Edited version of your private ruling

Authorisation Number: 1012023427007

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Self education and general expenses on commencement of a business

Questions

1. Are you entitled to a deduction for expenses in relation to seminars/ courses, where the expenses were incurred before your business commenced?

No.

2. Are you entitled to a deduction for expenses in relation to seminars/courses, where the expenses were incurred after your business commenced?

Yes.

3. Are you entitled to deductions for business expenses including advertising, telephone expenses, stationery, costs of drawing up documents and travel expenses which directly relate to your business and were incurred after the commencement date?

Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

The activity is conducted through a partnership.

You are currently doing a 12 month course learning the necessary strategies. The course is still current and concludes in the next calendar year.

No licence is needed to do the current activities.

You have been advertising your services after partially completing the training course. You have made payments for the training course before commencing your business.

You have incurred business expenses including advertising, stationery, travel, professional fees and telephone.

You have been negotiating transactions but have not had any successful transactions to date.

The business is ongoing and you are always working with some clients either in interviewing as sellers or buyers and increasing your knowledge to make this a viable business.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

Expenses incurred in relation to the seminars/courses prior to the commencement of business are not deductible. They are incurred at a point too soon. The expenses incurred in relation to the seminars/courses, which were incurred after you commenced business are deductible.

The general business expenses such as: advertising, telephone expenses, costs of having documents drawn up, travel expenses are deductible where they were incurred after commencement of business. Expenses of a private nature are not deductible. Capital items such as a computer used in the business can be depreciated based on the percentage of business use.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or necessarily incurred in carrying on a business, except where the outgoings are of a capital, private or domestic nature, relate to the earning of exempt income or are excluded by another provision of the taxation legislation.

Taxation Ruling TR 98/9 discusses the deductibility of self-education expenses. Self-education expenses are deductible where they have a relevant connection to the taxpayer's current income-earning activities. They are not capital expenses.

If a taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

No deduction is allowable for self-education expenses if the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

We consider that you have commenced a business activity from when you started advertising your services. You had an intention to carry on a business providing different services. You have advertised these services and have commenced negotiating deals. The training program you have undertaken relates directly to the work you are now undertaking in your business activity. The training program commenced before you commenced your business. First subscriptions to the course were paid at these seminars and were completed before you commenced advertising/business.

A portion of the self education expenses were incurred prior to commencing your business. As the expenses were incurred prior to commencing the business they are considered to be incurred at a point too soon and therefore are not deductible. They are not capital expenses and therefore do not fall for consideration under section 40-880 of the ITAA 1997 (black hole expenditure).

The self education expenses you incur after you commenced your business have a relevant connection to your current income-earning activities. Therefore the expenses relating to your training program incurred after you commenced business are an allowable self education deduction. The obtaining of further skills should increase your potential to earn income in your current business without opening up a new field.

The general business revenue expenses that you have incurred after commencing your business activity but before deriving any income are deductible. The expenses relate to income to be derived in the future and are necessarily incurred in carrying on your business. Capital expenses incurred, such as the purchase of a computer, are not immediately deductible but can be depreciated based on the percentage business use.

Other information

The non-commercial losses (NCL) rules may prevent any business loss being claimed against other income in this year. Unless you meet the necessary requirements under the NCL legislation, the loss from the business activity will be deferred to a future year.