Edited version of private advice

Authorisation Number: 1051975136390

Date of advice: 27 April 2022

Ruling

Subject: Deductibility of capital expenditure - yacht charter business

Question

Is the taxpayer entitled to claim a tax deduction under section 40-880 of the Income Tax Assessment Act 1997 (ITAA 1997) for capital expenditure incurred in relation to setting up a yacht charter business in the 20XX-XX income year?

Answer

Yes.

Having considered the relevant facts and circumstances set out below, the taxpayer is entitled to claim a tax deduction in the 20XX-XX income year under section 40-880 of the ITAA 1997 for the travel expenses incurred during their trip to XX that connects with the setting up of the proposed yacht charter business.

However, the taxpayer cannot claim a deduction for the expenditure incurred that attributed to the construction of the yacht as this is prevented by subsection 40-880(5)(a) of the ITAA 1997. This part of the expenses may form part of the costs for capital allowance claims of a depreciating asset, being the yacht for this case, under Division 40 of the ITAA 1997.

For more information, please refer to Taxation Ruling TR 2011/6 Income tax: business related capital expenditure - section 40-880 of the Income Tax Assessment Act 1997 core issues.

This ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

•                     The taxpayer is an individual acting in their capacity as the trustee of a discretionary trust (the Family Trust).

•                     The taxpayer is the sole trustee of the Family Trust.

•                     The Family Trust's main business activity is a proposed yacht charter business.

•                     During the 20XX-XX income year, the taxpayer undertook XX study and XX research in XX which related to building a yacht for the purposes of carrying on a yacht charter business in Australia.

•                     The expenditure incurred was in the form of travel expenses for the taxpayer to travel to XX where they engaged with multiple builders and experts to obtain invaluable knowledge around the construction of the yacht they were to build to use exclusively for running the yacht charter business in Australia.

•                     The findings and research from the trip were used in developing a detailed business plan for the Family Trust's yacht charter business and this plan was developed very soon after they returned from XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 40-880