ATO Interpretative Decision
ATO ID 2003/249 (Withdrawn)
Income Tax
Capital Allowances: business related costs - to establish your business structureFOI 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This ATO ID is withdrawn as former section 40-880 of the Income Tax Assessment Act 1997 has been repealed.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.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Are fees paid by the taxpayer to their legal advisor to review a sublease and a licence agreement before entering into them deductible under paragraph 40-880(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The legal fees paid by the taxpayer to their legal advisor to review a sublease and licence agreement before entering into them are not deductible under paragraph 40-880(1)(a) of the ITAA 1997 because the fees were not incurred to establish the taxpayer's business structure.
Facts
The taxpayer proposed to open a 'branded' retail business in subleased premises. The taxpayer paid their legal advisor to review a sublease agreement for the premises and a licence agreement for the use of intellectual property in the business. The review was carried out before the taxpayer entered into the agreements and before the retail business commenced to operate.
Reasons for decision
Subject to certain requirements and exclusions, section 40-880 of the ITAA 1997 provides a deduction for certain types of business related capital expenditure incurred after 30 June 2001.
One of these types of expenditure is described in paragraph 40-880(1)(a) of the ITAA 1997 as expenditure to establish your business structure. The term 'business structure' refers to 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. Neither the sublease agreement nor the licence agreement amounts to a business structure for the purpose of paragraph 40-880(1)(a).
In addition, subsection 40-880(3) of the ITAA 1997 prevents a deduction under section 40-880 to the extent the expenditure is in relation to a lease or other legal or equitable right. The sublease and the licence are leases and rights and the legal expenses to review them were incurred in relation to those agreements.
It follows that the legal fees paid by the taxpayer to review the sublease and licence agreements are not deductible under section 40-880 of the ITAA 1997 because they were not incurred in establishing the business structure and are, in any event, specifically excluded from being deductible.
Date of decision: 9 August 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 40-880
paragraph 40-880(1)(a)
subsection 40-880(3)
Keywords
Blackhole expenditure
Capital allowances CoE
Legal expenses
Uniform capital allowances system
ISSN: 1445-2782
| Date: | Version: | |
| 9 August 2002 | Original statement | |
| You are here | 9 June 2006 | Archived |