ATO Interpretative Decision
ATO ID 2003/376 (Withdrawn)
Income Tax
Capital Allowances: business related costs - stamp duty incurred on acquiring a businessFOI status: may be released
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This ATO ID is withdrawn as former section 40-880 of the Income Tax Assessment Act 1997 has been repealed. New section 40-880 provides deductions for a greater range of business related costs where the expenditure is incurred after 30 June 2005. Expenditure incurred after that date is deducted under new subsection 40-880(2).
Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of expenditure incurred before 1 July 2005.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 9 June 2006
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 stamp duty incurred by the taxpayer on their acquisition of an existing business deductible under paragraph 40-880(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. Stamp duty incurred by the taxpayer on their acquisition of an existing business is not deductible under paragraph 40-880(1)(a) of the ITAA 1997, because the stamp duty is not incurred to establish the business structure through which the business will be carried on.
Facts
The taxpayer acquired an existing business which was carried on by a sole trader. The business comprised goodwill and depreciating assets. The taxpayer incurred stamp duty in relation to the acquisition of the business. Under the relevant state law, the stamp duty was calculated on the price paid for the goodwill and the depreciating assets.
Reasons for Decision
Paragraph 40-880(1)(a) of the ITAA 1997 provides a deduction for capital expenditure incurred by a taxpayer in establishing their 'business structure'. The term 'business structure' covers the legal entity (such as a company) or the legal relationship (such as a partnership or trust) that is established as the entity that will carry on the business for a taxable purpose and that will hold the business assets. Expenditure to incorporate a company, form a partnership or create a trust would generally satisfy this provision.
In this case, the stamp duty was incurred on acquiring the existing business (or, more correctly, on the transfer of the goodwill and depreciating assets that comprised the business) and not on the structure through which the taxpayer proposed to carry on that business. A deduction under paragraph 40-880(1)(a) of the ITAA 1997 is, therefore, not available.
In any event, section 40-880 of the ITAA 1997 is a provision of last resort. That is, a deduction is not available under section 40-880 of the ITAA 1997 for expenditure that is recognised elsewhere in the income tax law. This is achieved through subsection 40-880(3) of the ITAA 1997 which denies a deduction for certain expenditure that is otherwise deductible under subsection 40-880(1) of the ITAA 1997 because it satisfies one of the types of expenditure described in subsection 40-880(1) of the ITAA 1997.
In particular, paragraph 40-880(3)(a) of the ITAA 1997 denies a deduction to the extent that the capital expenditure incurred forms part of the cost of a depreciating asset held. Part of the stamp duty was incurred for the transfer of the depreciating assets and represents part of the cost to hold them. That part of the stamp duty is, therefore, denied a deduction.
In addition, paragraph 40-880(3)(f) of the ITAA 1997 denies a deduction to the extent that the capital expenditure incurred would be taken into account in working out the amount of a capital gain or capital loss from a CGT event. Goodwill is a CGT asset. Part of the stamp duty was incurred for the transfer of the goodwill and represents an incidental cost of its cost base. That part of the stamp duty is, therefore, denied a deduction.
Date of decision: 14 April 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 40-880
subsection 40-880(1)
paragraph 40-880(1)(a)
subsection 40-880(3)
paragraph 40-880(3)(a)
paragraph 40-880(3)(f)
ATO ID 2002/1035
Keywords
Blackhole expenditure
Capital Allowances CoE
CGT cost base
Cost of a depreciating asset
Stamp duties
Uniform capital allowances system
ISSN: 1445-2782
| Date: | Version: | |
| 14 April 2003 | Original statement | |
| You are here → | 9 June 2006 | Archived |