Item 7 -Reconciliation Statement For Company – ATO

*Item 7 -Reconciliation Statement For Company

Description

PP

NPP

A

Accounting Net profit or Loss (Excluding Income Tax Expenses)

B

Income reconciliation adjustments (H-L)

H

Add backs: Assessable income which are not shown in Books (E+F+G)

E– Assessable balancing adjustment amounts on depreciating assets

F– Any excess of the tax value of closing stock over the tax value of opening stock (non-small business entities – see item 40 Closing stock)

G– Other assessable income not included in the Books

L

Subtractions: Non assessable income which are shown in Books (I+J+K)

I– Profit on the sale of depreciating assets shown in the books

J– Personal services income included in the assessable income of an individual (attributed amount)

K– Other income shown in the books which is not assessable for tax purposes  

For example: Exempted income

C

Expense reconciliation adjustments (P-U)

P

Add backs: Expenses which are shown in the books but are not tax deductible (M+N+O)

M- Depreciation charged in books

N- Loss on the sale of depreciating assets

O- Other items not allowable as a deduction:

• Capital expenditure 

• Additions to provisions and reserves

• Debt deductions denied by thin capitalisation provisions 

• Income tax expense

• Certain expenses relating to personal services income that are not deductible 

• Hire-purchase payments 

• Luxury car lease payments 

• Penalties and fines 

• Part of prepaid expenses not deductible this year

• Expenses relating to exempted income

• Other non-deductible expenses

U

Subtractions: Expense which are not shown in the books but are tax deductible (Q+R+S+T)

Q– Depreciation charged as per Tax depreciation rules

R– Deductible balancing adjustments amount on depreciating assets

S– Any excess of the tax value of opening stock over the tax value of closing stock (non-small business entities: see item 40 Closing stock)

T- Other tax-deductible items: 

• Other amounts deductible under the uniform capital allowance system 

• Hire-purchase agreements – interest component 

• Luxury car leases – accrual amount

• Part of prepaid expenses deductible this year but not shown in accounts 

• 20% write-off of capital expenditure to terminate lease or licence

• TOFA rules deductions not shown in accounts 

• Other deductible items

D- Taxable Net income or loss from business (A+B+C)

Subtractions I- Profit on the sale of depreciating assets shown in the books (shown in Books)

Add backs: E- Assessable balancing adjustment amounts on depreciating assets (not shown in Books)

Example: Working out an assessable balancing adjustment amount, ignoring any GST impact

Emil purchased a Fixed Asset that he held for two years and used wholly for a business purpose. Then he sold the Fixed Asset for $1,300.  Fixed Asset adjustable value at the time of sales was $1,200.

Adjustable value means Asset value as per Tax Schedule 

Assessable income as an assessable balancing adjustment amount on depreciating assets = Sale Value – Adjustable value

= $1,300 – $1,200

= $100

Add backs: N- Loss on the sale of depreciating assets (shown in Books) 

Subtractions: R- Deductible balancing adjustments amount on depreciating assets (not shown in Books)

Example: Working out a deductible balancing adjustment amount, ignoring any GST impact

If Emil sold the Fixed Asset for $1,000, the termination value would be less than the adjustable value, adjustable value at the time of sales was $1,200.

Adjustable value means Asset value as per Tax Schedule  

Deductible Expenses balancing adjustments amount on depreciating assets = Sale Value – Adjustable value

= $1,000 -$1,200

=-$200