Item 6 - Expense Labels

Label B-Foreign resident withholding expenses (excluding capital gains)

You only complete this label if the company is a non-resident. An Australian resident should not include expenses, such as, expenses incurred in deriving foreign sourced income, at this label.

Show at label B all expenses directly relating to gaining income subject to foreign resident withholding (excluding capital gains) as shown at income label B - Gross payments subject to foreign resident withholding (excluding capital gains), D Gross distribution from partnerships or label E, Gross distribution from trusts, item 6.

Any expenses shown at label B that directly relate to gaining income which is not assessable in Australia should also be shown at item 7, label U - Non-deductible exempt income expenditure.

Click Label B to open the Generic Schedule / Worksheet.

CCH References

22-000 Tax liability of non-residents

Label A-Cost of sales

Show at label A the cost of anything produced, manufactured, acquired or purchased for manufacture, sale or exchange in deriving the gross proceeds or earnings of the business. This includes freight inwards and may include some external labour costs, if these are included in the cost of sales account in the normal accounting procedure of the business.

If the cost of sales account is in credit at the end of the income year-that is, a negative expense-enter that amount preceded by a hyphen.

Click Label A to open the Generic Schedule / Worksheet.

For more information on the circumstances in which packaging items held by a manufacturer, wholesaler or retailer are 'trading stock' as defined in section 70-10 of the ITAA 1997 refer to Taxation Ruling TR 98/7.

Do not include input tax credit entitlements in cost of sales.

CCH References

3-000 Companies

Label C-Contractor, sub-contractor and commission expenses

Show at label C the expenditure incurred for labour and services provided under contract other than those in the nature of salaries and wages.

Click Label C to open the Generic Schedule / Worksheet.

Label D-Superannuation Expenses

Show at this label the employee superannuation expenses incurred for the income year.

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

Provided certain conditions are met, employers can claim a deduction for superannuation contributions made in respect of a former employee within four months of the employee ceasing employment and at any time after the employee ceases employment for defined benefit interests. Contributions are deductible in the financial year it was made.

A deduction is allowable in the income year in which the contributions are made.

The adjustments for taxation purposes are included at label W, item 7.

NO deduction is allowable if the fund is a non-complying fund.

In addition, contributions made to a non-complying fund do not count towards superannuation guarantee obligations.

Contributions paid by an employer for employment to be offset against a superannuation guarantee charge liability are not deductible.

Contributions paid by an employer for employees to a non-complying superannuation fund may be fringe benefits and, as such, may be subject to tax under the Fringe Benefits Tax Assessment Act 1986.

For information about the records you need to keep, visit the ATO website.

Click Label D to open the Generic Schedule / Worksheet.

CCH References

13-710 Deduction - Contributions by employers

16-575 Deductions for superannuation contributions

Label E-Bad debts

Show at label E the bad debts expense incurred for the income year.

Click Label E to open the Generic Schedule / Worksheet.

Deductions for bad debts may also be reduced by the commercial debt forgiveness provisions. These are covered in Appendix 1 of the Company tax return instructions.

CCH References

16-580 Deductions for bad debts

Label F-Lease expenses within Australia

Show at label F the expenditure incurred through both finance and operating leases on leasing assets-including motor vehicles and depreciating assets such as plant. However, do not include expenditure incurred under a hire purchase agreement. For full details refer to Appendix 6 of the Company tax return instructions.

Click Label F to open the Generic Schedule / Worksheet.

CCH References

17-200 Cost price limit

17-220 Luxury car leases

Label I-Lease expenses overseas

Show at label I the lease expenses incurred through both finance and operating leases on leasing depreciating assets-including motor vehicles. However, do not include expenditure incurred under a hire purchase agreement. For full details refer to Appendix 6 of the Company tax return instructions.

Click Label I to open the Generic Schedule / Worksheet.

Label H-Rent expenses

Show at label H the expenditure incurred, as a tenant, on rental of land and buildings used in the production of income.

Click Label H to open the Generic Schedule / Worksheet.

CCH References

16-640 Tenant's or lessee's expenses

Label V-Interest expenses within Australia

Show at label V the interest expenses incurred on money borrowed from Australian sources. Interest expenses within Australia amounts integrate to the return from Interest paid on loans worksheet (hcx).

Click label V to open the Interest Paid on Loans (hcx) and complete the first section of the schedule - loans within Australia.

An amount of interest may not be an allowable deduction. For example, where the thin capitalisation provisions disallow an interest deduction, include the amount of interest not allowable at Non-deductible expenses (item 7, label W).

For information relating to thin capitalisation refer to Appendix 3 of the Company tax return instructions.

Distributions from a non-share equity interest are not deductible. The Guide to the debt and equity tests, available on the ATO website, provides an overview of the debt-equity rules and explains what a non-share equity interest is.

Click Label V to open the Generic Schedule / Worksheet.

CCH References

16-740 Deductions for interest expenses

Label J-Interest expenses overseas

Show at label J the interest expenses incurred on money borrowed from overseas sources.

Interest expenses overseas amounts integrate to the return from Interest paid on loans worksheet (hcx).

Click label V to open the Interest Paid on Loans (hcx) and complete the second section of the schedule - loans from overseas.

An amount of tax - withholding tax - is generally withheld from interest paid or payable to non-residents and to overseas branches of residents and must be remitted to the ATO. If you have withheld amounts from payments to non-residents, you may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents - annual report by 31 October 2018. For more information, phone the Business Infoline on 13 28 66.

An amount of interest may not be an allowable deduction. For example, where the thin capitalisation provisions disallow an interest deduction, include the amount of interest not allowable at label W Non-deductible expenses item 7.

For information on thin capitalisation refer to Appendix 3 of the Company tax return instructions.

Distributions from a non-share equity interest are not deductible. The Guide to the debt and equity tests, available on the ATO website, provides an overview of the debt-equity rules and explains what a non-share equity interest is.

CCH References

16-740 Deductions for interest expenses

Label W-Royalty expenses within Australia

Show at label W the royalty expenses paid during the income year to Australian residents.

Click Label W to open the Generic Schedule / Worksheet.

Label U-Royalty expenses overseas

Show at this label the royalty expenses incurred during the income year to non-residents.

An amount of tax (withholding tax) is generally withheld from royalties paid or payable to non-residents and to overseas branches of residents, and must be remitted to the ATO. If you have withheld amounts from payments to non-residents, you may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents - annual report by 31 October 2018. For more Click Label U to open the Generic Schedule / Worksheet.

Label X-Depreciation expenses

Use the Depreciation worksheet (d) to manage all depreciating assets under the Small business simplified depreciation rules or Pooling.

Small Business Entities

New laws have passed that allow small businesses to claim an immediate deduction for assets they first acquire and start to use — or have installed ready for use — provided each depreciable asset costs less than $20,000. This will temporarily replace the previous instant asset write-off threshold of $1,000.

The balance of the general small business pool is also immediately deductible if the balance is less than $20,000 at the end of an income year that ends on or after 12 May 2015 and on or before 30 June 2018 (including existing general small business pool).

The 'lock out' laws have also been suspended for the simplified depreciation rules (these prevent small business from re-entering the simplified depreciation regime for five years if they have opted out) until the end of 30 June 2018.

If the company is an eligible small business entity and has chosen to use the simplified depreciation rules, write at X Depreciation expenses the total depreciation deductions being claimed under the simplified depreciation rules and the uniform capital allowances (UCA) rules.

If you are a small business entity and have total depreciation deductions at label X Depreciation expenses, you must also complete item 10 Small business entity simplified depreciation.

Small business entities can claim an immediate deduction for most depreciating assets costing less than $20,000 (excluding input tax credit entitlements) and pool most of their other depreciating assets in a general small business pool.

Some depreciating assets are excluded from these simplified depreciation rules but a deduction may be available under the UCA or the R&D depreciating asset regime.

An eligible company choosing to use these simplified depreciation rules must use both the immediate write-off and the pooling method where applicable. It cannot choose to use one and not the other.

For more information about the small business entity depreciation rules, see Simplified depreciation rules or phone 13 28 66.

All other Companies

Show at label X Depreciation expenses the book depreciation expenses for depreciating assets. This amount does not include:

• profit on sale of depreciating assets, shown at Income, label R Other gross income item 6

• loss on sale of depreciating assets, shown at Expenses, label S All other expenses item 6.

If an amount is written at label X, make reconciliation adjustments at item 7 even if the depreciation expense is the same amount as the deduction for decline in value.

For reconciliation purposes, split the amount written at label X into R&D and non-R&D amounts when adding back at item 7. Include non-R&D amounts at W Non-deductible expenses item 7 when adding back.

Include R&D amounts at label D Accounting expenditure in item 6 subject to R&D tax incentive item 7 when adding back.

Write the deduction for decline in value of most depreciating assets at label F Deduction for decline in value of depreciating assets item 7. If a depreciating asset is subject to the R&D tax incentive, this amount will form part of your notional R&D deduction. Eligible companies can claim this notional R&D deduction amount as an R&D tax offset.

The Depreciation Expenses shown at this label are accounting or book figures and if MAS Integration or Accounts Integration is used, the amount will default from the general ledger.

Click label X to enter the various amounts in the Generic Schedule / Worksheet.

For information about the small business entity depreciation rules visit the ATO website.

CCH References

7-250 Simplified depreciation for small business

17-005 Deduction for depreciating assets

17-480 Choice of method to calculate decline in value

Label Y-Motor vehicle expenses

Show at this label motor vehicle running expenses only. These expenses include:

• Fuel

• Repairs

• Registration fees

• Insurance premiums.

The motor vehicle expenses worksheet (mve) allows you to record details which could be used to calculate the optimum deduction method for the taxpayer. This worksheet does not integrate to the return. Refer to Motor vehicle worksheet (mve). To open this worksheet select Preparation > Schedule > mve Motor vehicle worksheet.

There are only two methods for claiming motor vehicle expenses from 1 July 2017 and those are the fixed rate of 66 cents per km, or the log book method. This is part of the ATO’s simplification of claiming motor vehicle expense deductions.

CCH References

16-310 Deductible motor vehicle expenses

Label Z-Repairs and maintenance

Show at this label the expenditure on repairs and maintenance of plant, machinery, implements and premises.

If the company has any item of a capital nature shown at this label it should be written back at Non-deductible expenses (item 7 label W).

For information on deductions for repairs refer to Taxation Ruling TR 97/23 - Income tax: deductions for repairs.

Click label Z to open the Generic Schedule / Worksheet.

CCH References

16-700 Deduction for repairs

Label G-Unrealised Losses on Revaluation of Assets

Show at label G the amount (if any) of any unrealised losses made on the revaluation of assets and liabilities to fair value that may arise as a result of the adoption of Australian Equivalents to the International Financial Reporting Standards.

Extraordinary items are expenses or losses that are from events outside the ordinary operations of the company and that are not of a recurring nature:

• Include any unrealised loss on the revaluation of a financial arrangement to fair value deductible under the TOFA rules at S All other expenses item 6. at L Expenses from financial arrangements (TOFA) item 6 instead of at G.

• Adjustments for tax purposes are made at item 7.

• An unrealised loss that is not deductible is added back at W Non-deductible expenses item 7.

• Any net capital gain for taxation purposes is included at A Net capital gain item 7.

• Any net capital loss is included with any unapplied capital losses carried forward to later income years and is written at V Net capital losses carried forward to later income years item 13.

This amount is included in the total expenses.

Click label G to open the Generic Schedule / Worksheet.

CCH References

23-000 Taxation of financial arrangements - TOFA

Label S-All other expenses

Click label S to open the Other Deductions (otd) worksheet which contains repeatable fields ([Ctrl+Insert]) for dissection and record keeping purposes. Refer to Other deductions worksheet (otd).

The otd worksheet also integrates amounts from the:

• Distributions from Partnerships worksheet (dip).

• Distributions received from Trusts worksheet (dit).

• Dividends schedule (div).

• Foreign income worksheet (for).

The total of all the entries in the Other Deductions (otd) worksheet integrates to label S.

Show at this label the total of all other expenses which have not been included at other expense labels item 6 labels B to G, and losses on the disposal of depreciating assets (including assets used in Research and Development activities subject to the R&D tax concessions).

Also show at label S any extraordinary expenses - that is expenses or losses from events outside the ordinary operations of the company and not of a recurring nature. An extraordinary loss that is not deductible is added back at label W Non-deductible expenses, item 7.

Calculation of some deductions may be affected by the commercial debt forgiveness provisions. These are covered in the current year ATO Company instructions.

Label Q-Total expenses

This amount is calculated by adding all expense amounts shown at item 6 labels A to S.

If there is a negative amount at label A Cost of sales which exceeds the total of the remaining expenses at labels C to S, the Total expenses amount will be a loss.

Label T-Total profit or loss

This amount is calculated by subtracting Label Q Total expenses at item 6 from Label S Total income at item 6.

If this amount is a loss, a hyphen will precede the amount and a /L will be printed on the return.