Business owners, do you incur “Blackhole Expenditures”? Are you aware of the treatments for such expenditures?

“Blackhole Expenditures” are often referred to as other capital expenditures or business related capital expenses. Section 40-880 deals specifically with these types of expenditure. 
Post announcement of 2015-2016 Federal Budget, certain costs incurred in starting up a business by small businesses and individuals can be immediately deducted. Costs such as getting advice or services relating to the structure or operation of the proposed business, for example, formation expenses are now fully deductible in the financial year when the expenditure is incurred.
This new rule is effective from 1 July 2015.

However, certain business related costs are to be claimed in equal portions over five years, examples are:

1. commencing a business (such as the cost of feasibility studies and setting up the business entity)
2. business restructuring
3. defending against a takeover
4. the costs of ceasing business.

Certain limitations and exceptions do however apply to the deductibility rules:

1. the expenditure must be business capital expenditure and the business is, was or is proposed to be carried on for a taxable purpose
2.  there is no deduction under s40-880 to the extent that the expenditure falls within: 

• forms part of the cost of a depreciating asset that you hold, used to hold or will hold
• is deductible under another provision of the income tax law
• forms part of the cost of land
• is in relation to a lease or other legal or equitable right
• would be taken into account in working out an assessable profit or deductible loss
• could be taken into account in working out a capital gain or capital loss
• is expressly made non-deductible under another provision of income tax lax
• is expressly prevented from a deduction for a reason other than the expenditure is of a capital nature (for example, entertainment expenses)
• is of a private or domestic nature, or
• is incurred in gaining or producing exempt income or non-assessable non-exempt income.

Source:       ATO website
                    Tax Summary 2015 & 2016

---