Edited version of private advice

Authorisation Number: 1052479301050

Date of advice: 17 Dec 2025

Ruling

Subject: Deductions - when incurred

Question

Are you entitled to a deduction for the expenses incurred in the 2026 financial year?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2026

The scheme commenced on:

1 July 2025

Relevant facts and circumstances

Your principal previously worked at another firm.

You incurred expenses in the 2025 financial year to enable you to commence business on 1 July 2025.

Your business activities commenced on 1 July 2025.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where they are of a capital, private or domestic nature, or relate to the earning of exempt income.

When expenses are incurred

Taxation Ruling TR97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions provides guidance on the meaning of the term 'incurred' and the timing of deductions.

Paragraph 3 of TR97/7 states that to qualify for deduction under section 8-1 of the ITAA 1997 a loss or outgoing must have been incurred.

There is no statutory definition of the term 'incurred'; however, the ruling outlines general rules, settled by case law, which will assist in most cases in defining when an outgoing is incurred.

Broadly, an expense is incurred at the time that a present money debt is owed and cannot be escaped. Importantly, a taxpayer need not have actually paid any money to have incurred such an outgoing, providing they are definitively committed to it in the year of income. That is, an expense may be incurred where there is a presently existing liability to pay a pecuniary sum.

The courts have developed a set of rules that help to determine if an expense has been incurred:

•                there must be a presently existing liability to pay a pecuniary sum;

•                the taxpayer's liability may be defeasible by others;

•                the liability must be a sum certain or capable of reasonable estimation;

•                presently existing liability is determined on the circumstances of the case;

•                an expense is incurred when actually paid if there was no presently existing liability.

Paragraph 7 of TR 97/7 states that the outgoing must also be properly referable to the year of income in which the deduction is sought (Coles Myer Finance Pty Ltd v. FC of T 93 ATC 4214 at 4222)

Application to your circumstances

In your case, you incurred expenses prior to 30 June 2025. Therefore, these expenses were 'incurred' in the 2025 financial year for taxation purposes. If these expenses are deductible, they can only be claimed in the income year they were incurred. Consequently, you are not entitled to a deduction in the 2026 financial year for the expenses incurred in the 2025 financial year.