Business structures and assessment 043-03000000

Customers can be carrying on a business and have assessable income and assets from one or more of the following types of business structures:

• sole trader
• partnership
• private company
• private trust

The assessment of a business under the income and assets tests can vary depending on which type of business structure a customer is involved in. Therefore, correct identification of the structure is important.

The financial statements of a business are also required to determine the effect of the business on the customer under the income and assets tests. An accurate assessment will ensure that customers receive their correct entitlement to payment.

Generally, for sole traders and partnerships, Services Australia uses the business entity accounting convention. Assets and investments not considered to be related to the principal function of the business are removed and assessed separately. From 1 January 2002 new rules have applied to the assessment of trusts and companies under legislation effective from that date.

Assessable income in regard to a business is based upon information contained in the profit/loss statement.

The assessable asset value of a business is primarily based upon information contained in the balance sheet and depreciation schedule.

Business profits are defined and calculated differently for accounting, taxation and social security purposes.

Accounting profit is calculated in accordance with various accounting standards and guidelines followed by the accounting profession. Profits for taxation and social security purposes are calculated in accordance with various legislative provisions.

As a general rule, the business deductions allowed by the Australian Taxation Office (ATO) are also allowed for social security purposes. However, some expenses claimed as deductions, and certain special concessions allowed by the ATO, are not deductible for Social Security income test purposes. The primary source of verification should be the latest available income tax return (ITR) and associated financial statements.