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Can a single capital payment made by the taxpayer for the performance of a variety of activities or tasks be apportioned, so as to work out that part of the payment attributable to the activities satisfying paragraph 40-880(1)(g) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. A part of the single payment can be attributed to activities or tasks satisfying paragraph 40-880(1)(g) of the ITAA 1997. This is because the payment was made, in part, for the performance of those activities and tasks that fall within that paragraph, and also in part, for other activities and tasks that do not fall within the description of paragraph 40-880(1)(g).

The taxpayer, the trustee of a deceased estate, as part of its role in administering the estate, carried on a business for a taxable purpose for a period. In the process of finalising the estate the taxpayer stopped carrying on the business.

The taxpayer incurred an amount of capital expenditure for a series of specific activities and particular tasks performed by another unrelated entity around the time that the taxpayer stopped carrying on business. The expenditure was charged to the taxpayer at the conclusion of all the activities and tasks as a single set amount.

The entity performing the activities and tasks was engaged by the trustee as part of the bringing to finalisation the administration of the estate. The activities included arranging the funeral of the deceased and terminating the contracts of employees. The latter activities were undertaken as part of the process to stop the business being carried on by the taxpayer.

Subsection 40-880(1) of the ITAA 1997 applies to capital expenditure incurred by a taxpayer that is one of the types of business related costs listed in that subsection (and that is not excluded from deduction under subsection 40-880(3)).

In particular, paragraph 40-880(1)(g) of the ITAA 1997 allows a deduction for capital expenditure incurred that constitutes 'costs to stop carrying on your business'.

In some situations a single payment may be made for the performance of various tasks or activities. Where the tasks or activities can be separately identified, it may be that some of the payment can objectively be attributed to those tasks and activities because some part of that payment was made for the performance of those particular tasks and activities.

In the current facts, the various tasks or activities undertaken were diverse and were undertaken for their own particular and separate purposes, and the payment, although made in a single sum, was made for each and all of those tasks and activities.

Accordingly, it is appropriate to attribute the taxpayer's payment as between the various tasks and activities. The amount of the payment attributable to those tasks or activities that are, objectively, for the purpose of stopping the carrying on of the taxpayer's business are 'costs to stop carrying on your business' for the purpose of paragraph 40-880(1)(g) of the ITAA 1997. Those costs represent the proportion of the total amount of capital expenditure incurred that qualifies as 'costs to stop carrying on your business'.

In this case, the funeral costs were not costs to stop carrying on your business, while the costs of terminating the contracts of employees were costs to stop carrying on your business.