Centrelink profit and loss statement: filling in the SU580 from Xero

Short answer: if you are a sole trader, subcontractor or partner in a partnership and you get a Centrelink payment, Services Australia uses your business profit, not your sales, to work out your income. When you start a business, or your business income changes, it asks for a profit and loss statement covering about 3 months. You can send one prepared by your accountant or fill in the Profit and Loss Statement form (SU580). Centrelink turns it into an average fortnightly profit and reassesses it every 3 months until you have a tax return that covers a full financial year of trading. If your books are in Xero, its Profit and Loss report for the period gives you most of the numbers. The catch is that Centrelink allows fewer deductions than the ATO, so a few lines need adding back. A worked example is below.

This guide explains the sums. It is not advice on your payment. Services Australia’s notes on the current version of the form are the final word, so read them before you send it.

Who uses the SU580, and who does not

Services Australia’s form page says to use it if you are a sole trader, subcontractor or partner in a partnership that has started a new business or new self-employment, or whose business activity or income has changed. Send an updated statement within 14 days of a major change to your business income.

It is not the form to use if:

• last year’s financial statements still reflect how profitable the business is now,
• you are a wage or salary earner, a pieceworker, or in an employee and employer type relationship (you report gross pay instead), or
• your business runs through a private company or trust (Centrelink assesses those differently).

If a landlord, letting agent or lender is asking instead, see the profit and loss statement for self-employed sole traders: what they usually want alongside it, and a worked example.

You usually lodge it by uploading it in your Centrelink online account through myGov or the Express Plus Centrelink app. If Centrelink has asked for it, check the due date in the letter.

What Centrelink lets you deduct, and what it does not

The Social Security Guide lets sole traders and partners deduct costs needed to earn the business income, depreciation of business assets under Division 40 of the Income Tax Assessment Act 1997 (you will need a depreciation schedule), and superannuation paid for employees.

It does not allow, among other things:

• superannuation for yourself as the sole trader or partner,
• depreciation under the small business concessions (Subdivision 328-D: the simplified depreciation pool and the instant asset write-off),
• entertainment,
• losses from earlier years, or losses from another business used to offset this one,
• donations, borrowing costs, some capital costs and amortisation of intangible assets,
• private health insurance and personal life insurance premiums.

Any of these that are already in your expenses get added back to net profit. Any “wage” you pay yourself as a sole trader is added back too, because Centrelink does not treat it as employment income. Drawings are not an expense in the first place, so they are already outside profit.

Worked example: a landscaper’s quarter in Xero

Mia is a sole trader landscaper in Queensland, registered for GST, and she gets a part-rate Centrelink payment. Her business income has grown, so she prepares a statement from her Xero Profit and Loss for 1 July to 30 September, which is 13 weeks. All figures exclude GST.

Xero Profit and Loss, 1 Jul to 30 Sep	$
Sales	24,000
Materials (cost of sales)	6,500
Gross profit	17,500
Fuel and vehicle (business share)	1,800
Phone (business share)	300
Insurance (public liability)	600
Advertising	400
Bank fees	100
Depreciation: new mower, instant asset write-off	3,000
Superannuation (her own)	1,500
Entertainment (client lunches)	250
Total expenses	7,950
Net profit in Xero	9,550

Step 1: add back what Centrelink does not allow. The instant asset write-off is $3,000, her own super is $1,500 and entertainment is $250, so $4,750 goes back on.

Step 2: put back the depreciation Centrelink does allow. Under Division 40, the mower is depreciated over its effective life instead of all at once. Say her accountant’s depreciation schedule gives $190 for the quarter (her real figure depends on the asset and the method).

Step 3: the adjusted profit. 9,550 + 4,750 − 190 = $14,110 for the 13 weeks.

Step 4: the fortnightly figure. 13 weeks is 6.5 fortnights, so 14,110 ÷ 6.5 = about $2,171 a fortnight. Centrelink does its own assessment, but working the number out yourself means a surprise in your payment is unlikely, and if their figure differs a lot from yours you can ask why.

Her Xero profit was $9,550, while the profit Centrelink looks at is $14,110, nearly 50% higher. The gap comes from the write-off and her own super. Copying the bottom line straight from the accounts would have understated her income, which is how an overpayment debt can build up. The free Centrelink profit and loss calculator does these four steps on your own figures.

If the business made a loss

A loss does not lower your other income for Centrelink. Services Australia’s operational guide spells out the difference: the ATO lets a business loss be offset against wages, interest, dividends and most other income, but that offsetting is not allowed for the social security income test. A loss also cannot be set against the profit of an unrelated business you run. The exception is when the second business’s income could not have arisen without the first one’s costs: those are treated as related, and one can be offset against the other.

Do the same add-backs first, because a loss in Xero is often a profit for Centrelink. Say Tom is a sole trader photographer who also earns $900 a fortnight in wages from a part-time job. His Xero Profit and Loss for the quarter shows a net loss of $3,200, and it includes a $2,000 instant asset write-off for a new camera. Adding that back and putting back, say, $150 of Division 40 depreciation gives −3,200 + 2,000 − 150 = −$1,350. That is still a loss, so the business adds nothing to his assessed income, but his $900 a fortnight of wages is counted in full. On his tax return the ATO’s non-commercial loss rules decide whether the loss can reduce his taxable wages; the two answers can differ.

Still send the statement if Centrelink asks for one: it shows the business is not adding income. If a loss carries on for several quarters, profit but no cash and how many months of cash a business should have help you work out how long the bank balance will last.

Getting the numbers out of Xero

1. Reconcile the bank first. Every unreconciled line is a sale or a cost missing from the report. If the balances do not agree, why your Xero bank balance does not match goes through the usual causes.
2. Run the Profit and Loss for the exact dates. Go to Reports and open Profit and Loss, then set a custom date range for the period the statement covers. Menu names move between Xero releases, so if a label differs, search Xero Central for the report name. How to read your Profit and Loss in Xero explains each section.
3. Check the basis. Xero’s report is on an accrual basis by default, so a sale counts on the invoice date, not when you were paid. If you are not sure which basis to use, ask your accountant or Centrelink, and say which one you used. Cash vs accrual in Xero shows how far apart the two can be.
4. Find the add-backs. Look for your own super, entertainment, instant asset write-offs or pooled depreciation, private insurance paid from the business account, and any “wages” paid to yourself. Your accountant can supply the Division 40 depreciation figure.
5. Export it. Use Export and choose PDF, and keep it with your workings, in case Centrelink asks how you got from Xero’s figure to the one on the form.

If the quarter was unusual, for example a big job landed in it or a quiet season is coming, the next 3 months may look different. Report what you expect, and update it within 14 days if it changes a lot. A profit and loss statement example shows the layout line by line if you are building one without Xero, and the free profit and loss sheet lets you type in your quarter’s figures and download them as a spreadsheet. Its totals are your accounting profit, so make the add-backs above before you copy a figure onto the SU580.

Common questions

What is a Centrelink profit and loss statement? It is a statement of your business income and expenses over about 3 months that Services Australia uses to work out your income from self-employment. Sole traders, subcontractors and partners use the SU580 form or send one from their accountant, and Centrelink turns the profit into an average fortnightly amount.

How often do I need to send Centrelink a profit and loss statement? Centrelink reassesses it every 3 months until you have an income tax return that covers a full financial year of trading. You should also send an updated one within 14 days of a major change to your business income.

Can I just send my Xero Profit and Loss report? Services Australia accepts a statement from an accountant instead of the SU580. A Xero report you run yourself is a good starting point, but it may include deductions Centrelink does not allow, such as your own super or an instant asset write-off, so check the current form notes or ask your accountant before sending it as is.

Does Centrelink count GST in my income? If you are registered for GST, leave GST out of both income and expenses, the way Xero’s Profit and Loss already shows them. If you are not registered, your costs include the GST you paid because you cannot claim it back.

Is superannuation deductible for Centrelink? Super you pay for employees is. Super you pay for yourself as a sole trader or partner is not, so add it back to your profit.

How does Centrelink work out my fortnightly income from a profit and loss? It averages the profit over the period. For a 13-week statement, that is the adjusted profit divided by 6.5 fortnights, and for a full year it is divided by 26.

Can a business loss reduce my other income for Centrelink? No. The ATO may let a sole trader offset a business loss against wages or investment income, but Services Australia does not allow that for the income test, and a loss in one business cannot be set against an unrelated business’s profit. Add back what Centrelink does not allow first, because a loss in Xero can turn into a profit.

Watching your profit every week

ReportPilot reads your Xero figures and emails you every Monday in plain English. It shows how last month’s sales and net profit compared with the month before and the same month last year (once Xero has 13 months of figures), flags gross margin when it moves by 3 percentage points or more, and covers cash, who owes you and bills due soon. It does not fill in Centrelink forms, but it means a change in your profit is something you already know about when the next statement is due. It asks Xero for read-only access, and there is a 14-day free trial with no card.