Cost of obtaining an estimate of the cost of depreciating assets

Can a taxpayer claim a deduction under section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in obtaining an estimate of the costs of depreciating assets for the purpose of determining a deduction for decline in value under Division 40 of the ITAA 1997?

Yes. The taxpayer can claim a deduction under section 25-5 of the ITAA 1997 for expenses incurred in obtaining an estimate of the costs of depreciating assets for the purpose of determining a deduction for decline in value under Division 40 of the ITAA 1997.

The taxpayer owns an investment property.

When the taxpayer acquired the investment property they also acquired depreciating assets which were part of that property.

The taxpayer obtained a report from an appropriately qualified person for the purposes of obtaining an estimate of the costs of depreciating assets that were in the investment property.

The taxpayer needed to establish the cost of the depreciating assets in order to calculate the decline in value of these assets for taxation purposes.

Section 25-5 of the ITAA 1997 allows a deduction where an expense is incurred by a taxpayer in order to manage their tax affairs. The costs of creating and maintaining records for income tax purposes qualifies as an allowable expense under this section.

Capital expenditure is expressly excluded from being deductible under section 25-5 of the ITAA 1997. However, expenditure for this purpose is not necessarily characterised as being 'capital', merely because it relates to matters of a capital nature.

The taxpayer incurred expenditure which established the values of the depreciating assets on the basis that those costs would be used in calculating their tax liability. This is an expense incurred by the taxpayer for the purpose of managing their tax affairs.

Accordingly, the taxpayer can claim a deduction under section 25-5 of the ITAA 1997 for expenses incurred in obtaining an estimate of the costs of depreciating assets for the purpose of determining a deduction for decline in value under Division 40 of the ITAA 1997.