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



This document outlines the steps to assess interim profit and loss statements for customers involved in a business.

On this page:

Issue or request a profit and loss statement

Reviewing and assessing an interim profit and loss statement

Issue or request a profit and loss statement

Table 1

Step

Action

1

When an interim profit and loss statement is required + Read more ...

There are situations where assessable income for a business cannot be determined by the prior year's income tax return. For example, where a customer:

Services Australia cannot use a Business Activity Statement (BAS) to verify changes in business income. The BAS does not contain information about expenses. A customer can provide an interim profit and loss statement or complete a Profit and Loss Statement (SU580).

Has the customer provided an interim profit and loss statement?

  • Yes, see Table 2
  • No, and the customer is:
    • providing advice of business involvement for the first time, go to Step 2
    • contacting regarding an existing business, go to Step 3

2

Issue required business modules + Read more ...

Where the customer is providing advice of business involvement for the first time, additional forms may be required.

Confirm the type of business structure utilised to undertake the business activity. For example:

  • sole trader
  • partnership
  • private company, or
  • trust

Note: for involvement in a private trust or private company, a Complex Assessment Officer (CAO) is required to undertake the assessment of the business. See Identifying and making suitable referrals to the Complex Assessment Officer (CAO).

Check the following forms have been completed and returned, where necessary:

  • Business details (MOD F) - required for sole trader and partnership businesses
  • Private Trust (MOD PT) - required for private trust involvement
  • Private Company (MOD PC) - required for private company involvement
  • Real Estate Details (MOD R) - required if:

3

Issue a profit and loss statement + Read more ...

Where required, issue a Profit and Loss Statement (SU580) to the customer to complete and return. See Requesting information (CLK).

Note: for private trust and private company businesses, customers are encouraged to provide their own profit and loss statement as the SU580 is not suitable. Only a Complex Assessment Officer (CAO) is permitted to undertake the assessment of a private trust or private company. See Identifying and making suitable referrals to the Complex Assessment Officer (CAO).

The interim 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 (no longer than 12 months)
  • a defined period that reflects the current rate of net income such as the last 3 months

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

  • 3 months
  • 6 months
  • 9 months
  • 12 months (if tax return is not yet been completed and available)

Each updated profit and loss statement must cover the full accumulative period from the initial date of self-employment or change in income. For example, if the business commenced on 1 April, the:

  • first 3 monthly profit and loss would cover the period 1 April to 30 June
  • second profit and loss would cover the period 1 April to 30 September

Note: if the customer provides a subsequent profit and loss statement which is not accumulative, an amended profit and loss statement will need to be provided before an accurate assessment can take place.

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

Has the customer returned all the required documents?

  • Yes, see Table 2
  • No, advise customer assessment cannot take place until return of all documents, procedure ends here until documents returned

Reviewing and assessing an interim profit and loss statement

Table 2

Step

Action

1

Review profit and loss statement + Read more ...

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. See Business deductions for determining allowable expenses.

Expenses for salary, wages or commissions

  • For sole trader or partnership businesses, this is shown as a business expense however is added back to the customer's share of profit when paid
  • For private trusts and private companies, any income received from the business is recorded at the current rate of assessable income on the customer's record
  • See the Resources page for an example of how adjustments are made

Financial investments

  • For sole trader or a partner in the partnership, business bank accounts recorded on the balance sheet that are used as part of the business operations are exempt from the assessment of income under the deeming rules. Actual income from the investments is assessed as part of the business income
  • For private trusts and private companies, actual income from all financial investments is assessed and are not deemed. 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

COVID-19 stimulus income

  • Payments made to eligible small and medium sized businesses as part of the Australian Government coronavirus (COVID-19) stimulus response such as the Cash Flow Boost payments are exempt from assessment under the Social Security Act 1991 section 8(8)(zt). See Exempt income

If the income and expenses listed on the profit and loss statement provided by a customer do not appear reasonable:

  • Discuss with Local Peer Support (LPS)
  • LPS may seek advice from a Complex Assessment Officer (CAO) if necessary
  • Where there are doubts about the accuracy of figures included on the profit and loss statement, request supporting evidence of income/expenses, such as invoices or receipts to verify amounts

2

Apportion expenses + Read more ...

Apportion relevant expenses from the 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.

3

Annualise adjusted net profit or loss + Read more ...

The adjusted net profit/loss for the period reflected on the profit and loss statement must be annualised.

To ensure the correct assessment is made use the interim profit and loss calculator for the business type, see Resources page for calculator.

When inputting dates in the profit and loss calculator, dates must be entered in the following format dd/mm/yyyy.

Examples, for:

  • Sole traders and partnerships, if the period is:
    • exactly 2 weeks - divide by 14 then multiply by 364
    • 31 days - divide by 31 and multiply by 364
  • Private trusts and private companies, if the period is:
    • exactly 2 weeks - divide by 14 then multiply by 365
    • 31 days - divide by 31 and multiply by 365

4

Recording the annual net profit or loss + Read more ...

Once an annual net profit or loss is determined, this amount can then be recorded for the business.

Note: the net income from the profit and loss statement period is used to determine the new ongoing rate of income only and must not be used to amend the period to which the interim profit and loss statement relates. The exception to this, is when there has been a notifiable event. For example, recording the new business for the first time

For assistance with:

5

Setting a review

A review is required to be set for when a subsequent profit and loss statement is required.

Private trust and private company businesses + Read more ...

Sole trader and partnership businesses + Read more ...

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: use the reason below for the relevant payment. For
    • PEN and NSS payment types, use BUS (Sale/Income from Business)
    • PPP, use SEP (Self Emp - P & L Statement Req)
    • ABSTUDY, use REV (Manual Review)
  • 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 interim 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.

Additional considerations + Read more ...

At each contact with the customer:

Tell the customer to provide the following when prepared:

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

6

Document details of the assessment + Read more ...

Complete a Note/DOC on the customer/entity record with details about the assessment. Make sure the following information is included:

  • Non-assessable income which has not been counted
  • Non-allowable deductions which have not been counted
  • An explanation of any expenses apportioned over the profit and loss statement period
  • Period of the interim profit and loss statement and the annualised calculation
  • Details of any reviews set
  • For private trust and private companies, any other income recorded on the customer's record as personal income such as wages