Private ruling: NRAS expenses
Published: September 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for your share of the setup fees? | A1: No.

Relevant facts and circumstances: You entered the National Rental Affordability Scheme (NRAS). As part of a setup fee you made a number of payments. The payments were to companies who act as agents and they assisted you to enter the NRAS.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. The courts have considered what constitutes a capital outgoing. In Sun Newspapers Ltd v. FC of T (1961) 61 CLR 337; 5 ATD 87; (1938) 1 AITR 403 Dixon J stated that: expenditure and outlay upon establishing, replacing and enlarging the profit yielding subject may in a general way appear to be of a nature entirely different from the continual flow of working expenses which are or ought to be supplied continually out of the returns or revenue. Taxation Determination TD 95/60 Income tax: are fees paid for obtaining investment advice an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for taxpayers who are not carrying on an investment business? provides that expenses associated with putting income producing investments in place are incurred at a point too early in time to be a part of the income producing process. The expenditure is not considered to have been incurred in producing income from the investments; rather, the expenditure is associated with the making of the investment. The expenditure is capital in nature and, therefore, not deductible under section 8-1 of the ITAA 1997. In your case, you incurred expenses as part of the setup fee to engage agents to help you enter the NRAS. These expenses form part of the cost of establishing your profit-making asset and are incurred at a point too soon to be regarded as being incurred in the course of earning assessable income and are capital in nature. Therefore, the expenses are not an allowable deduction under section 8-1 of the ITAA 1997.