- Starting a business or other business venture
- Changing a business structure into a different type of organization
- Locating equity for the business
- Guarding against an unwanted business seizure
- Attempting an unsuccessful business takeover
- Closing the business (including liquidation)
Generally, business owners have been able to deduct these types of capital costs over a five-year time period on a straight-line basis (20% for the first five years). In order to claim these expenses, the amount in question cannot be tax-deductible under any other section of tax law. The expense also cannot be a portion of a capital gains tax or depreciating asset.
Before July 1, 2015, qualifying capital expenses (included start-up costs) were deductible on a straight-line basis for the first five years. However, changes in tax law after July 1, 2015 actually allows certain business start-up expenses to be immediately deductible in full instead of on a limited straight-line basis over five years. These new allowances include costs relating to securing capital and professional expenditures related to a new business start-up such as professional consultations, including legal and accounting consultations.
Requirements for Immediate Deductions
Under this new tax law, an applicable expense that was formerly deductible over a five-year window can now be deducted in full in the revenue year it was incurred. However, the expenditure must meet the following conditions:
- It must relate to a business that is expected to continue and is used either for
- Business advice or services for the potential new start-up or expected business operations (see below) or
- Is a fee, tax, or other charge made to an Australian governmental agency that was the result of starting a business or setting up its operational structure (see below)
AND
- The business that incurred the expense is either
- Considered a small business unit for the applicable income year or
- Is not controlled by or in control of an entity that is not considered a Small Business Enterprise in that current income year
Examples of Start Up-Costs That are Immediately Deductible:
- Legal or financial advice on which type of business structure is best suited for the venture
- Costs incurred from setting up legal measures or business systems for the chosen business structure
- Professional advice on the sustainability of a potential business (i.e., viability of a location or due diligence in relation to a new acquisition)
- Costs related to raising capital (debt or equity) for the set-up of the proposed business – including public-sourced equity fundraising
- Regulatory fees for starting a new venture – (i.e., ASIC fees for initial business set up)
- Costs related to transferring assets to the proposed (i.e., stamp duty)
Examples of Start Up-Costs That are Non-deductible:
- Costs incurred for an existing business
- The cost of obtaining possessions that may be used by the business
- Direct expenses from the capital (i.e., interest, disbursements, or capital repayments)
- Other expenses incurred for the potential business (i.e., travel expenses to view potential business locations)
- Expenses incurred in relation to taxes on an application (such as income tax).