Income and expenses of a business 043-03100000

The social security law has a unique definition of income used in the determination of claims for pensions and allowances. The intention is the assessment of income accurately reflects a customer's current circumstances, and therefore may not take into account past or future losses or income.

Similarly, social security law uses a different treatment of deductions than applied under taxation law. Not all deductions that reduce a business's taxable income are allowable as deductions from income for social security purposes. Generally, expenses allowed as a deduction against gross business income are those necessarily incurred in earning business income.

If a business disposes of an asset, the adjustment for this will appear on the profit and loss statement. To ensure the statement is a true reflection of the business's current profit position, a determination needs to be made as to whether this adjustment is retained or removed.

Customers can receive income from a business in the form of:

• a share of the net profit from a sole trader or partnership
• dividends or distributions of profit made to a customer from a company or trust

Net profit for a business is calculated using the formula Net Profit = Revenue - Expenses.

A business's profit and loss statement is a historical record of revenue derived during an accounting period and the costs and expenses incurred in generating this income.

Businesses operate under different structures. The 5 types of business structures are:

• sole trader
• partnership
• company
• cooperatives
• trusts

It is necessary to identify the type of business structure through which a customer undertakes their business activity, as the type of structure impacts upon the assessment of the business under the income and assets tests.

All trust and company assessments are done by the Complex Assessment Officer (CAO).

For other business structures, if a Service Officer is not sure how to assess the customer’s business interests from the information provided they should follow normal escalation processes. Local Peer Support (LPS) and /or Service Support Officer (SSO) before referring the case to a Complex Assessment Officer (CAO) for assistance. See Tier 0 technical support - self-sufficiency and Identifying and making suitable referrals to the Complex Assessment Officer (CAO).