Starting a business or setting up a new entity usually means a run of one-off costs before you earn a dollar. How you claim them depends on what they are.
Immediate deduction
Under the small business rules, certain start-up expenses can be deducted in full in the year you incur them. The ATO's guidance lists:
- Professional advice from a lawyer or accountant on how best to structure the business.
- Services for setting up legal arrangements or business systems.
- Certain fees paid to government agencies, such as company registration or stamp duty on transferring assets to a new entity.
You generally need to be a small business entity, which means aggregate annual turnover under $10 million, or a medium sized entity, for the expense to qualify. The cost of buying assets for the business does not count here.
Over five years
Other capital costs of setting up a business can generally be deducted over five years on a straight line basis, which is 20 per cent in the year incurred and 20 per cent in each of the following four years.
Timing
If your business had not started trading, the ATO's instructions say a deduction for costs that do not qualify for an immediate claim is deferred until the year the business begins.
What to do
- Keep every invoice for advice, registration and set-up work, and note what each was for.
- Ask your accountant to separate the immediately deductible costs from those spread over five years.
- Pay attention to dates. Costs should be tied to the income year they were incurred.
- Do not mix them with asset purchases. Equipment follows the depreciation rules instead.
Good records at the start save a lot of guesswork at tax time.
This article is general information only and does not take your circumstances into account. Check the ATO website or speak to a registered tax professional about your situation.