Deductibility of GST Expenses
Emma Hollow

The Commissioner of Taxation recently released Taxation Ruling TR 1999/12. This Ruling is important in that will assist businesses who are now in the process of preparing themselves for the commencement of the GST on 1 July 2000.

The Ruling examines the expenses that may be incurred by taxpayers carrying on a business in preparing for the commencement of the GST and explains the circumstances and the extent to which these expenses are deductible under the Income Tax Assessment Act 1997 or the Income Tax Assessment Act 1936.

An immediate deduction is allowable for expenditure of a revenue nature in the year of income the expenditure is incurred.

Expenditure of a capital nature is not deductible in the year that the expenditure is incurred unless:

1. the expenditure is $300 or less; or
2. the effective life of the item is less than three years.

However, a deduction for depreciation is allowable over the effective life of the capital item from the date the capital is used or installed ready for use. 

Some examples are the:

1. Costs of printing new stationery to show the businsess’s ABN and redesigning invoices and perhaps other documents to provide for the GST ie amending existing transaction documents to ensure they achieve compliance with the tax invoice requirements;
2. Costs incurred in complying with registration formalities, such as professional fees for advice on completing the registration form;
3. Costs of professional advice obtained to assist with the development and implementation of new practices and procedures required to enable the business to comply with its obligations under the GST legislation;
4. Costs of training staff in the new practices and procedures required by the GST legislation ie training in the use of new equipment and software applications;
5. Costs of hiring new staff and the cost of termination payments made to staff who are made redundant as a result of efficiencies introduced in the course of changes made to prepare for the GST;
6. Costs of engaging consultants or project managers, hiring new employees or allocating existing employees to carry out work to review and determine the needs of a new accounting system to cope with the demands of the GST;
7. Costs (other than capital expenditure) incurred in operating the accounting system, monitoring its effectiveness and making changes to ensure the system is operating effectively;
8. Costs of computer packages comprising hardware, software, training and support for a single price that can be attributed to items of a revenue nature ie training and support. The Commissioner accepts any reasonable basis for allocating the cost of the different components that attract a different tax treatment; and
9. Costs of study tours to countries with a similar type of tax system for the purpose of studying changes the business may need to implement in preparation for the GST. A deduction is available to the extent the expenditure is attributable to business purposes. Where the overseas travel costs include travel for private purposes, the Commissioner will apportion the expenses between the business and private purposes.
   

Some examples are the:

1. Costs of acquiring, developing or commissioning computer software;
2. Costs of new plant and equipment such as computers, tills, scanners and similar items;
3. Costs of computer upgrades that are improvements of a capital nature and not repairs that make good defects in, damage to, or deterioration of property through wear and tear. Computer upgrades will generally be improvements and not repairs because the upgrade will serve to improve the functionality of the computer, enabling it to perform functions it was not previously capable of; and
4. Costs of the items in a computer package for a single price (as discussed above) that are classified as expenditure of a capital nature ie the hardware and software