Assessing and coding the Business details for sole traders and partnerships MOD F 043-03060020

For initial contact where a customer is advising of commencing a business/self-employment, see:

• Self-employment
• Commencement of a new business or purchase of a business enterprise

If the customer has provided a completed MOD F, go to Step 2

• Check all questions are completed on the MOD F and all documents are attached:
• profit and loss statement
• balance sheet
• depreciation schedule
• personal income tax return
• partnership tax returns for the customer and/or partner
• partnership agreement (if one exists)
• If the customer has a business partner who is also their personal partner, then a copy of their partner's personal income tax return will also be required
• If the MOD F is advising of the business ceasing, see Business has ceased or has been sold

Scan the form and all supporting documentation if not provided digitally.

Note: where the sole trader business or partnership has not been operating for a full financial year, tax returns may not be able to be provided. Interim profit and loss statements will be required. For more information, see Steps to assess an interim profit and loss statement.

Make sure the customer is aware of and able to comply with their mutual obligation requirements if they receive:

• JobSeeker Payment (JSP)
• Youth Allowance (YA) job seeker
• Parenting Payment Single (PPS) youngest child turns 6, or
• Special Benefit (SpB) (Nominated Visa Holder)

Work Bonus was extended to include self-employment income earned through personal exertion on 1 July 2019. Work Bonus questions need to be answered for customers who are:

• Age Pension age, and
• receiving or claiming an income support payment other than PPS

Contact the customer if the Work Bonus questions are needed but have not been answered.

Has the MOD F been completed in full and all required documents been provided?

• Yes, go to Step 3
• No, make a request for the information. On return of all requested documentation, go to Step 3

A complex business structure can include:

• Partnerships and sole traders where there are multiple business activities that are unrelated
• Partnerships of more than 2 members
• Partnership/sole traders that hold multiple encumbrances and secured loans

Does the MOD F or support documents indicate a complex business structure?

• Yes, go to Step 4
• No, see Table 2

• Check questions are completed on the MOD F and all documents are attached
• Scan documents
• Make a referral to a Complex Assessment Officer (CAO)
• Procedure ends here

To assess income from a:

• sole trader, go to Step 2
• partnership, go to Step 4

When assessing the income from a sole trader business, there are some points to note:

• If a number of bank accounts are recorded on the Balance Sheet, identify which account is the working capital account
• With the exception of bank accounts (for example, working capital account) and investments used as part of the ongoing operations of the business, financial investments (for example, cash on hand, shares, bank accounts, managed investments) are considered to be the customer's personal assets, and should be recorded separately on Savings (SVP), Managed Investment (MIP) or Securities and Investments (SIP) screens
• Salary or wages paid by the business to the customer should not be assessed as the customer's salary. The amount should be added back on to the net profit of the business. This is because a sole trader cannot employ themselves as a bona fide employee
• Not all deductions are allowable reductions for social security payments. Any non-allowable reductions should be added back onto the net profit of the business. The following non-allowable reductions are commonly claimed:
• Prior year losses
• Donations
• Special building write off, and
• Borrowing costs. These are also known as preliminary expenses, capital expenses or formation costs
• see Business Deductions for more information

Note: Cash Flow Boost payments paid by the Australian Taxation Office to eligible small and medium sized businesses as part of the Australian Government COVID-19 stimulus response are exempt from assessment under section 8(8)(zt) of the Social Security Act 1991, and are not to be included when assessing business income for a customer or their partner. Payments were made for the March to June 2020 and June to September 2020 quarters. If these payments have been included as income on the profit and loss statement for the sole trader business, they will need to be removed and disregarded in assessing the net income.

If the person runs more than one business within the sole trader structure, generally the losses of one business cannot be used to offset the profit of another. Losses within a sole trader business or partnership can be offset against the profits of other necessarily related activities if a customer is involved in a business or partnership which operates in more than one field or in 2 businesses, each operating under a different business structure. More information is available in the Social Security Guide, 4.7.1.30. See the References page. See also: Offsetting profit and losses between businesses.

• It is generally not possible to determine the exact rate of income earned by a customer from a business due to the annual nature of assessment by the Taxation Office. The usual approach is to base the assessment of the likely current income received by a customer from a business on the most recently available financial statements and tax return
• Check with the customer that the income arrived at, represents the current income of the business. For example, if the business has lost a contract or suffered some other reduction in income, ask the customer to provide an interim Profit and Loss Statement for the business from the date of notifiable event. See Steps to assess an interim profit and loss statement
• Small income fluctuations should generally be ignored if they are part of normal trading. For example, if a retail store has a quiet period in January and the sole trader claims income support, it would be necessary to look at the pattern of trading. If business always reduces after the Christmas period then this would not be considered a significant event (this represents a true picture of the seasonal nature of the business activity)
• From 1 July 2019, if the customer is eligible for Work Bonus it will automatically apply to the percentage of their business income derived from personal exertion. The customer will be asked for the percentage in the Business details (MOD F) form. The percentage will need to be recorded on the Business Details (BUS) screen

Notify the customer of the assessed income from the sole trader business and advise them that if in the future there is a significant increase or decrease in the assessed amount, they should notify Services Australia immediately.

Go to Step 6.

When assessing the income of a partnership business, consider the following:

• Shares and financial investments:
• If these have been brought into the partnership as a partnership asset and held in the name of one of the partners, they should be regarded as the person's personal investment
• Record separately on the Savings (SVP), Managed Investment (MIP) or Securities and Investments (SIP) screens
• Make sure these amounts are not double counted when recording business assets
• Loans made by partners to the partnership:
• These are not regarded as loans
• They are regarded as an injection of capital into the partnership
• The amount of such loans should be added back to the equity or the assessable value of the business partner's interest in the business
• These amounts are not subject to deeming
• Drawings are not assessable income:
• They are withdrawals of capital previously advanced to the business
• Offsetting losses:
• When a partnership runs more than one business activity within the partnership, a loss on one activity cannot be offset against the profit from another activity unless the businesses are necessarily related. See Offsetting profit and losses between businesses
• Previous years' losses:
• Losses from previous years cannot be offset against current year's profits

• Not all deductions are allowable reductions for social security payments. Remove any non-allowable deductions from the Profit and Loss Statement and tax return. The following non-allowable reductions are commonly claimed:
• Prior years' losses
• Donations
• Special building write off, and
• Borrowing costs
• Salary or wages paid by the partnership to the customer are not to be assessed as the customer's salary. The amount is to be added back on to the net profit of the business. This is because a partner in partnership cannot employ themselves as a bona fide employee
• Check the personal tax return - sometimes, additional expenses incurred in producing the income of a partnership will be detailed separately on one of the partner's personal tax returns, rather than on the partnership profit and loss statement
• Check with the customer that the income calculated represents the current income of the business. For example, if the business has lost a contract or suffered some other reduction in income, ask the customer to provide an interim Profit and Loss Statement for the last 3 to 6 months. See Steps to assess an interim profit and loss statement
• Small income fluctuations should generally be ignored if they are part of normal trading. For example, if a retail store has a quiet period in January and the partners claim income support, it would be necessary to look at the pattern of trading. If business always reduced after the Christmas period then this would not be a significant event (this represents a true picture of the seasonal nature of the business activity)
• From 1 July 2019, if the customer is eligible for Work Bonus it will automatically apply to the percentage of their business income derived from personal exertion. The customer will be asked for the percentage in the Business details (MOD F) form. The percentage will need to be recorded on the Business Details (BUS) screen
• If the partnership is being reviewed or updated, check the percentage of the income derived from personal exertion is still accurate

Notify the customer of the assessed income from the partnership business and advise them that if in the future there is a significant increase or decrease in the assessed amount, they should notify Services Australia immediately.

• A customer's interest in the assets of a business falls within the definition of 'asset'
• A member of a business conducted as a partnership owns a share of the assets of the business. See Business assets
• The amount to be taken into account for assets test purposes is the current market value of the assessable assets, less the 'business' liabilities (as listed on the business's financial statements and which are allowable encumbrances in accordance with section 1121 of the Social Security Act 1991). See the References page
• Unless there has been a significant change of circumstances, the asset position of the business is derived from the most recent Balance Sheet and Depreciation Schedule. Adjustments may need to be made to the business assets to reflect current market value, not depreciated value
• The value of the customer's interest in a partnership will depend on the net value of the partnership assets, the proportion of the net assets the customer is entitled to receive and the net amounts contributed or withdrawn by the individual partners. (This will be shown on the Balance Sheet Capital Accounts.) See Assessment of income and assets from sole traders and partnerships
• Ensure any financial assets are separated from the business, as they are considered to be the customer's personal assets - with the exception of investments used in the ongoing operation of the business (for example, the working capital account used for trading)
• Business assets and liabilities are assessed as either primary production or non-primary production. Primary production aggregation rules allow for all primary production liabilities to be offset against all primary production assets. Non-primary production assets and liabilities are not covered by these aggregation rules. Non-primary production liabilities can only be offset against the specific asset they are secured against as per the principles outlined in Section 1121 of the Social Security Act 1991
• If there is real estate recorded on the Balance Sheet, see Assessing and coding real estate details. Note: real estate should not be linked to a business unless advised and assessed by a Complex Assessment Officer (CAO)

A system error may be present if changes are attempted to Real Estate Business (REBS) details and no updates have been made since the customer's relationship status had changed. This will happen if the customer is single and the business is still recorded as partly or fully owned by the partner.

If this error is presented when attempting to apply changes to the Real Estate Business (REBS) details:

• print or copy all pages, including historical pages, on the Business Details (BUS) screen, relating to the impacted business
• delete the relevant entry in the Real Estate and Business (REBS) screen and in the same activity, recode all relevant information including historical entries and correct the % ownership

Note: this activity should not create any overpayment or arrears payment for the customer if no other income and assets updates are completed in the same activity. Once the business details have been restated the Real Estate Business (REBS) should allow updates without the edit appearing.

If using:

• Process Direct, see Table 3
• Customer First or Customer Record, go to Step 9

In Customer First/Customer Record, check the Real Estate/Business Details (REBS) screen for any record of the business.

• Code the Real Estate/Business Identifying (REBI) screen
• Real Estate/Business Type: select the most relevant code for business to make sure it is assessed correctly
• Description: this field is not compulsory but can be used to enter a business or property name if required
• Principal Home: enter 'N' as this is a mandatory field, but not required for coding a business
• Address: Town/Suburb: Postcode: State: Country: code the address details. The customer must uniquely identify the location of any business site they own or have an interest in
• Code the Business Detail (BUS) screen with the customer's and partner's (if applicable) business details
• Use the correct date of event for business income and assets

• Select the record on the REBS screen
• The REBI screen will be presented, updates can be made to the business contact details and trading status from this screen
• Code the BUS screen with the customer's and partner's (if applicable) business details
• Use the correct date of event for business income and assets

If the customer is in receipt of or claiming Carer Payment (CP), the number of hours the customer is working in the business must be recorded on the Carer Payment Activity Summary (CPAS)/Carer Payment Activity Details (CPAD) screen. See Carer Payment (CP) and Carer Allowance (CA) carer undertakes paid employment, self-employment, voluntary work, education or training activities.

• Record as the customer's personal assets, any financial assets:
• not used as part of the ongoing operation of the business, make sure these amounts are not double counted when recording business assets, and
• removed from the balance sheet. See Coding income and assets for Centrelink payments and services
• Record details of business or partnership income and assets assessment in a Note or DOC. Include the following details:
• name/description of business
• documents supplied for business assessment
• total net income
• deductions not allowed
• loans not allowed or reduced
• update of value of assets to reflect market value
• assets not included in the business coding
• any other decision made to adjust income or asset value
• when the next review of the business is due

A 3, 6, 9 or 12 month income review is required to request documents. For a new business:

• the customer must supply a new profit and loss statement after 3, 6, 9 and 12 months
• the profit and loss statement must cover the full period from the initial date of self-employment

In Customer First, create a manual review on the Review Registration (RVR) screen and complete the fields as follows:

• Service Reason: the customer's payment type
• Review Reason: BUS (Sale/Income from Business)
• Due Date: the maturity date of the review (allow extra time for delivery of a notice if appropriate)
• Source: INT
• Date of Receipt: today's date
• Notes: relevant details including business name and the date range for the next profit and loss statement
• Keywords: SELFEMP
• Workgroup: leave blank
• Position: leave blank
• Transfer to Region: leave blank

The review will mature on the Due Date coded in the RVR activity. Workload Management will allocate the review for manual action.

Tell the customer to provide the following when prepared:

• annual business income tax return
• financial statements, and
• personal (and partner's) tax return

See also:

• Assessing sole trader income
• Assessing sole trader assets
• Assessing partnership income
• Assessing partnership assets

Procedure ends here.

The Self-employment workflow:

• records business income and assets
• generates a detailed Note
• creates self-employment reviews
• will not update personal financial assets
• has a Decision Support Tool (DST) to help staff work out if the customer is self-employed or an employee

To access the Self-Employment workflow in Process Direct:

• Key Start into the Super Key and select the Self Employment workflow from the Task Selector
• Select Start to commence the workflow
• Go to Step 2

If the Self Employment workflow cannot be accessed, for example within a claim, go to the Real Estate Business Identity Details (REBS, REBI) screen via the Super Key.

• Select Add to code the Create Real Estate/Business Details screen by selecting the applicable option from the Real Estate or Business Type dropdown box
• Complete the following fields:
• Real Estate/Business Type: select the most relevant code for business to make sure it is assessed correctly
• Description: this field is not compulsory but can be used to enter a business or property name if required
• Principal Home: enter 'N' as this is a mandatory field, but not required for coding a business
• Address: Town/Suburb: Postcode: State: Country: code the address details. The customer must uniquely identify the location of any business site they own or have an interest in
• Use the correct date of event for business income and assets
• Check the Work Bonus % - this defaults to 100% but will need amending if the customer and/or partner are running a business where Work Bonus is not applicable

• Select the record and Expand the entries
• Select Add to update the income and/or assets or select the Pencil icon to amend an existing entry. Updates can be made to:
• a business contact details and trading status from the Change Real Estate Business Details screen
• the income and/or assets from the Change Business Income and Assets screen
• Use the correct date of event for business income and assets

If the customer is in receipt of or claiming Carer Payment (CP), the number of hours the customer is working in the business must be recorded on the Carer Payment Activity Summary (CPAS)/Carer Payment Activity Details (CPAD) screen. See Carer Payment (CP) and Carer Allowance (CA) carer undertakes paid employment, self-employment, voluntary work, education or training activities.

• Record as the customer's personal assets, any financial assets:
• not used as part of the ongoing operation of the business
• make sure these amounts are not double counted when recording business assets and are removed from the balance sheet. See Coding income and assets for Centrelink payments and services
• Record details of business or partnership income and assets assessment in a Note or DOC. Include the following details:
• name/description of business
• documents supplied for business assessment
• total net income
• deductions not allowed
• loans not allowed or reduced
• update of value of assets to reflect market value
• assets not included in the business coding
• any other decision made to adjust income or asset value
• when the next review of the business is due

A 3, 6, 9 or 12 month income review to request documents is required. For a new business:

• the customer must supply a new profit and loss statement after 3, 6, 9 and 12 months
• the profit and loss statement must cover the full period from the initial date of self-employment

Create a manual review on the Review Registration (RVR) screen via the Super Key and complete the fields as follows:

• Service Reason: customer's payment type
• Review Reason: BUS (Sale/Income from Business)
• Due Date: maturity date of the review (allow extra time for delivery of a notice if appropriate)
• Source: INT
• Date of Receipt: today's date
• Notes: relevant details including business name and the date range for the next profit and loss statement
• Keywords: SELFEMP
• Workgroup: leave blank
• Position: leave blank
• Transfer to Region: leave blank

The review will mature on the Due Date coded in the RVR activity. Workload Management will allocate the review for manual action.

Tell the customer to provide the following when prepared:

• annual business income tax return
• financial statements, and
• personal (and partner's) tax return

See also:

• Assessing sole trader income
• Assessing sole trader assets
• Assessing partnership income
• Assessing partnership assets

Procedure ends here.

The workflow will ask:

• Is the customer self-employed? Select either:
• Yes, go to Step 5
• No, the workflow will end. See Recording and correcting employment income
• Unsure, go to Step 3

The Decision Support Tool assists staff to determine a customer's self-employment status.

Staff must weigh all the factors to determine whether a customer is self-employed or not.

Ask the customer each question, and select Yes or No.

If all 5 questions are Yes then the customer is more likely to be self-employed.

If:

• it is still unclear whether the customer is self-employed, select Yes to go to the second question set. Go to Step 4
• it is determined the customer is self-employed, go to Step 5

• Complete the second question set
• Select Calculate Recommendation

If staff disagree with the employment status, select Reject Recommendation and provide a reject reason.

If recommendation is:

• Employee, select Next and the workflow will record the employment status decision:
• See Recording and correcting employment income
• Procedure ends here
• Self-employed, select Next to continue with workflow

Is there enough information to complete the self-employment assessment? See Assessing sole trader income.

• Yes, go to Step 6
• No, complete a Request for Information letter. Procedure ends here

• Which of the following categories best describes the business? Select Sole Trader or Business Partnership
• Select documents provided
• If there is an existing record of the business, select this. Otherwise select Add new business
• Complete Lodgement Details then select Next

Business Details

• Business Type: select the real estate or business type
• Description: enter a description for the business
• Address Line: Suburb: State: Postcode: Country: code the address details
• Principal Home: enter 'Y' for yes if the real estate is the customer's principal home or 'N' for no if not the principal home. This is a mandatory field

Business Income and Assets

• Has this business ceased: Yes or No
• Event date: use the correct date of event for business income and assets
• Valuation Source: source of the business valuation
• Income Frequency: select the frequency of income
• Net Income ($): code total actual net income or loss from the business for the relevant frequency. Note: if this income had previously been recorded incorrectly as employment income, see Recording and correcting employment income details
• Hours per fortnight customer and Hours per fortnight partner:
• Record the details for customers who require self-employment work hours to be counted to satisfy the activity test. This field is optional and can be left blank
• Hours are coded as a whole number and entered as hours per fortnight, regardless of the income frequency used. If customer works more than 99 hours, code 99
• If field has an amount greater than zero coded, the Income Earned Indicator/Income Earn Indicator Partner: fields must be 'Y', and
• The Income Own Customer (%) and Income Own Partner (%): fields must be greater than zero for the customer and/or their partner respectively
• If the customer is in receipt of/or claiming Carer Payment (CP), the number of hours the customer is working in the business must be recorded on the Carer Payment Activity Summary (CPAS)/Carer Payment Activity Details (CPAD) screen. See Carer Payment (CP) and Carer Allowance (CA) carer undertakes paid employment, self-employment, voluntary work, education or training activities
• Income Own Customer (%): percentage of income for the customer. The percentage value coded can be up to two decimal places. For example, 50.55
  Income Own Partner (%): percentage of income for the partner. The percentage value coded can be up to two decimal places. For example, 49.45
• Net asset amount customer ($): the customer's share of the net value of the business
• Net asset amount partner ($): the partner's share of the net value of the business
• Work Bonus Customer (%) / Work Bonus Partner (%):
• Work Bonus will only applies to customers of Age Pension age and in receipt of an income support payment other than Parenting Payment Single (PPS)
• this field will default to 100% for sole trader businesses operated by the customer. If the actual percentage is less than 100%, code the actual percentage
• if the customer is a member of a partnership and is eligible for Work Bonus, the percentage of the partnership income derived from personal exertion is to be recorded here
• for customers who are not eligible for Work Bonus, the default percentage of income derived from personal exertion does not need to be changed as this will not affect their assessment
• Income Earn Indicator: if income is earned by customer. This must be 'Yes' for the customer when the Hours Per Fortnight Customer: field is completed
• Income Earn Indicator Partner: if income is earned by the partner. This must be 'Yes' for the partner when the Hours Per Fortnight Partner: field is completed
• Is the assessment/activity related to a Review of Decision?: Select Yes or No See Using the Review of Assessment (ROA) screen for further information

Select Next.

When should this customer be reviewed? Select an appropriate review time period. For further information, see Steps to assess an interim profit and loss statement.

Please select a review reason: Select document required for future business review.

Data collected in the workflow will pre-populate a detailed Note and set up self-employment reviews.

Additional information (income calculations) and review notes: add other information such as method of calculating net income and assets, dates of source documents and adjustments for non-allowable deductions.

Select Next.

Review the Errors (SWE) screen to view errors and warnings related to the activity.

Select at top right to launch Roxy, Digital Assistant. Roxy will populate details of any error presented on the SWE screen.

Address all errors, select Assess.

View the provisional results on the Entitlement (ELD) screen

Make sure details are correct. Finalise the activity.

For Income Managed customers, check whether their income managed funds are still sufficient to cover the prearranged deductions (e.g. rent). If there are insufficient income managed funds, a review of the customer's income managed expenses will be required.