ATO Interpretative Decision
ATO ID 2005/107 (Withdrawn)
Income tax
Capital Allowances: business related costs - costs to stop carrying on your business - apportionment of single paymentFOI 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This ATO ID is withdrawn as former section 40-880 of the Income Tax Assessment Act 1997 has been repealed.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can a single capital payment made by the taxpayer for the performance of a variety of activities or tasks be apportioned, so as to work out that part of the payment attributable to the activities satisfying paragraph 40-880(1)(g) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. A part of the single payment can be attributed to activities or tasks satisfying paragraph 40-880(1)(g) of the ITAA 1997. This is because the payment was made, in part, for the performance of those activities and tasks that fall within that paragraph, and also in part, for other activities and tasks that do not fall within the description of paragraph 40-880(1)(g).
Facts
The taxpayer, the trustee of a deceased estate, as part of its role in administering the estate, carried on a business for a taxable purpose for a period. In the process of finalising the estate the taxpayer stopped carrying on the business.
The taxpayer incurred an amount of capital expenditure for a series of specific activities and particular tasks performed by another unrelated entity around the time that the taxpayer stopped carrying on business. The expenditure was charged to the taxpayer at the conclusion of all the activities and tasks as a single set amount.
The entity performing the activities and tasks was engaged by the trustee as part of the bringing to finalisation the administration of the estate. The activities included arranging the funeral of the deceased and terminating the contracts of employees. The latter activities were undertaken as part of the process to stop the business being carried on by the taxpayer.
Reasons for Decision
Subsection 40-880(1) of the ITAA 1997 applies to capital expenditure incurred by a taxpayer that is one of the types of business related costs listed in that subsection (and that is not excluded from deduction under subsection 40-880(3)).
In particular, paragraph 40-880(1)(g) of the ITAA 1997 allows a deduction for capital expenditure incurred that constitutes 'costs to stop carrying on your business'.
In some situations a single payment may be made for the performance of various tasks or activities. Where the tasks or activities can be separately identified, it may be that some of the payment can objectively be attributed to those tasks and activities because some part of that payment was made for the performance of those particular tasks and activities.
In the current facts, the various tasks or activities undertaken were diverse and were undertaken for their own particular and separate purposes, and the payment, although made in a single sum, was made for each and all of those tasks and activities.
Accordingly, it is appropriate to attribute the taxpayer's payment as between the various tasks and activities. The amount of the payment attributable to those tasks or activities that are, objectively, for the purpose of stopping the carrying on of the taxpayer's business are 'costs to stop carrying on your business' for the purpose of paragraph 40-880(1)(g) of the ITAA 1997. Those costs represent the proportion of the total amount of capital expenditure incurred that qualifies as 'costs to stop carrying on your business'.
In this case, the funeral costs were not costs to stop carrying on your business, while the costs of terminating the contracts of employees were costs to stop carrying on your business.
Date of decision: 15 January 2005Year of income: Year ended 30 June 2004 Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
section 40-880
subsection 40-880(1)
paragraph 40-880(1)(g)
subsection 40-880(2)
subsection 40-880(3)
ATO ID 2005/106
ATO ID 2005/108
Keywords
Blackhole expenditure
Business related costs
Capital Allowances CoE
Deceased estates
Deductions & expenses
Entities & taxpayer groups
Uniform capital allowances system
ISSN: 1445-2782
| Date: | Version: | |
| 15 January 2005 | Original statement | |
| You are here | 9 June 2006 | Archived |