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Deductibility of company formation costs

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Newbie

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I have a sole director company A but have started another sole director company B to act as a corporate trustee for a family trust.

Because the family trust is not operating a business there is nowhere to claim a deduction for formation costs. Is it possible to claim the formation costs of company B (over 5 years) as an expense of company A given they are run by the same director?

Thank you

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Most helpful response

Community Manager

Replies 0

Hi @Perry 

 

Thanks for your patience. You can claim a tax deduction for most expenses from carrying on your business, as long as they are directly related to earning your assessable income. However the deduction must be incurred by the taxpayer claiming the deduction, therefore Company A would not be entitled to a deduction for expenses incurred by Company B. Based on the information you have provided the common directorship of Company A and B will have no relevance to the deductibility of these expenses. For further information on deductions, visit Income and deductions for business - Deductions.

 

Generally if Company B as trustee for the family trust incurred the formation costs in the course of earning assessable income and they aren’t outgoings of capital or of a capital nature then the deductions will be allowable. Assuming they are allowable, they can be recorded in the trust tax return for the relevant income year. For information from the Trust return instructions for the 2020 income year, visit Trust tax return instructions 2020 - Other deductions.

 

We note that it’s difficult for us to provide further advice without more details. Due to this we can’t provide you with specific guidance as to whether the formation costs are deductible or not given you indicate the trust isn’t operating a business therefore our response may change based on the facts of your case. If you’d like us to consider your specific circumstances in more detail you might like to request formal advice and guidance from us, or alternatively you could seek advice from a tax professional.

 

Thanks, Nate

2 REPLIES 2
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Community Manager

Replies 0

Hi @Perry,

 

We are going to look into this for you and we'll get back to you with an answer.

 

Thanks, Nate

Highlighted

Most helpful response

Community Manager

Replies 0

Hi @Perry 

 

Thanks for your patience. You can claim a tax deduction for most expenses from carrying on your business, as long as they are directly related to earning your assessable income. However the deduction must be incurred by the taxpayer claiming the deduction, therefore Company A would not be entitled to a deduction for expenses incurred by Company B. Based on the information you have provided the common directorship of Company A and B will have no relevance to the deductibility of these expenses. For further information on deductions, visit Income and deductions for business - Deductions.

 

Generally if Company B as trustee for the family trust incurred the formation costs in the course of earning assessable income and they aren’t outgoings of capital or of a capital nature then the deductions will be allowable. Assuming they are allowable, they can be recorded in the trust tax return for the relevant income year. For information from the Trust return instructions for the 2020 income year, visit Trust tax return instructions 2020 - Other deductions.

 

We note that it’s difficult for us to provide further advice without more details. Due to this we can’t provide you with specific guidance as to whether the formation costs are deductible or not given you indicate the trust isn’t operating a business therefore our response may change based on the facts of your case. If you’d like us to consider your specific circumstances in more detail you might like to request formal advice and guidance from us, or alternatively you could seek advice from a tax professional.

 

Thanks, Nate