Part B: Section 40-880 deduction
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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Can you deduct business related costs under section 40-880?
You need to know
Certain business related costs incurred after 30 June 2001 are deductible over five income years under section 40-880 of ITAA 1997 to the extent that the business is, was or will be carried on for a taxable purpose, such as for producing assessable income. You may be able to claim a deduction for the following types of business related capital expenditure:
- costs of establishing your business structure – such as the costs of incorporating a company or creating a trust or partnership through which you will carry on your business
- costs of converting your business structure to another structure – such as the costs of transferring your business assets to another entity through which you will carry on your business
- costs of raising equity for your business
- costs of defending your business against a takeover
- costs to the business of unsuccessfully attempting a takeover
- costs of liquidating a company that carried on a business and of which you are a shareholder
- costs to stop carrying on your business – such as the legal costs of terminating the services of employees when the business ceases.
Note: You deduct 20% of the expenditure in the year you incur it and in each of the following four years.
The deduction cannot be claimed for capital expenditure which:
- can be deducted under another provision
- forms part of the cost of a depreciating asset or of land
- relates to a lease
- would be taken into account in working out a profit or loss
- would be taken into account when working out the amount of a capital gain or capital loss, or
- is specifically not deductible under the income tax laws – such as a fine.
If the deduction arises from a non-arm's length transaction and the expenditure is more than the market value of what it was for, the amount of the expenditure is instead taken to be that market value.
Any recoupment of the expenditure must be shown as assessable income, either at Other business income or as part of your Income reconciliation adjustments in RECONCILIATION ITEMS item P8 on your schedule.
Claim the amount deductible under section 40-880 at this part where you carried on a business as an individual at any time during the year. If you stopped carrying on business as an individual in the prior year and you have not fully claimed your five-year write-off under section 40-880, claim the amount deductible this year at item D15 on your tax return.
Completing this part
Last modified: 18 Feb 2020QC 27547
Write your deduction for primary production business related costs at Section 40-880 deduction, Primary production column, item P8 on your schedule. Do not show cents.
Write your deduction for non-primary production business related costs at Section 40-880 deduction, Non-primary production column, item P8 on your schedule. Do not show cents.
Add up your primary production and non-primary production deductions for business related costs and write the total amount at A item P8 on your schedule.