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Edited version of private advice
Authorisation Number: 1051644981465
Date of advice: 9 March 2020
Ruling
Subject: Deduction for environmental protection activities
Question
Will the payment of compensation for environmental protection activities be an allowable as an immediate deduction?
Answer
Yes. It is arguable that this expenditure is deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as it was necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income but could be seen at capital in nature. If a deduction is not allowed under section 8-1 of the ITAA 1997, it will be immediately deductible under section 40-755 of the ITAA 1997 as the expenditure meets the requirements of that section. It is accepted that the compensation would be expenditure that was incurred for the sole or dominant purpose of carrying on environmental protection activities.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You carry on a business.
A fire broke out and waste oil was discharged onto your business premises and into a nearby drain.
An environmental authority issued a direction to a third party to clean up the oil, and paid the costs of this service in full.
The environmental authority issued you with an Intention to Seek Compensation Order for the amount of the costs.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 40-755