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

When a customer becomes a sole trader or member of a partnership, they:

• must provide an interim profit and lost statement. Services Australia cannot use a Business Activity Statement (BAS) instead of a profit and loss statement. This is because the BAS does not contain information about expenses
• may need to provide bills and receipts of payment used to develop the profit and loss statement as supporting evidence

Issue a Profit and Loss Statement (SU580) to the customer if they are unable to provide a profit and loss statement. A customer can use the form to advise past or estimated future net profits over an appropriate period such as 3 months (13 weeks).
See the Resources page for a link to the form.

The net income from the profit and loss statement for this initial period is used for the following period only and must not be used to amend the period to which it relates.

Note: a customer or their accountant may have completed the profit and loss statement.

DSP and CP customers

Take particular care when Disability Support Pension (DSP) or Carer Payment (CP) customers advise about starting self-employment. This change in circumstance may require a review of the customer's qualification for payment.

If the customer indicates there has been a downturn in business, see Unexpected downturn of a business.

If a customer who has recently started operating a business verbally advises the business income from their profit and loss statement, ask them to:

• provide a paper copy to their local service centre for assessment, or
• upload relevant documents and contact Services Australia for assessment

The profit and loss statement should cover an appropriate period that represents the current rate of net business income.

The period could be, but is not restricted to:

• the time the business started until the present time
• a defined period that reflects the current rate of net income such as the:
• last 3 months, or
• next 3 months via a completed a Profit and Loss Statement (SU580)

If the income and expenses listed on the profit and loss statement provided by a customer do not appear reasonable, discuss with a Local Peer Support (LPS). The LPS may also get advice from a Complex Assessment Officer (CAO) if necessary.

If the customer has not already provided the relevant modules, get completed modules (MOD) from the customer:

• for sole traders and partnerships, get MOD F - Business details
• for private trusts, get MOD PT - Private Trust
• for private companies, get MOD PC - Private Company
• if the customer and/or business structure own any property, get MOD R - Real estate details

Confirm the type of business structure utilised to undertake the business activity (for example, sole trader, partnership, private company or trust). For more information, see Business structures and assessment.

If the customer is involved in a private trust or company, the assessment will need to be done by the Complex Assessment Officer (CAO).

Note: use 365 days to annualise private trust and private company income (Social Security Act, section 1207Y).
Use 364 days to annualise sole trader and partnership income (Social Security Act, Section 1073).

Check the expenses claimed on the profit and loss statement for any non-allowable deductions and one off income or expenses.

Remove the amount of any non-assessable income and non-allowable deductions from the profit and loss statement to determine the adjusted net profit/loss. See the Resources page for an example of Profit and Loss Statement and how adjustments are made.

Cash Flow Boost payments paid by the Australian Taxation Office

Payments made to eligible small and medium sized businesses as part of the Australian Government coronavirus (COVID-19) stimulus response:

• are exempt from assessment under section 8(8)(zt) of the Social Security Act 1991
• are not to be included when assessing business income for a customer or their partner
• were made for the March to June 2020 and June to September 2020 quarters

If these payments appear as income on the profit and loss statement for the business, remove and disregard when assessing the net income.

Apportion expenses in the interim profit and loss statement so that the amount claimed as a deduction matches the period of income earned by the business covered in the interim profit and loss statement.

For example, if vehicle is used 100% for the business, and the profit and loss statement covers a 3 month period (a quarter), then 25% of the annual registration fee could be claimed as a deduction.

Get details of investments included as assets on the business balance sheet.

Assess the investments in accordance with guidelines relating to the type of business structure utilised to conduct the enterprise. For more information, see Business structures and assessment.

Note: financial investments recorded on the Balance Sheet used as part of the business operations are exempt from the assessment of income under the deeming rules.

Add the business income and deductions again after making these adjustments to the profit and loss statement and recalculate the net business profit or loss. The result is called the adjusted net profit and loss.

The income calculated in Step 2 must be annualised. For more information, see coding the Business Detail (BUS) screen.

Examples

Sole traders and partnerships.
If the period is:

• exactly 2 weeks, divide by 14 then multiply by 364
• 17 days, divide by 17 and multiply by 364

Private trusts and private companies.

If the period is:

• exactly 2 weeks, divide by 14 then multiply by 365
• 17 days, divide by 17 and multiply by 365

New profit and loss statements

The customer may need to supply a new interim profit and loss statement at the following times:

• 3 months
• 6 months
• 9 months, and
• 12 months

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 to request documents 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.

At each contact with the customer:

• check if they need to revise their current family assistance income estimate, see Updating income estimates for the current financial year
• advise choices available to help reduce the chance of an overpayment during the reconciliation process

Tell the customer to provide the following when prepared:

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

See the Resources page for links to the Profit and Loss Statement (SU580) and interim profit and loss calculators.

Use the correct date of event for business income and assets.

Code the partner's share if they are also involved in a partnership, see Assessing and coding the Business details for sole traders and partnerships MOD F.

For controlled private companies and controlled private trusts, coding is performed by Complex Assessment Officers (CAO):

• the profit is coded on the entity screen
• the customer's attributed portion of income will flow on to the customer's record
• use the correct date of event for business income and assets

CAOs, for information on coding details for private trusts and private companies, see Assessment of income from trusts and companies.

Identify any other income the customer may receive from the business. For example, salary, fees, commissions.

This is shown as a business expense:

• Sole Traders or Partnerships - any income received from the business is added back to customer's share of profit
• Trust or Companies - any income received from the business is recorded at the current rate of assessable income on the customer's record

Service Officers (or CAOs in the case of a company or trust) should determine whether:

• basic eligibility for pension/allowance still exists
• payment should continue or be suspended
• the estimate should be provided
• the estimate is reasonable
• a further review should be undertaken before the end of the financial year

Trusts and companies are subject to service profiling and, if selected for review, will have a future review date for the entity.

Advise customer of the assessed current rate of income from the business and how it was calculated.

Ask customer to supply a profit and loss statement for the period since business began.

If business has operated for:

• 6 months, a completed Profit and Loss Statement (SU580) for the full 6 month period is necessary
• 9 months, a completed SU580 for the full 9 month period is necessary
• 12 months, but the customer has not yet lodged income tax returns showing full details of the profit and loss for the past 12 months, a completed SU580

Check the profit and loss statement to make sure there are no non-allowable deductions on the statement. (Some customers may mistakenly include some setting up asset costs as expenses).

Tell the customer to provide the annual business income tax return, financial statements and personal (and partner's) tax return when prepared.

Complete a Note/DOC including all details about the assessment.