Newsletter
April 2014 Newsletter
No deduction for preparatory activities
Successful entrepreneurs are a creative and motivated bunch, but it generally takes several attempts to develop a successful business venture. Costs are quickly incurred in determining the viability of, and in pursuing, a business idea. However, careful consideration of the deductibility of such costs needs to be taken. If the idea is a winner and a new business venture is born, a deduction may be available. However, in other cases, the deduction may not be available.
In one recent case, an individual was unsuccessful before the Federal Court in relation to his claims for deductions incurred in pursuing 14 business ventures on a 500-acre property. The Administrative Appeals Tribunal (AAT) had earlier found that although the man’s operations met a number of criteria relevant in determining whether a business was being carried on, none of the activities had advanced much beyond the planning stage.
The AAT held that the individual was not “carrying on a business” and that the claimed deductions were therefore not available. The Federal Court affirmed the AAT’s decision.
TIP: Given the breadth of examples covered in this decision, the decision is a useful reference point for taxpayers dealing with the issue of deductibility of costs incurred in preparatory activities associated with a business idea that is later abandoned or a business venture not yet generating income. Please contact our office for further details.