Issue
If an amount satisfies the requirements of both section 25-50 of the Income Tax Assessment Act 1997 (ITAA 1997) and paragraph 40-880(1)(g) of the ITAA 1997, is that part of the amount that is denied a deduction under section 25-50 by paragraph 26-55(1)(a) of the ITAA 1997 alternatively deductible under paragraph 40-880(1)(g)?
Decision
No. Paragraph 40-880(3)(g) of the ITAA 1997 also denies a deduction for the relevant part under paragraph 40-880(1)(g) of the ITAA 1997 because that part is specifically made non-deductible by paragraph 26-55(1)(a) of the ITAA 1997.
Facts
The taxpayer closed down their business during the 2003 income year. In connection with the closure, the taxpayer made a payment during that year that satisfied the requirements of both section 25-50 and paragraph 40-880(1)(g) of the ITAA 1997. The payment resulted in the taxpayer making a loss for income tax purposes for the 2003 income year.
Reasons for Decision
Section 25-50 of the ITAA 1997 allows an immediate deduction for certain payments of pension, gratuity or retiring allowance. However, paragraph 26-55(1)(a) of the ITAA 1997 limits the deduction to the extent it creates or increases a loss for income tax purposes. For the taxpayer, therefore, that part of the payment that created the tax loss is not deductible under section 25-50 of the ITAA 1997.
Section 40-880 of the ITAA 1997 allows certain capital expenditure to be deducted over 5 years. One of those expenditures is described in paragraph 40-880(1)(g) as costs incurred to stop carrying on your business. However, subsection 40-880(3) of the ITAA 1997 denies a deduction for certain expenditure that is otherwise deductible under one of the paragraphs in subsection 40-880(1) of the ITAA 1997. In particular, paragraph 40-880(3)(g) of the ITAA 1997 denies a deduction to the extent the expenditure is specifically made non-deductible under another provision of the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997.
The effect of the limitation in paragraph 26-55(1)(a) of the ITAA 1997 is to make non-deductible that part of the amount otherwise deductible under section 25-50 of the ITAA 1997 that creates or increases a loss for income tax purposes. For the taxpayer, this means that the amount denied a deduction under section 25-50 clearly satisfies the exclusion in paragraph 40-880(3)(g) of the ITAA 1997 with the effect that a deduction for the amount so denied is not alternatively allowable under paragraph 40-880(1)(g) of the ITAA 1997.
The deduction made available by section 40-880 of the ITAA 1997 was not intended to alter the existing income tax treatment of expenditure that was already specifically recognised in the law even if that recognition was by way of making it non-deductible.