Issue
Is expenditure incurred by a taxpayer in obtaining approval as a compliance plate holder for imported products an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. A deduction is not allowable to the taxpayer under section 8-1 of the ITAA 1997 for expenditure incurred in obtaining approval as a compliance plate holder for imported products as the expenditure is capital in nature.
Facts
The taxpayer carried on a business importing products that it modified to comply with Australian Design Rules before reselling them. The taxpayer had to obtain approval as a compliance plate holder from the relevant Government body for each type of product imported.
To obtain this approval, the taxpayer incurred expenditure in its application to satisfy criteria set out in the Australian Design Rules. Once approval as a compliance plate holder for each product was obtained this allowed the taxpayer to modify all imports of that product for the life of that product. Therefore, approval as a compliance plate holder of a particular product lasted for as long as the taxpayer imported those particular products.
Reasons for Decision
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 in carrying on a business for that purpose, except to the extent where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
The expenditure incurred in obtaining compliance approval is regarded as capital expenditure. According to the decision in British Insulated & Helsby Cables Ltd v. Atherton [1926] AC 205, if an enduring benefit is gained, then the expenditure is to be regarded as capital. Obtaining compliance approval for each product is a 'once only' expense for the life of that particular product. The taxpayer has gained an enduring benefit in the form of future income from selling compliant imported products.
The expenditure incurred by the taxpayer in obtaining approval as a compliance plate holder is a capital expense and therefore is not deductible under section 8-1 of the ITAA 1997.