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Business Start up costs S40-880, Startup Capital Costs

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Hi I am a bit confused about what costs fit where for the following scenario.   Client has formed a company and has expended some professional costs to perform a due dilligence on purchasing and existing business.  The business settlement did not occur prior to the end of the financial year, but is expected to settle successfully in the following year.  I am of the understanding that the intent of the operation of S40-880 is that capital costs that are not able to be claimed elsewhere can be claimed under this section either as a write off over five years or as an immediate deduction if the business fits the requirements of S40-880 (2A).  That is generally small business entity, or not in business and not connected or controlled by  larger non small business entity.   With respect to the due dilligence costs - i would have thought that these costs could be taken into account for CGT cost base purposes for the business, under S 110-25 5b - fourth element costs.  Therefore these costs would not be eligible for write off under S 40-880. 

 

But per the ATO Guide to depreciating Assets 2020 on page 37 it says that "Similarly, advice and services in relation to the operation of the proposed business includes professional advice on the viability of the proposed business (including due diligence where an existing business is being purchased) and the development of a business plan".  1) Please clarify whether due dilligence for a proposed business purchase (which is eventually successfully settled) are eligible S 40-880 costs, or form part of the cost base. 2) Would the answer be different if the entity does not fit the requirements of S40-8802A .

 

Similarly there will be stamp duty on the purchase of the business of which a large amount is plant and  equipment.  I would have expected that these costs would be proportionally applied to part of the depreciable cost, and therefore also not a S40-880 eligible cost.  However also on page 37 seems to indicate that S40-880 also includes  "costs associated with transferring assets to the entity which is intended to carry on the proposed business (for example,the payment of stamp duty)." . 3) Please clarify whether the stamp duty applicable for the purchase of an established business is eligible for S40-880 or proportionally forms part of depreciable assets. 4) Would the answer be different if the entity does not fit the requirements of S40-8802A .

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ATO Community Support

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Hi @Xtar,

 

Oh my! You should talk to early engagement about this one. They specifically handle complex tax technical interpretation queries, and this certainly fits the bill for complex.

1 REPLY 1

Most helpful response

ATO Community Support

Replies 0

Hi @Xtar,

 

Oh my! You should talk to early engagement about this one. They specifically handle complex tax technical interpretation queries, and this certainly fits the bill for complex.