 25, 50
records, 4
relocation expenses, 19
salary and wages, 36, 51
super contributions for, 36
employment test, PSI, 11
entertainer, professional, 11
entrepreneurs’ tax offset (ETO), 40
eligibility criteria, 40
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
environmental assessments, 35
equipment, 20
depreciation, 25, 26, 31–5, 51
sale of, 6
essential records, 4
estimating
home office running expenses, 26
income, 21
motor vehicle expenses, 29
personal use of stock, 9
stock on hand, 8
turnover, 12
e-tax, 46, 49, 52
evaluation tool, record keeping, 4, 52
examples
cents-per-kilometre motor vehicle expenses, 28
deductions, shop (sole trader), 38
depreciating assets, effective life, 34
logbook method, motor vehicle expenses, 29
one-third of actual expenses, motor vehicle expenses, 29
simplified depreciation rules, 32
taxable income, 47
12% of original value, motor vehicle expenses, 28
working out assessable income, 16
working out motor vehicle expenses, 28, 29, 30
exchange rate and foreign income, 16
exempt income, 7
expenses, running, 51
see also allowable deductions
F
family, 20, 50
family tax benefit, 7, 49
farm management deposits scheme, 14, 21
farming, 14
see also primary producers
feasibility studies, 35
fees
childcare, 20
parking, 19
received for services, 6
union/professional association, 19
fences, 20
replacing broken, 37
fire, 14
extinguishers, 34
insurance premiums, 19
first year of business, 8, 20, 31
fishing, 14
flood, 14
floor coverings, 34
food
bread making hobby, 38
takeaway, 9
trading stock, 9
foreign income, 6, 16
records, 40
refunds of foreign tax, 40
tax offset, 16, 40
foreign losses, 22
55
INDEX
forms, ATO reporting, 46
four-wheel drive vehicles, 27
franked dividends, 16, 22
franking credits, 6
freight, 8
fringe benefits, 19
associates and, 50
car expenses calculator, 27
definition of, 50
paid/partly paid by employee, 25
total reportable, 21
fringe benefits tax, 19, 25, 27, 49
definition of, 50
travel expenses, 24
fruiterers, 9
fuel tax credits, 6
registering for, 48
furniture, 20, 50
office, depreciation, 25, 26, 34, 51
future
income earning, 19
years, carry forward losses, 22
G
general small business pool, 31, 32
gifts, 21
received, 7
goodwill, 12
government pensions, allowances and payments received, 7
grants, 6
greengrocers, 9
GST
collected, 7
credits, 18
registering for, 48
GST-free sales, 51
gutters, conditioning, 37
H
health insurance, 45
heating, 51, 25, 26
heritage conservation work, 41
hire purchase, 20, 27
hobbies, 7, 16, 20, 38
home office, 19, 25–6
capital gains and, 12
effective life of assets, 34
fixed rate for running expenses, 26
occupancy and running expenses, 25, 26, 50
home-to-work travel, 27
horticultural plants, 21, 35
hot water installations, 34
house insurance, 50
I
incapacitated, permanently, 12
incentive payments, 6
income averaging, 14, 15
56
income tax, 19
date payable, 14
offsets, 40–1
records, 4
see also assessable income; taxable income; tax returns
individual, contact us, 49
Industry Research and Development (IR&D) Board, 21
input taxed sales, 51
insurance, 8
business, premiums, 19, 38
health, 45
house, 25, 50
motor vehicle, 19, 29
personal income protection, 7
recovery, 14
know-how, payments for selling, 6
intellectual property rights, 22
interest
paid, 19, 29
received, 6, 10, 16
internet service provider fees, 19, 25, 51
inventors, 15
investment(s)
income, 6, 51
losses, 21
personal, 10
invoices, 4
issued, 10, 50
received, 10, 18
J
joint venture, non-entity, 50
L
labour hire contract, 11
land, 20, 22
improvements to, 20
leased, 21, 22
sale of, 6
land taxes, 11, 19, 25, 50
landcare operations, 21
lawnmowers, 34
lease payments, 6, 29
leases
assets, 22
business premises, 6
motor vehicles, 6, 27, 29
legal expenses, 13, 19
library, professional, 34
licensed restaurants/cafes, 9
lighting, 25, 26
livestock, 8, 9, 51
forced disposal of, 14
loans received, 7, 29
lodgment dates, ATO, 46
lodgment, annual tax return, 44–5
logbook
example, claim calculation, 29
method, calculating motor vehicle expenses, 27, 29
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
INDEX
period of validity, 30
preprinted, 30
sample blank form, 30
long life small business pool, 31
loss of earnings payment, 6
loss of profits, insurance premium, 19
loss, business that runs at a, 14, 21–2
losses
capital, 12, 13
companies, 22
carrying forward, 22
foreign, 22
from a previous year, 12, 19, 21, 22
investment, 21
livestock, 14
non-commercial loss rules, 14, 21–2
offsetting against other income, 21
partnerships, 22, 44
rental property, 21
sole traders, 21–2, 44
trading stock, 6
trusts, 22, 44
lottery winnings, 7, 16
low income threshold, 45
low-cost asset
definition of, 50
low-value asset
definition of, 50
low-value pool, 35
definition of, 50
luxury car lease expenses, 19
luxury car tax, 28
M
machinery repairs, 37
maintenance and repairs, 37
maintenance payments received, 7
medical expenses, net, 41
Medicare levy, 44, 45
milk bar, 9
mixed business shop, 9
mortgage, 38, 50
discharge of, 19
interest paid, 11, 25
motor vehicle expenses, 19, 20, 27–30, 38, 50
capital gains exemption, 12
car expenses calculator, 27
cents-per-kilometre method, 27, 28
effective life of, 34
insurance premiums, 19
leased, 27, 28, 29
logbook method, 27, 29
methods of claiming, 27–30
odometer records, 27
one-third of actual expenses method, 27, 29
records, 27, 28
sample logbook, 30
travel between home and business, 27
12% of original value method, 27, 28
motorcycles, 12, 34
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
N
net capital gains, 6, 12, 21
net capital losses, 12
net medical expenses, 41
newspapers and magazines, 19
non-allowable deductions, 20
non-assessable income, 7, 16
non-business use, 18
non-cash basis accounting, 10
non-commercial business loss rules, 14, 21–2
income requirement, 21
O
occupancy expenses, 25
definition of, 50
odometer records, 27, 30
office furniture
see furniture
office premises
see business premises
offsets
see tax offsets
one-third of actual expenses method, motor vehicle expenses, 27, 29
example calculation, 29
online payments to ATO, 48
online services, ATO, 48
decline in value calculator, 34
form lodgment, 46
record keeping evaluation tool, 4, 52
work related car expenses calculator, 27
online services, government, 48
operating expenses, 19
outdoor workers, 19
overseas income, 6, 16
P
painting, 37
panel vans, 27
paper records, 4
parking
fees, 19, 38
fines, 20
partners, 12, 21, 36
individual tax return lodgment, 44
non-commercial loss rules, 21–2
reporting forms, 46
partnerships
capital gains tax, 12
definition of, 50
motor vehicle expenses, 27
losses, 22, 44
PAYG, 47
personal services income, 11, 51
reporting forms, 46
salary and wages, 36
separate bank account, 50
tax return lodgment, 44
part-year
business operations, 21
use of asset, 18, 20
57
INDEX
patents, 6, 22
payees, 51
payers, 51
PAYG instalments, 14, 44, 47
date due, 47
definition of, 51
PAYG withholding, 11, 44
definition of, 51
instalments, 47, 51
registering for, 48
payment summaries, 44
penalties, 46
pensions, 49
government, 7
performing artists, 15
personal income protection insurance, 7
personal income, separating from business, 10
personal services business, definition of, 51
personal services income (PSI), 11, 18, 51
super contributions and, 11, 36
personal use
see private use
phone expenses, 19, 25, 26, 31, 38, 51
phone line connections, 21
phone numbers, ATO, 49
photocopying machines, 34
plant and equipment, 20
depreciation, 25, 26, 31–5, 51
plumbing, 37
power tools, hand operated, 34
premises, business
see business premises
prepayments, 7, 18
primary producers, 14–15, 21
definition of, 14
early shearing, 14
income averaging, 14
livestock for personal use, 9
livestock, forced disposal of, 14
losses, 14
PAYG, 47
tax concessions, 21
wool clips, 14
prime cost method, depreciation, 33, 35
private use
business asset, 18, 20
goods taken from trading stock, 6
motor vehicles, 27, 28, 29, 30
travel expenses, 24
prizes, 6
unrelated to business, 7
product register, ATO, 52
production associates, 15
professional
indemnity insurance, 19
publications, 19
qualification expenses, 19
professional arts business, 21
professional practitioner, sole practice, 11
58
professionals, special, 15
profit, 6, 21, 22
profitability, 14
property
improvements to, 37
income producing, 19
granting right to use, 11
owned by the business, 6
real, 22
rental, 6, 16, 21, 38
residential, 34
right to use, 11
public relations costs, 19, 24
public risk insurance, 19
publications, ATO, 4, 7, 9, 11, 13, 14, 15, 16, 18, 21, 22, 25, 26, 32,
35, 40, 44, 52
ordering, 52
purchases, 4, 8, 12, 13, 31, 32, 35, 37, 51
R
rates
paid, 11, 19, 25, 50
refund of, 6
real property, 22
record keeping evaluation tool, 4, 52
records, 4
electronic record keeping tool, 4
essential, 4
income tax, 4
language of, 4
retention period, 4
recovered bad debts, 6
refrigerators, 34
refunds, 6
foreign, 40
requesting for accounts in credit, 48
tax, 44, 49, 51
relatives, 20, 50
relocating employees, 19
remote area offset, 41, 44
rent paid, 11
business premises, 19, 38
home office, 25, 50
rent received, 6, 44, 47
rental property
expenses, 38
income, 6, 16, 44, 47
losses, 21
repair and maintenance, 19
repairs and maintenance, 19, 37
replacement expenses, 14, 19, 37
research and development (R&D), 21, 35
residence, main, 12
see also home office
restaurants, 9
retention period for records, 13, 24
retirement savings account, 12, 36
see also superannuation fund
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
INDEX
retirement
CGT 15-year exemption, 12
CGT tax concession, 12
revenue expenses, 19
definition of, 51
royalties, 6
running expenses, definition of, 51
S
salary and wages, 10, 19, 21, 36, 36, 44
paid to associates, 11
paid to employees, 36, 51
sales, 6, 13, 14, 51
hobby, 16
taxable, 51
self-help service, ATO, 49
seminars and workshops, ATO, 48
services, provision of, 6
shares, company sale of, 12
see also dividends
shearing, early, 14
shop (sole trader), 38
simplified depreciation rules, 7, 31, 35
simpler trading stock rules, 7
software, tax-related, 52
sole traders
capital gains tax, 12
definition of, 51
example assessable income, 16
example business expense deductions, 38
individuals infoline, 49
losses, 21–2, 44
motor vehicle expenses, 27
non-commercial loss rules, 21–2
PAYG, 47
personal services income, 11
reporting forms, 46
salary and wages, 36
separate bank account, 10
tax return lodgment, 44–5
special deductions, 21
special professionals, 15, 47
sponsorship, 19
sportsperson, professional, 11, 15
spouse
dependent, 45
super contributions, 41
station wagons, 27
stationery, 19, 51
stocktake, annual, 8
subscription costs, 19
subsidies, 6
sun protection expenses, 19
superannuation
calculator, contribution, 52
co-contributions, 49
contact us, 49
contributions on behalf of spouse, 41
contributions, employees, 36
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
contributions, personal, 21, 36
contributions, reportable, 21
lost, 49
paid for associates, 11
taxation, 49
superannuation funds
complying, 12, 36
self-managed, 49
superannuation guarantee, 19, 49
superannuation infoline, 49
support for small business, 48–9
T
takeaway food shop, 9
tax accountant fees, 19
tax advice/advisers, 19, 37
tax assessment annual, 44, 47
appealing against, 37
tax break, 21
tax concessions
primary producers, 21
research and development (R&D), 21
small business and general business tax break, 21, 32
tax file number
applying for, 48
declaration, employee, 4
tax invoices
see invoices
tax liability, 51
tax loss, 21–2
Tax Office
see Australian Taxation Office (ATO)
tax offsets, 40–1, 44
averaging, 14
definition of, 51
foreign income, 16
Medicare Levy and, 51
refundable, 51
research and development, 21
tax payable, 51
averaging out, 14
late payment, 19
tax rates, 44–5
tax refunds, 40, 49, 51
foreign, 40
tax return, annual, 37, 44–7
late lodgment, 19
lodging as a company, 45, 46
lodging as a sole trader, partnership or trust, 44, 46
which form to use, 46
taxable income, 16, 44, 45
accounting methods, 10
definition of, 51
example, sole trader, 47
non-commercial loss rules and, 21
special professionals, 15
see also assessable income
taxable sale, definition of, 51
Taxation Rulings, 8, 14, 15, 18, 22, 26, 34, 51, 52
tax-free threshold, 44, 45
59
INDEX
taxis, 34
TaxPack, 28, 44, 49
tax-related expenses, 37
technical or professional qualification expenses, 19
television receivers, 34
tender costs, 19
termination payments, 49
third party provision of fringe benefit, 50
tools, 12, 34
repairs, 37
trade associations, 19
trademarks, 22
trading stock, 8, 20, 22, 38
accounting for changes in, 8
capital gains exemption, 12
costs of, 19
definition of, 8, 51
delivery of, 19
estimating private use of, 9
estimating value on hand, 8
losses, 6
methods of valuing, 8
private use of, 6, 9
sales, 24
simpler rules, concession, 7, 8
value at end of year, 6, 8
valuing, 8
Translating and Interpreting Service, 49
transport and freight expenses, 19
travel expenses, 19, 24, 27
home-to-work, 27
records, 24
see also motor vehicles
trees, 14
trucks, 11, 27
trusts
beneficiaries, 22, 44, 51
capital gains, 12
definition of, 51
fringe benefits tax, 24
losses, 44
non-commercial losses, 22
PAYG instalments, 47
personal services income, 11, 51
reporting forms, 46
sale of interest, 12
separate bank account, 10
tax return lodgment, 44
trustees, 49
turnover
aggregated, ii, 12, 32, 40
threshold for capital gains tax concessions, 12
threshold for entrepreneurs’ tax offset (ETO), 40
threshold for small business concessions, 7
threshold for small business and general business tax break, 32
twelve per cent of original value method, motor vehicle expenses,
27, 28
60
U
uniform capital allowance, 31, 33–4, 35
uniforms, 19
union dues, 19
unrelated clients test, PSI, 11
utes, 27
utility expenses, 25, 26, 51
V
vacuum cleaners, 34
vans, 27
W
wages
see salary and wages
washing machines, 34
water facilities, 21
water rates, 19
website(s)
ATO, 48
cost of operating, 19
government, 48
windmills, 20
wool clips, 14
workers’ compensation, 6, 19
INCOME AND DEDUCTIONS FOR SMALL BUSINESS
MORE INFORMATION
For more information about your tax obligations
as a small business operator, refer to:
■ Record keeping for small business (NAT 3029)
■ GST for small business (NAT 3014)
■ Super – what employers need to know (NAT 71038)
■ Concessions for small business entities (NAT 71874)
■ Concessions for small business entities – overview
(NAT 71398)
■ Home-based business (NAT 10709)
■ PAYG withholding (NAT 8075)
■ Taxation Ruling TR 93/30 Income tax: deductions for home
office expenses
■ Practice Statement PS LA 2001/6 Home office expenses,
diaries of use and calculation of home office expenses.