Private ruling: Allowable deductions and non-cash business benefits
Date of advice: 16 October 2019
Published: January 2020
Ruling period: Income year ended 31 March 20XX | Income year ended 31 March 20XX
Date scheme commenced: Income year ended 31 March 20XX

Ruling: Q1: Are the costs incurred by Company A in undertaking the First Works deductible to Company A under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. As the costs in respect of the First Works are necessarily incurred in carrying on Company A's business for the purpose of gaining or producing Company A's assessable income, and the costs are not outgoings that are capital or of a capital nature, they will be deductible under section 8-1 of the ITAA 1997. | Q2: Does subsection 21A(3) of the Income Tax Assessment Act 1936 (ITAA 1936) reduce the amount brought into account as assessable income to Nil in respect of the non-cash business benefit provided by Company B to Company A in respect of the Second Works? | A2: Yes. As Company A would have been entitled to a once-only deduction under section 8-1 of the ITAA 1997 equal to 100% of the expenditure if it had, at the time the non-cash business benefit was provided, incurred and paid unreimbursed expenditure (equal to the arm's length value of the benefit) in respect of the provision of the non-cash business benefit arising from the Second Works, subsection 21A(3) of the ITAA 1936 will reduce the amount of assessable income brought into account in respect of the non-cash business benefit to Nil.

Relevant facts and circumstances: Company A is an Australian tax resident company carrying on a business in Australia. Company B requested that Company A realign a portion of its assets. Company B is unrelated to Company A. The realignment of this portion of its assets is necessary to enable Company A to continue to provide some of its services. Under the First Works, Company A will carry out the works and Company B will reimburse Company A in full for the costs incurred in delivering the works. Under the Second Works, Company B will carry out the works and will transfer the assets to Company A at completion. Neither the First Works, nor the Second Works, will improve or change the character of Company A's assets.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1936 section 21A