Deferred income and expenditure

Deferred income and expenditure can be adjusted each year by using a temporary difference workpaper. Examples where this may be required is for the deferral of expenditure incurred in the income statement, or for making adjustments for deposits and withdrawals to the income equalisation scheme.

Where it is not possible to attribute the income or expenditure to a specific account in the income statement or balance sheet, a temporary difference workpaper can be added as a standalone workpaper.

If income or expenditure adjustments are related to accruals and provisions recorded on the balance sheet, then the temporary difference workpaper should be added to those balance sheet accounts.

Add a standaolne temporary difference workpaper

1. Go to Workpapers > Workpapers
2. Click New workpaper and select Temporary difference
3. In the workpaper, click the pencil icon to change the name of the workpaper to easily identify it in the Workpapers list.
4. Update the Narration to be the description to display on the Tax Position.

Deferred expenditure

Deferred expenditure is not deductible in the current year and the workpaper needs to reflect the add-back of this expenditure as a positive value.

Enter the total amount of deferred expenditure that is not deductible at year end, so if expenditure was deferred in the prior year and remains deferred in the current year, then the prior year balance continues to be included in the current year balance.

In the example below, the taxpayer deferred $400,000 of expenditure in the prior year and has deferred an additional $100,000 of expenditure in the current year, without claiming any of the prior year expenditure. Entering $500,000 as the current year adjustment (being the closing balance of total deferred expenditure for this year) results in an addback of the $100,000 of deferred expenditure for this year.

In the next year, the taxpayer can deduct $200,000 of the previously deferred expenditure and also defers an additional $50,000, therefore the closing balance of deferred expenditure is $350,000. This results in a net adjustment of a deduction of $150,000.

When there is no deferred expenditure at the end of the current year or if there was no deferred expenditure in the prior year, set the relevant year’s balance as zero.

Income equalisation scheme

Take a similar approach to the above for tracking deposits into and withdrawals from an income equalisation scheme.

In this example, the taxpayer had $100,000 deposited with the scheme at the end of the prior year and deposited an additional $50,000 in the current year, therefore the total balance in the scheme at the end of the current year is $150,000. This results in an adjustment for the deduction of $50,000 in the current year tax calculation.

In the following year, the taxpayer withdraws $130,000 from the scheme, leaving $20,000 in the scheme and resulting in assessable income of $130,000 in the tax year. This is reflected in the tax adjustment on the workpaper.

If all the funds are withdrawn from the income equalisation scheme in the current year or if there was no balance in the scheme in the prior year, set the relevant year’s balance as zero.