Establishment costs of a company and trading trust

Are the costs of establishing a company and trading trust deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The costs of establishing a company and trading trust are not deductible under section 8-1 of the ITAA 1997 as they are of a capital nature.

The taxpayer operates a business of primary production with others. Previously, there were four partnerships operating within the farm. The taxpayer changed the structure of the business so as to operate via a company and trading trust in order to simplify paper work.

Under section 8-1 of the ITAA 1997 you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining your assessable income, however, you cannot deduct a loss or outgoing under this section to the extent that it is a loss or outgoing of capital or of a capital nature.

The costs associated with the establishment of a company and trading trust are capital in nature as they relate to the structure of the business rather than the daily activities from which the business gains its assessable income. Therefore, any costs related to establishing that business structure are not an allowable deduction under section 8-1 of the ITAA 1997 as they are of a capital nature.