Edited version of private advice

Authorisation Number: 5010090955334

Date of advice: 17 February 2023

Ruling

Subject: Costs of managing tax affairs

Question

Are the costs of managing tax affairs in relation to the work completed for X Private Co Pty Ltd deductible under section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997) in XXX's 20XX income tax return?

Answer

Yes. The costs of managing tax affairs in relation to the work completed for the company are deductible under section 25-5 of ITAA 1997 in XXX's 20XX income tax return. You will need to apportion the costs specified in your Tax Invoice xxx to the extent that the costs relate to activities other than the costs of managing tax affairs.

This ruling applies for the following period:

20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.    XXX was the public officer, sole director and sole shareholder of the company.

2.    XXX was a pastry chef. XXX carried on the bakery business of making pastry goods through the company. The company sold wholesale products to retail suppliers.

3.    XXX was paid salary and wages and superannuation by the company.

4.    The company was making losses. XXX sold the company and received about $XXX as sale proceeds.

5.    Prior to the 20XX income year the company claimed the tax agent fees in its own tax return.

6.    The company's 20XX tax return was lodged as the final company tax return.

7.    XXX engaged you as their tax agent to perform the following services for the company as per your Tax Invoice XXX:

a.    prepare financial statements and income tax returns for the company for the years ended 30 June 20XX, 20XX and 20XX

b.    account for the sale of the business and calculate a capital loss on disposal of the business

c.     prepare a final set of financial statements for 20XX income year, clear the company's asset and liability accounts

d.    prepare activity statements and PAYGW reporting for the 20XX income year.

e.    prepare ASIC Form 6010 and resolutions to deregister the company.

8.    The tax invoice was addressed to XXX as the director who then paid your fee.

9.    The company lodged an application form with ASIC to deregister the company and it was deregistered 2 months later.

10.  Since the company had no money, the company could not pay your fees and that is the reason why XXX applied for private ruling to deduct your fees in relation to the costs of managing tax affairs in their personal tax return for the 20XX income year.

Relevant legislative provisions

Section 25-5 of the Income Tax Assessment Act 1997