ATO Interpretative Decision
ATO ID 2005/308 (Withdrawn)
Income tax
Capital allowances: business related costs - 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This ATO ID is withdrawn as former section 40-880 of the Income Tax Assessment Act 1997 has been repealed.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is the expenditure incurred by the taxpayer 'expenditure to convert your business structure to a different structure' for the purpose of paragraph 40-880(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The expenditure incurred by the taxpayer is not 'expenditure to convert your business structure to a different structure' for the purpose of paragraph 40-880(1)(b) of the ITAA 1997 because it was not expenditure for the requisite purpose of converting the taxpayer's business structure to a different structure.
Facts
The taxpayer carried on business for a taxable purpose. Transactions purporting to transfer ownership and control of shares in and assets of the taxpayer to other entities were entered into without the knowledge or consent of the taxpayer's shareholders.
The taxpayer initiated legal proceedings to remedy the purported effect of these unauthorised transactions. The transactions were declared void and of no legal effect. The taxpayer incurred expenditure on legal and other professional costs for the legal action.
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 described in section 40-880(1) of the ITAA 1997 is expenditure you incur that is to convert your business structure to a different structure, to the extent your business is carried on for a taxable purpose.
The requirement in paragraph 40-880(1)(b) of the ITAA 1997 that the capital expenditure be 'to convert' is satisfied if the expenditure is incurred directly for the purpose of and as an integral part of the process of converting your business structure to a different structure.
The costs the taxpayer incurred all related to the legal case instituted against the persons that entered into the unauthorised transactions. The purpose of the expenditure was to remedy the mischief resulting from the actions of those persons. The legal and other professional fees incurred for this purpose are not capital expenditure directly, actively and immediately necessary for a conversion to a different structure through which the taxpayer will carry on its business for a taxable purpose.
The expenditure is, therefore, not 'expenditure to convert your business structure to a different structure' for the purpose of paragraph 40-880(1)(b) of the ITAA 1997.
Date of decision: 26 October 2005Year of income: Period from 1 January 2004 to 31 December 2004 Period from 1 January 2005 to 31 December 2005 Period from 1 January 2006 to 31 December 2006
Legislative References:
Income Tax Assessment Act 1997
section 40-880
subsection 40-880(1)
paragraph 40-880(1)(b)
Keywords
Blackhole expenditure
Capital Allowances CoE
Capital expenditure
Legal expenses
Uniform capital allowances system
ISSN: 1445-2782
| Date: | Version: | |
| 26 October 2005 | Original statement | |
| You are here | 9 June 2006 | Archived |