Item 7 -Reconciliation Statement For Company - ATO

*Item 7 -Reconciliation Statement For Company

Description

PP

NPP

A

Accounting Net profit or Loss (Excluding Income Tax Expenses)

B

Income reconciliation adjustments (H-L)

H

Add backs: Assessable income which are not shown in Books (E+F+G)

E- Assessable balancing adjustment amounts on depreciating assets

F- Any excess of the tax value of closing stock over the tax value of opening stock (non-small business entities – see item 40 Closing stock)

G- Other assessable income not included in the Books

L

Subtractions: Non assessable income which are shown in Books (I+J+K)

I- Profit on the sale of depreciating assets shown in the books

J- Personal services income included in the assessable income of an individual (attributed amount)

K- Other income shown in the books which is not assessable for tax purposes  

For example: Exempted income

C

Expense reconciliation adjustments (P-U)

P

Add backs: Expenses which are shown in the books but are not tax deductible (M+N+O)

M- Depreciation charged in books

N- Loss on the sale of depreciating assets

O- Other items not allowable as a deduction:

• Capital expenditure 

• Additions to provisions and reserves

• Debt deductions denied by thin capitalisation provisions 

• Income tax expense

• Certain expenses relating to personal services income that are not deductible 

• Hire-purchase payments 

• Luxury car lease payments 

• Penalties and fines 

• Part of prepaid expenses not deductible this year

• Expenses relating to exempted income

• Other non-deductible expenses

U

Subtractions: Expense which are not shown in the books but are tax deductible (Q+R+S+T)

Q- Depreciation charged as per Tax depreciation rules

R- Deductible balancing adjustments amount on depreciating assets

S- Any excess of the tax value of opening stock over the tax value of closing stock (non-small business entities: see item 40 Closing stock)

T- Other tax-deductible items: 

• Other amounts deductible under the uniform capital allowance system 

• Hire-purchase agreements – interest component 

• Luxury car leases – accrual amount

• Part of prepaid expenses deductible this year but not shown in accounts 

• 20% write-off of capital expenditure to terminate lease or licence

• TOFA rules deductions not shown in accounts 

• Other deductible items

D- Taxable Net income or loss from business (A+B+C)

Subtractions I- Profit on the sale of depreciating assets shown in the books (shown in Books)

Add backs: E- Assessable balancing adjustment amounts on depreciating assets (not shown in Books)

Example: Working out an assessable balancing adjustment amount, ignoring any GST impact

Emil purchased a Fixed Asset that he held for two years and used wholly for a business purpose. Then he sold the Fixed Asset for $1,300.  Fixed Asset adjustable value at the time of sales was $1,200.

Adjustable value means Asset value as per Tax Schedule 

Assessable income as an assessable balancing adjustment amount on depreciating assets = Sale Value - Adjustable value

= $1,300 - $1,200

= $100

Add backs: N- Loss on the sale of depreciating assets (shown in Books) 

Subtractions: R- Deductible balancing adjustments amount on depreciating assets (not shown in Books)

Example: Working out a deductible balancing adjustment amount, ignoring any GST impact

If Emil sold the Fixed Asset for $1,000, the termination value would be less than the adjustable value, adjustable value at the time of sales was $1,200.

Adjustable value means Asset value as per Tax Schedule  

Deductible Expenses balancing adjustments amount on depreciating assets = Sale Value - Adjustable value

= $1,000 -$1,200

=-$200