Starting a new business can be exciting but there are expenses associated with setting it up. The good news is that you are now entitled to claim certain deductions this year instead of having to spread the deductions over five years.

This applies to the following costs you may have had when setting up your business:

  • Professional, legal and accounting advice
  • Australian government fees and charges.

 

Other capital expenses

Immediate deduction of expenses for start-ups

From 1 July 2015, small businesses and entities can immediately deduct certain professional expenses incurred with starting up a new small business.

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

If you are an individual taxpayer (operating either alone or in partnership) you may be able to defer your deduction to a later income year using the non-commercial loss provisions.

Five-year write-off for a greater range of business related costs

  • Deductions for business related costs
    • You can claim deductions for business related costs in equal proportions over five years for certain capital expenditure you incur in relation to a past, present or proposed business.
    • You may be able to deduct capital expenditure incurred by you in relation to:
      • your existing business
      • your or another entity’s business that used to be carried on
      • your or another entity’s business that is proposed to be carried on.
  • You deduct business related costs in equal proportions over a five-year period on a straight line basis (that is, 20% of the expenditure for each year, commencing with the year the expenditure is incurred).

 

Five-year write-off for certain lease and licence termination payments

Capital expenditure you incur from 1 July 2005 to terminate a lease (other than a finance lease) or a licence will be deductible under section 25-110 of the Income Tax Assessment Act 1997 (ITAA 1997) in equal proportions over five years, provided:

  • the expenditure has resulted in the termination of the lease or licence
  • the expenditure is incurred in the course of carrying on a business, or in connection with ceasing to carry on a business
  • the expenditure is not for the granting or receipt of another lease or licence over the asset that is the subject of the lease or licence
  • where you are a party to the lease or licence, you (or an associate) and the same party with whom you entered into the lease or licence (or an associate) do not enter into another lease or licence of the same kind as the one terminated.

 

Am I eligible for the small business entity concessions?

Are you a small business for the current year?

You are a small business if you are a sole trader, partnership, company or trust that does both of the following:

  • operates a business for all or part of the income year
  • has less than $2 million aggregated turnover.

 

If you are not a small business in an income year

If you are not a small business in an income year, you may still be able to access the:

  • capital gains tax concessions – if you pass the $6 million maximum net asset value test
  • fringe benefits tax concession – if your combined ordinary and statutory income is less than $10 million.

 

If you are winding up a business

In a year when you are winding up a business, you will be taken to be still carrying on the business and have access to these concessions if both of the following apply:

  • you are winding up a business you previously carried on
  • you were a small business in the income year you ceased business.

 

Source:

  • https://www.ato.gov.au/Newsroom/smallbusiness/General/Did-you-start-a-new-business-this-year-/
  • https://www.ato.gov.au/business/income-and-deductions-for-business/depreciating-assets/other-capital-expenses/?SBNstartupsapril16
  • https://www.ato.gov.au/Business/Small-business-entity-concessions/In-detail/Eligibility/Am-I-eligible-for-the-small-business-entity-concessions-/?SBNstartupsapril16