Business Acquisition Expenses – Deductions Allowed

Businesses often incur expenses when acquiring business assets, even if the acquisition is abandoned and does not proceed. A recent review has occurred on the deductibility of these costs.

In the past, an expense relating to the purchase of an asset that wasn’t successful could not be claimed as an income tax deduction. The changes to deductibility state that this expenditure is now deductible if the proposed purchase of the business asset did not go ahead.

These rules relate to expenditure incurred in the 2020 – 21 or future financial years. An example of which follows;

You are currently looking to diversify the products you supply. You look to do this by undertaking to develop an asset capable of producing the new product. During the investigation into the construction of the asset, you incur consultancy and legal costs. However, the project is later abandoned as it is too expensive and other relevant situations. Taxpayers can now claim the expenses relating to the failed purchase/development.

In order to be deductible, the expenditure must:

  • Have a connection with your current business, and;
  • Have potential to earn income in the future

If you think this affects you, let us know.