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Business related costs - section 40-880 deductions

Last updated 7 April 2020

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
  • costs to stop carrying on your business - such as the legal costs in 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.