Author: KylieATO(Community Support)Community Support 22 Apr 2021
Hi @Jackie4
Under 40-880 of the ITAA 1997 you may be able to claim a deduction for the costs associated with setting up or ceasing a business despite these costs being treated as capital expenditure.
These are deductible over 5 years on a straight line basis (ie 20% per year for 5 years) .
Professional advice and services in relation to the operation of the proposed business, including advice on the viability of the proposed business any due diligence would be deductible under this section.
However from the 2015-16 income year, these costs may be fully deductible in the income year in which they were incurred.
This immediate deductibility is limited to small business entities.
That is the entity making the deduction must be either a small business themselves, or if not trading they must not be connected with or affiliated with a business that is not a small business.
Thank you Kylie,
I do understand that, however s40-880 does specifically state (under (5)(f)) that an amount wouldn't be deductible under this section if it could be taken into account in working out the capital gain or loss from a CGT event. So my question is more would the cost form part of the cost base for CGT, even though not included specificially in the definition of the cost base for CGT (incidental costs of acquisition is my thinking?).
My understanding is that s40-880 is a section of last resort - so if something can be included elsewhere, then it must be prior to considering as a deduction under 40-880 for 'black hole' expenditure.
Of course claiming an upfront deduction would be preferable, but don't want to have issues in future if the cost should have been treated as part of the cost base.
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