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Edited version of your private ruling
Authorisation Number: 1012604302365
Ruling
Subject: Entity expenses
Question
1. Is the entity entitled to claim a deduction for the costs of the launch of a product?
Answer:
Yes
2. Is the company entitled to claim a deduction for the decline in value of the product?
Answer:
Yes
This ruling applies for the following period
Year ending 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
The entity runs a business.
Products are used by the entity in its business.
The entity is proposing to make a similar product and launch it.
The entity will incur expenses to launch the product.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 subsection 40-25(1)
Reasons for decision
Paragraph 8-1(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) states you can deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
Subsection 8-1(2) of the ITAA 1997 states however, you cannot deduct a loss or outgoing under this section to the extent that:
(a) it is a loss or outgoing of capital, or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your exempt income or your non-assessable, non-exempt income; or
(d) a provision of this Act prevents you from deducting it.
Subsection 40-25(1) of the ITAA 1997 states you can deduct an amount equal to the decline in value for an income year (and worked out under this Division) of a depreciating asset that you held for any time during the year.
In this case the entity will incur expenses in order to promote its new product. The entity will produce assessable income as a result of the promotion in the form of subsequent sales, therefore it is entitled to claim a deduction for the expenses incurred.
The company is also entitled to claim the decline in value of the product under Division 40 of the ITAA 1997.