Immediate tax deductibility for small business start-up costs

Royal Assent has now been given to the legislation which enacts the 2015 Budget small business concession allowing immediate and full tax deductibility for professional (including legal, accounting and valuation advice fees) and other capital costs of starting up a new small business.

This is one of a number of small business concessions announced by the Government in the May 2015 Budget, which are progressively being enacted.

From 1 July 2015 an individual or entity starting up a new business will be able to claim the capital start-up costs of doing so as a tax deduction in the year of start-up. Previously, those costs could only be deducted over a 5 year period.

The immediately-deductible costs will include such things as:

  • structural advice from lawyers and accounts;
  • preparing the legal documents and setting up business systems;
  • legal and accounting due diligence;
  • business plans;
  • capital costs of raising debt or equity capital;
  • government fees (such as ASIC fees on incorporating a company and stamp duty on trust deeds)

There is no statutory cap on those costs.

The concession is available to any person or entity proposing to commence a new business and who is either:

  • presently carrying on a business or businesses with an aggregated turnover over of less than $2 million; or
  • is not presently carrying on any business.

If that person or entity is not presently carrying on any business, they must not be in a controlling relationship with any person or entity which is carrying on a business or businesses having an aggregated turnover of $2 million or more.

The concession must be for establishment costs for a proposed business. It will not cover:

  • professional and other capital costs incurred in respect of an existing business;
  • the purchase of assets for a new business;
  • indirect establishment costs (e.g. the costs of travel to assess the viability or suitability of a proposed business).

Tony Riordan heads up Riordans Lawyers tax advice and can be contacted for further information.