Private ruling: Allowable deductions and non-cash business benefits
Date of advice: 31 October 2023
Published: 18 December 2023
Ruling period: DD MM 2019 to DD MM 2022
Date scheme commenced: DD MM 2019

Ruling: Q1: Are the costs incurred by Company A in undertaking the Realignment 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 Realignment 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.

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 (the Realignment Works). Company B is unrelated to Company A. The Realignment Works of this portion of its assets is necessary to enable Company A to continue to provide some of its services. Under Realignment 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. The Realignment Works will not 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

Reasons for decision: Summary: The costs incurred by Company A for the Realignment Works do not amount to improvements or change in character of its assets. The costs are not outgoings that are capital or of a capital nature and are therefore deductible under section 8-1 of the ITAA 1997.