ATO Interpretative Decision

ATO ID 2002/245

Income Tax

Lease Expenses - business purchase does not proceed
FOI status: may be released
Status of this decision: Decision Current
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Are legal expenses incurred in the preparation of a lease allowable deductions, under section 25-20 of the Income Tax Assessment Act 1997 (ITAA 1997), when the purchase of the business, to which the lease related does not proceed?

Decision

No. The legal expenses are not deductible under section 25-20 of the ITAA 1997.

Facts

The taxpayer, an individual, decided to purchase a business. A purchase price and an expected change over date were agreed upon with the owner of the business.

Legal expenses were incurred with regard to the proposed lease of the property from which the business operated.

The offer of lease was withdrawn and the taxpayer did not proceed with the purchase of the business.

Reasons for Decision

Section 25-20 of the ITAA 1997 allows a deduction for expenditure incurred in preparing, stamping and registering a lease of property which is used, or will be used, for the purpose of producing assessable income. Such expenditure is of a capital nature and, apart from section 25-20 of the ITAA 1997, would not be deductible.

In this case the taxpayer did not proceed with the business purchase or the lease and, therefore, did not and could not derive any assessable income from the property subject to the lease.

As the taxpayer did not enter into a lease and therefore did not and could not use the property to derive assessable income, the requirements of section 25-20 of the ITAA 1997 were not met. Therefore no deduction is allowed for the legal expenses incurred in preparing the proposed lease.

Date of decision:  20 December 2001

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   section 25-20

Keywords
Deductions & expenses
Lease & hire expenses

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  22 March 2002
Date reviewed:  25 August 2014

ISSN: 1445-2782