Steps to assess an interim profit and loss statement 043-03080040

Customers will often provide their business income statement (profit and loss statement), or fortnightly/3 monthly income and expense statements to Centrelink. If the business has assets, a balance sheet may also be required.

Service Officers and Complex Assessment Officers (CAO) are not expected to fulfil the role of accountants for customers and should not attempt to undertake the calculation of the net profit of a business from the books of accounts. In these situations, the customer must provide a completed Profit and Loss Statement (SU580) for the relevant period.

Use these documents to calculate the current annual rate of income earned by the customer from a business. The underlying basic principle is annualising the assessed current annual rate of business net income using the interim profit and loss from an immediate past period. For example, annualised income from the last 3 months.

There will be some instances where an interim profit and loss from an immediate past period is not used. These include where a business has just commenced trading, or where the interim profit and loss from an immediate past period does not represent a true picture of the current annual rate of business net income.

When a business has just commenced trading, a customer may make an estimate of the likely future net business income until an interim profit and loss from an immediate past period is available.

Where the past period profit and loss statement is not representative of the true financial position of the business, an estimate of business net income should be obtained and used until an annual financial statement is available. For example, a farmer purchases a farm in May, claims an income support payment in August but will possibly not receive any farm income until the following March.

The principle is to use the current rate of income earned by a customer from a business. The usual approach is to base the assessment of a business upon the most recently available financial statements and taxation return.

Where there is a change in circumstances and the previous financial statements no longer provide an accurate indication of the current rate of income, make a reassessment based on available evidence. A revised or interim profit and loss statement incorporating the change to the business and reflecting the current income and expenses of the business is required. Where a customer has difficulty in providing this information, suggest they seek assistance from their accountant. If the business is a private trust or private company, Service Officers must refer the case to a Complex Assessment Officer (CAO).

Where the customer has indicated there has been a downturn in business, see Unexpected downturn of a business.

When calculating the assessable net business income from an interim profit and loss statement, Service Officers and CAOs must:

• check:
• type of business structure customer is involved in
• income cut-off points for the customer's payment
• figures on the profit and loss statement are reasonable
• for any non-allowable deductions
• for any one-off income or expenses (unlikely to be repeated)
• apportion expenses over the same period as the income
• assess any:
• investments held by the business
• other income customer receives from the business
• annualise the net business income:
• for sole traders and partnerships, use 364 days. Social Security Act 1991, section 1073
• for private trusts and private companies, use 365 days. Social Security Act 1991, section 1207Y

Service Officers and CAOs must use the correct date of event for business income and assets.