ATO Interpretative Decision
ATO ID 2003/525
Income Tax
Capital Allowances: business related costs - establishing a business structure for an entity that predominantly derives investment incomeFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is an amount of capital expenditure incurred in establishing a business structure for an entity that predominantly derives investment income deductible under subsection 40-880(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. An amount of capital expenditure incurred in establishing a business structure for an entity that predominantly derives investment income is not deductible under subsection 40-880(1) of the ITAA 1997 because the entity would not generally be carrying on a business.
Facts
An entity derives its assessable income predominantly from investments. It incurs an amount of capital expenditure in establishing a structure to carry out its operations.
Reasons for Decision
Subsection 40-880(1) of the ITAA 1997 provides that an entity can deduct an amount of capital expenditure incurred in establishing a business structure to the extent that the business is, was or will be carried on for a taxable purpose.
Generally, an entity such as a company, partnership or trust that predominantly derives investment income such as rental income, share dividends and interest income would not be carrying on a business because of the passive nature of such investments (Cripps v. FC of T 99 ATC 2428; (1999) 43 ATR 1202).
Therefore, an entity that predominantly derives investment income would not satisfy the requirement in subsection 40-880(1) of the ITAA 1997 that the entity carries on a business for a taxable purpose.
Date of decision: 21 January 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
subsection 40-880(1)
Case References:
Cripps v. FC of T
99 ATC 2428
43 ATR 1202
ATO ID 2003/524
Keywords
Blackhole expenditure
Capital Allowances CoE
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 21 January 2003 | Original statement |
| 9 June 2006 | Archived |