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Business related costs - section 40-880 deductions

Last updated 30 October 2005

Certain business related capital expenditure incurred after 30 June 2001 is deductible to the extent that the business is, was or will be carried on for a taxable purpose. The following types of capital expenditure may qualify for deduction:

  • expenditure to establish your business structure - such expenditure includes the costs of incorporating a company or creating a partnership or trust through which you will carry on your business but does not include the costs of acquiring a franchise or goodwill
  • expenditure to convert your business structure to a different structure - such as the costs of transferring your business assets to a partnership because you have decided to start carrying on your business through a partnership rather than as a sole trader
  • expenditure to raise equity for your business
  • expenditure to defend your business against a takeover
  • costs to your business of unsuccessfully attempting a takeover
  • costs of liquidating a company that carried on a business and of which you are a shareholder, and
  • costs to stop carrying on your business - such as the legal costs of terminating the services of employees when the business ceases.

The deduction cannot be claimed for capital expenditure to the extent to which it:

  • can be deducted under another provision
  • forms part of the cost of a depreciating asset you hold or of land
  • relates to a lease
  • would be taken into account in working out an assessable profit or deductible loss
  • would be taken into account in working out a capital gain or a capital loss, or
  • is specifically not deductible under the income tax laws - such as a fine.

If the expenditure arises from a non-arm's length dealing and is more than the market value of what it was for, the amount of the expenditure is taken to be that market value.

You deduct 20% of the expenditure in the year you incur it and in each of the following four years.

A recoupment of the expenditure may be included in your assessable income.