FAQs about Australia Blackhole Expenditure Tax Laws

FAQs about Australia Blackhole Expenditure Tax Laws

When the 2015-2016 federal budget was announced, the Australian government stated that some individuals and businesses would now be able to immediately claim a selection of business-related expenses rather than wait to claim these same expenditures over a five year period.

These expenses are known as blackhole provisions of the tax law (or section 40 to 8880 of the Income Tax Assessment Act 1997) and are described as legitimate capital business expenditures that aren’t covered by any other Australian income tax laws. Before these new rules came into place, amounts spent before or after a business commenced were considered to be “blackhole expenditures” because tax deductions could not be claimed for the expense.

Who can take advantage of the blackhole expenditure changes?

Only certain individuals and businesses can take advantage of these new tax laws:

  • Taxpayers who used to run a business
  • A business which is currently operating
  • A beneficiary of a trust who carried on a business, a shareholder in a company, or a partner in a partnership where you have personally incurred the capital expense to wind-up that entity
  • Taxpayers who are building a prospective business

If you are a taxpayer who is setting up a business, you must have a well-laid plan for the businesses to begin operations within a reasonable time frame to qualify for the deduction.

 

Which expenses are included in these changes?

Expenses which meet the following criteria may be eligible:

  • The business is proposed to be, is currently, or was, carried out for taxable purposes
  • The expense has not otherwise been taken into account as a deduction, in relation to a CGT event, or as an addition to a cost that is part of a CGT or depreciating asset
  • The deduction is not specifically denied by another provision of the tax law

 

What are the limitations of this tax law?

Even the new “blackhole” provisions have their limitations. Below are just a few of the business capital expenditures which cannot be a part of a blackhole deduction:

  • If the cost is part of the cost of land
  • If the cost is in relation to a lease
  • If the cost is of domestic or private nature

 

Navigate Australia’s tax laws with ease with Hart Partners. Australian tax laws and provisions are complex and ever-changing. Make sure that you are making the most out of your business capital with Hart Partners. Our suite of services is designed to support and see to the success of small to medium-sized businesses on a local and global scale. Visit Hart Partners to learn more about how we can help you.

 

* * * Disclaimer: No person should act on the general information in this article without taking specific advice from a qualified advisor. * * *

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