Private ruling: Deductibility of expenses
Date of advice: 13 July 2018
Published: September 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will expenditure on legal fees incurred by the trustee be deductible under section 40-880 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: The Trust runs a business. The directors of the corporate trustee are actively involved in running the business. The business is not a "passive investment"; it requires a high degree of ongoing daily management by the directors (no managing agent is engaged), The directors decided to investigate the purchase of a similar business. The trust incurred legal expenses amounting to approximately $XXX (relating to review of the contract, discussions with vendor's solicitor, discussions with council, survey costs. The day before settlement the directors were informed that the business was not what they were led to believe it was. The directors of the trustee decided not to proceed with the acquisition.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 40-880.

Reasons for decision: Detailed Reasoning - Section 40-880: The object of section 40-880 of the ITAA 1997 is to make certain business capital expenditure deductible over five years if the expenditure is not deductible under another part of the Act; and another provision of the Act does not deny a section 40-880 of the ITAA 1997 deduction; and the expenditure relates to a business which is, was or is proposed to be carried on for a taxable purpose. Consequently, the Commissioner considers that the taxpayer qualifies for a deduction under paragraph 40-880(2)(a) of the ITAA 1997. Accordingly, the taxpayer may deduct legal expenses to the extent where they are incurred in relation to their business activities and proposed business activities in equal proportions over a period of 5 income years starting in the relevant year(s) in which expenditure was incurred.