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Edited version of your private ruling
Authorisation Number: 1012441308161
Ruling
Subject: Costs associated with superannuation fund
Question
Are the costs associated with the setup of a bare trust and trustee company deductible to the superannuation fund?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You entered into a limited recourse borrowing arrangement to hold property through the creation of a bare trust and trustee company in the 2011-12 financial year and incurred costs in relation to that arrangement.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
A general deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) is a loss or outgoing that has the relevant connection with income or business activities, and that is not of a capital, private or domestic nature. A specific deduction, on the other hand, is an amount that a provision other than the general deduction provision allows as a deduction.
The cost of setting up the trustee company and bare trust are considered to be capital expenses, and not deductible under the general provisions. The expenses are not incurred in deriving income or carrying on a business, as they are incurred at a point too soon. They are capital expenses incurred in creating an entity that may be involved in purchasing an investment property on behalf of the superannuation fund. The expenditure creates the structure that has an enduring benefit to the taxpayer, in the form of an entity.
The expenditure is also not deductible under the five year write-off for 'blackhole' business capital costs (section 40-880 of the ITAA 1997) as it does not relate to a business that was or is proposed to be carried on for a taxable purpose. There is no business carried on if the property is purchased and held by the bare trust. It is a passive investment on behalf of the superannuation fund.