Question

Identify how many of the following scenarios involve blackhole expenditure that can be claimed under s 40-880, either in full or over 5 years

1. On 1 July 2019, a SBE taxpayer set up his business by registering and establishing a company costing $2,000
2. On 1 July 2019, a SBE taxpayer converted the existing business structure as a sole trader to a company structure costing $2,500
3. On 1 July 2019, a SBE taxpayer ceased his cafe, incurring $4,000 in legal fees to wind up the business
4. On 1 July 2019, a SBE taxpayer commissioned a feasibility study costing $1,500 to establish a business at the local shopping centre, and subsequently commenced business on 1 October 2019.

Select one:

a. 3 scenarios are blackhole expenditure under s 40-880

b. 4 scenarios are blackhole expenditure under s 40-880

c. 2 scenarios are blackhole expenditure under s 40-880

d. 1 scenario only is blackhole expenditure under s 40-880

Answer 1

B.4 scenarios are blackhole expenditure under sec 40-880.

All the four above stated scenarios falls under sec 40-880.

EXPLANATION- DEDUCTIONS ALLOWED IN SEC. 40-880, AS BUSINESS COSTS INCLUDE :

1. ●Cost of establishing the business structure.
2. ●Cost of liquidating a company that carried on a business and of which you're a shareholder.
3. ​●Business relocation costs.
4. ●Market research reports for new business.
5. ●Cost to raise equity capital for the business.
6. ●Cost to stop carrying on your business.
7. ●Expenditure to convert your business structure to a different structure.
8. ●Expenditure to defend your business against a takeover.

SECTION 40-880 - Is a provision of last resort, As whatever capital costs not otherwise dealt with under INCOME TAX LAW is resorted here.

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