Income Tax Assessment Act 1997
Note: A Commissioner ' s Remedial Power (CRP 2017/2) is relevant to this part of the tax law. Taxation Administration (Remedial Power - Small Business Restructure Roll-over) Determination 2017 (F2017L01687) modifies the operation of s 40-340 of the Income Tax Assessment Act 1997 and any other provisions of a taxation law whose operation is affected by the modified operation of s 40-340 in relation to an asset transferred under a small business restructure roll-over (item 8 of the table in s 40-340(1) ).
The operation of the relevant provisions is modified as follows:
If s 40-340 of ITAA 1997 provides for rollover relief in relation to a disposal of a depreciating asset because the condition in item 8 of the table in s 40-340(1) of ITAA 1997 is satisfied in relation to the asset, that section has effect as if it also provided that the disposal of the asset has no direct consequences under the income tax law (other than Div 40 of ITAA 1997).
The modification applies in respect of transfers on or after 8 May 2018.
An entity must treat a modification as not applying to it or any other entity if the modification would produce a less favourable result for it. The Commissioner is empowered by s 370-5 of Sch 1 to the Taxation Administration Act 1953 to make modifications, by legislative instrument, to ensure the law is administered to achieve its intended purpose or object.
The object of this section is to make certain *business capital expenditure deductible over 5 years, or immediately in the case of some start-up expenses for small businesses, if:
(a) the expenditure is not otherwise taken into account; and
(b) a deduction is not denied by some other provision; and
(c) the business is, was or is proposed to be carried on for a *taxable purpose.
If Division 250 applies to you and an asset:
You can deduct, in equal proportions over a period of 5 income years starting in the year in which you incur it, capital expenditure you incur:
(a) in relation to your *business; or
(b) in relation to a business that used to be carried on; or
(c) in relation to a business proposed to be carried on; or
(d) to liquidate or deregister a company of which you were a *member, to wind up a partnership of which you were a partner or to wind up a trust of which you were a beneficiary, that carried on a business.
However, you can deduct the capital expenditure in the income year in which you incur it if:
(a) the expenditure is incurred in relation to a business that is proposed to be carried on; and
(b) the expenditure is incurred:
(i) in obtaining advice or services relating to the proposed structure, or proposed operation of the business; or
(ii) in payment to an *Australian government agency of fees, taxes or charges relating to establishing the business or its operating structure; and
(c) you are a *small business entity, or an entity covered by subsection (2B), for the income year, or both of the following apply:
(i) you are not carrying on a *business in the income year;
(ii) you are not *connected with, or an *affiliate of, another entity that carries on a business in the income year and that is neither a small business entity, nor an entity covered by subsection (2B), for the income year.
An entity is covered by this subsection for an income year if: (a) the entity is not a *small business entity for the income year; and (b) the entity would be a small business entity for the income year if:
(i) each reference in Subdivision 328-C (about what is a small business entity) to $10 million were instead a reference to $50 million; and
(ii) the reference in paragraph 328-110(5)(b) to a small business entity were instead a reference to an entity covered by this subsection.
You can only deduct the expenditure, for a *business that you carry on, used to carry on or propose to carry on, to the extent that the business is carried on, was carried on or is proposed to be carried on for a *taxable purpose.
You can only deduct the expenditure, for a *business that another entity used to carry on or proposes to carry on, to the extent that:
(a) the business was carried on or is proposed to be carried on for a *taxable purpose; and
(b) the expenditure is in connection with:
(i) your deriving assessable income from the business; and
(ii) the business that was carried on or is proposed to be carried on.
You cannot deduct anything under this section for an amount of expenditure you incur to the extent that:
(a) it forms part of the *cost of a *depreciating asset that you *hold, used to hold or will hold; or
(b) you can deduct an amount for it under a provision of this Act other than this section; or
(c) it forms part of the cost of land; or
(d) it is in relation to a lease or other legal or equitable right; or
(e) it would, apart from this section, be taken into account in working out:
(i) a profit that is included in your assessable income (for example, under section 6-5 or 15-15 ); or
(ii) a loss that you can deduct (for example, under section 8-1 or 25-40 ); or
(f) it could, apart from this section, be taken into account in working out the amount of a *capital gain or *capital loss from a *CGT event; or
(g) a provision of this Act other than this section would expressly make the expenditure non-deductible if it were not of a capital nature; or
(h) a provision of this Act other than this section expressly prevents the expenditure being taken into account as described in paragraphs (a) to (f) for a reason other than the expenditure being of a capital nature; or
(i) it is expenditure of a private or domestic nature; or
(j) it is incurred in relation to gaining or producing *exempt income or *non-assessable non-exempt income. 40-880(6)
The exceptions in paragraphs (5)(d) and (f) do not apply to expenditure you incur to preserve (but not enhance) the value of goodwill if the expenditure you incur is in relation to a legal or equitable right and the value to you of the right is solely attributable to the effect that the right has on goodwill. 40-880(7)
You cannot deduct an amount under paragraph (2)(c) in relation to a *business proposed to be carried on unless, having regard to any relevant circumstances, it is reasonable to conclude that the business is proposed to be carried on within a reasonable time.
You cannot deduct anything under this section for an amount of expenditure that, because of a market value substitution rule, was excluded from the *cost of a *depreciating asset or the *cost base or *reduced cost base of a *CGT asset.
Some examples of market value substitution rules are subsection 40-180(2) (table item 8), subsection 40-190(3) (table item 1) and sections 40-765 and 112-20 .40-880(9)
You cannot deduct anything under this section for an amount of expenditure you incur:
(a) by way of returning an amount you have received (except to the extent that the amount was included in your assessable income or taken into account in working out an amount so included); or
(b) to the extent that, for another entity, the amount is a *return on or of:
(i) an *equity interest; or
(ii) a *debt interest that is an obligation of yours.
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