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

A MOD F is used when a customer has indicated they:

• are, or were current on an income support payment, and
• operate a business as a sole trader or as a partner in a partnership

The MOD F provides details about one sole trader business or one partnership. If a customer is involved in more than one business structure, a separate MOD F is required for each business.

Note: Private Company (MOD PC) and/or Private Trust (MOD PT) are to be sent to the customer for private company and private trust involvement.

The information collected in conjunction with the MOD F enables Services Australia to assess income and assets from a:

• Sole trader business
• Business partnership

Customers are required to attach documents with the MOD F such as:

• income tax returns
• profit and loss statements
• balance sheets
• depreciation schedules etc.

A person is regarded as carrying on a business when they are:

• actively engaged in profit making activities (that is, not just owning rental properties), and
• are a sole trader or partner in a partnership

A sole trader or partnership has a legal entitlement to the profits generated by the business. The business is theirs and not a separate entity, meaning that they cannot employ themselves. This is in contrast to the profits made by a private company or private trust. These profits belong to the private company or private trust until declared or distributed.

The only exception to the general rule of using a customer's gross income to determine their or their partner's rate of income support payment or Low Income Health Care Card (LIC) eligibility is when the customer or their partner carries on a business. If the customer carries on a business, the customer's ordinary income from the business is to be reduced by losses and outgoings (expenses) which relate to that business and which are allowable deductions under specific sections of the Income Tax Assessment Act (ITAA) 1936 and the Income Tax Assessment Act (ITAA) 1997.

Note: not all deductions claimed under tax legislation are allowable under the Social Security Act 1991. All non-allowable deductions must be added onto the net profit of the business.

The assessment of the sole trader or partnership must be documented to show all decisions involved in arriving at the income and asset figures of the business. This includes (but is not limited to) expenses not allowed, loans against assets which are disallowed or reduced, assets coded to the customer record instead of the business, etc.

The share of profit to which a sole trader or partner in a partnership is entitled to, is known as 'business income'. It is the net profit earned by the business after allowable reductions under section 1075 of the Social Security Act 1991.

Note: section 1075 of the Social Security Act 1991, does not apply to income received by a customer from a private company or private trust.

Occasionally a partner in a partnership will receive their share of the partnership profit and then claim some business related reductions on their personal income tax return. For example, they use a vehicle that they own personally for partnership business activities, and in such cases, the amount claimed as a business deduction is an allowable deduction.

As a customer's interest in the assets of a business falls within the definition of 'asset', the value of this interest must be taken into account when determining entitlement to payments made by Services Australia.

Assessable assets are taken into account at their market value. The market value of an asset is only decreased by the value of an encumbrance secured against it for the purpose of purchasing the asset. The net assets formula is the market value of the assets, less allowable liabilities = net assets.

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 a customer is in receipt of/or claiming Carer Payment (CP) and has commenced self-employment, consideration must be given to the number of hours the customer is working in the business. See Carer Payment (CP) and Carer Allowance (CA) carer undertakes paid employment, self-employment, voluntary work, education or training activities.