Are legal expenses tax deductible for new start-ups?

From 1 July 2015, a newly incorporated company, trust or partnership can immediately deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice.  This change was introduced by the Tax Laws Amendment (Small Business Measures No. 3) Act 2015 (Cth) which amended the Income Tax Assessment Act 1997 (Cth) (ITAA97) and received Royal Assent on 26 August 2015.

Expenses can only be immediately claimed if the entity that incurred the expenditure is a small business entity for that income year.

What are eligible start-up costs?

Eligible start-up costs must be either:

• incurred in obtaining advice or services; or
• a payment to an Australian government agency of a fee, tax or charge incurred in relation to setting up the business or establishing its operating structure.

What are not eligible start-up costs?

The following are not eligible start-up costs:

• the cost of acquiring assets that may be used by the business;
• the direct costs of the capital itself such as interest, dividends or capital repayments;
• expenses the business may incur for the operation of a proposed business (such as travel costs while assessing locations for a business); and
• expenditure relating to taxes of general application, such as income tax (as these taxes relate to the operation and activities of the business).

Advice or services

Expenses for professional advice or services are fully deductible if they relate to:

• the structure of the proposed business;
• the operation of the proposed business; or
• raising capital (whether debt or equity) for the operation of the proposed business (including accessing crowdfunding).

Links and further references

Legislation

Income Tax Assessment Act 1997 (Cth)

Tax Laws Amendment (Small Business Measures No. 3) Act 2015 (Cth)

Other links

ATO: Other capital expenses

Further information about tax law

If you need assistance with structuring your business to obtain tax incentives, please telephone me for an obligation free and confidential discussion.

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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