ATO Interpretative Decision

ATO ID 2003/152 (Withdrawn)

Uniform capital allowances

Capital Allowances: business related costs - to establish a business structure
FOI status: may be released

This ATO ID is withdrawn as former section 40-880 of the Income Tax Assessment Act 1997 has been repealed.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.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 capital expenditure incurred to obtain professional advice about adopting a constitution for the purpose of forming a company deductible under paragraph 40-880(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. Capital expenditure incurred to obtain professional advice about adopting a constitution for the purpose of forming a company is deductible under paragraph 40-880(1)(a) of the ITAA 1997 provided the other requirements of section 40-880 of the ITAA 1997 are satisfied.

Facts

The taxpayer decided to acquire and operate an existing business through a company. The taxpayer sought advice from their accountant on the process that needed to be followed to incorporate the company and from their legal advisor on the drafting of a constitution for the company. The taxpayer paid fees to both the accountant and lawyer for this advice.

Reasons for Decision

Capital expenditure to establish a business activity is generally different to and separate from capital expenditure to establish the structure through which the business is carried on.

Broadly speaking, paragraph 40-880(1)(a) of the ITAA 1997 provides a deduction for capital expenditure to establish a '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.

Incorporation of a company is achieved by registering it pursuant to the Corporations Act 2001. Registration usually requires the lodgment of an application for registration and, where appropriate, a constitution with the Australian Securities and Investments Commission. This means that a company comes into existence or is established on the date it is registered.

Settling on the contents of a company constitution and registering the company are both integral to establishing a company structure and, provided the other requirements of the section are met, the cost of professional advice for these services is deductible under paragraph 40-880(1)(a) of the ITAA 1997.

Date of decision: 24 December 2002

Year of income: Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
section 40-880
paragraph 40-880(1)(a)

Corporations Act 2001
1

Related ATO Interpretative Decisions
ATO ID 2003/151
ATO ID 2003/153

Keywords
Accounting expenses
Blackhole expenditure
Business related costs
Incorporation expenses
Legal expenses

Business Line: Capital Allowances Centre of Expertise

Date of publication: 21 March 2003

ISSN: 1445-2782

history

	Date:	Version:
	24 December 2002	Original statement
You are here	9 June 2006	Archived

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