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Tax Talk | Feasibility expenditure

Many businesses invest time and money investigating potential new business activities, assets or ways of operating.  Under current rules, a deduction is usually not available for this expenditure (‘black hole expenditure’).

Government, wanting to ensure tax is not a barrier to exploring new projects or assets, is proposing to allow certain feasibility expenditure to be deductible. The deduction would be available for expenditure incurred in completing, creating or acquiring property where:

  • The property would be depreciable property (including depreciable intangible property) or property held for the purpose of resale; and
  • Progress on the asset is abandoned with the outcome the property is not completed, created or acquired; and
  • No other deduction for the expenditure is allowed.

The deduction would not apply to property depreciable at the rate of zero percent (mainly residential buildings).

Where the expenditure is $10,000 or less, an immediate deduction would be available in the year the expenditure is incurred.

Where the expenditure is more than $10,000, and the project is abandoned, the expenditure would be able to be spread over the following five-year period on a straight-line basis.

In the event the project becomes feasible, the deductions would be clawed back in the year the asset is completed, created or acquired. This would not apply in instances where the expenditure was $10,000 or less.

This amendment would apply to expenditure incurred in the 2021 and following income years.