NO.045

TAXATION TREATMENT OF BUSINESS ‘BLACKHOLE’ EXPENDITURE

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.

CANBERRA

10 May 2005