Deduction - Relocation Expenses

Is expenditure for relocating furniture and equipment to new premises in another State deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. Relocation expenses incurred by a company in moving furniture and equipment to another State to take up a new contract are capital in nature and not deductible under section 8-1 of the of the ITAA 1997.

The company moved business premises to take up a contract in another State. The contract will last for nine months. This necessitated a corporate relocation to the other State. The company intends to return to the home State on completion of the contract. The company sees this as a short-term relocation for business purposes only. The company incurred expenditure in relation to moving equipment and furniture to the new premises.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income except where the loss or outgoing is of capital or is of a capital, private or domestic nature.

Generally, outgoings associated with a change in business operations or premises are of a capital nature.

Where expenses are incurred in altering or extending the taxpayer's existing facilities, such payments are capital as they relate to the business entity structure or 'profit -yielding subject' as described by Dixon J in Sun Newspapers Ltd v. FC of T (1938) 61 CLR 337 at 357-363.

Therefore, costs of acquiring temporary or permanent premises are usually capital in nature. Expenses incurred in preparing the new premises and of moving plant and equipment are also of a capital nature.