The Australian Government has tonight announced that it will provide systematic treatment under the tax laws for business expenditures that will increase the range of deductions available to business.
Changes to the IncomeTaxAssessmentAct1997 (the Act) will provide tax treatment for legitimate business expenses, known as ‘blackhole’ expenditures, for income tax purposes.
Blackholes occur when business expenses are not recognised under the income tax laws. The need for an appropriate treatment for blackhole expenditures was identified in the ReviewofBusinessTaxation.
The systematic treatment comprises:
- permitting deductions for capital expenditures incurred by businesses that are carried on for a taxable purpose;
- providing deductions for certain pre-business expenditures incurred by existing businesses; and
- recognising these expenditures in a new provision that will only apply where the expenditures do not have tax treatment, or are denied a deduction, elsewhere in the tax laws. Therefore, the new provision will be a provision of last resort.
Consistent with this systematic treatment, some blackhole expenditures will be recognised by increasing the range of expenditures that form the cost base of an asset for capital gains tax purposes.
The new provision will apply to expenditures incurred on or after 1July2005. Expenditure can be written off on a straight line basis over fiveyears for the purposes of the Uniform Capital Allowance regime.
The Government will conduct confidential targeted consultation on the details of the proposals.