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Re: Legal costs in business acquisition

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Newbie

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Currently

I have a business X that is in the process of acquiring a business Y with physical assets + goodwill.

I am engaging lawyers + banks + other services (e.g. building inspection) for the purposes of the acquisition.

 

Question

Are the legal fees, bank fees, and other service costs treated as expenses that can reduce income for my business X? or are they added to goodwill for the acquisition?

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ATO Certified

Community Manager

Replies 0

Hi @wronski 

 

The costs you describe that are connected with acquiring business Y would normally be capital costs and not deductible against your business X income or any other income you make. They might, as you say, form part of the cost base of business X goodwill depending on what business Y brings to your business or they may form part of the costs of other assets acquired with business Y.

 

For example, the cost of getting a valuation would probably go to the cost of the asset being valued.

 

It really depends what your plans are for business Y and how well it's integrated into business X. If you continue to run business Y as a completely independent business you would need to consider which is the relevant asset and where the expenditure best sits. At some point your expenses will become normal operating expenses of either business X or Y rather than the capital costs of acquiring business Y and those expenses might be deductible as ordinary business expenses.

2 REPLIES 2
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Community Manager

Replies 0

Hi @wronski,

 

We will look into it and let you know.

 

KylieS

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Best answer

ATO Certified

Community Manager

Replies 0

Hi @wronski 

 

The costs you describe that are connected with acquiring business Y would normally be capital costs and not deductible against your business X income or any other income you make. They might, as you say, form part of the cost base of business X goodwill depending on what business Y brings to your business or they may form part of the costs of other assets acquired with business Y.

 

For example, the cost of getting a valuation would probably go to the cost of the asset being valued.

 

It really depends what your plans are for business Y and how well it's integrated into business X. If you continue to run business Y as a completely independent business you would need to consider which is the relevant asset and where the expenditure best sits. At some point your expenses will become normal operating expenses of either business X or Y rather than the capital costs of acquiring business Y and those expenses might be deductible as ordinary business expenses.