Australia

Details

  • Service: Tax, Corporate Tax
  • Type: Regulatory update
  • Date: 30/06/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Tim Sandow

Tim Sandow
Partner, Tax

+61 8 8236 3234

tsandow@kpmg.com.au

Restructuring costs – worth thinking them through 

by Tim Sandow, Corporate Tax Specialist

As we finish another financial year, many businesses continue to focus on their core business and the changes that will be required in an ever changing and complex world. These changes often involve selling parts of business, closing unprofitable businesses, increasing efficiency and commencing or acquiring new businesses.

Usually there are costs involved with these decisions. The question is - are these costs revenue or capital? If they are capital, do they form part of the cost base of a capital gains tax (CGT) asset, part of the cost of a depreciable asset, or are they deductible over time (for example, under section 40-880). As well as the usual tests, it is worth reflecting on the following:

 

  • in determining the tax treatment of costs incurred in buying and selling companies in a tax consolidated group, it is critical to understand the timing of when the costs were incurred. For example, where a purchaser incurs costs in buying a subsidiary, if the costs are incurred before completion, the costs will form part of the cost base of the shares, but if the costs are incurred after completion, the costs should be deductible under section 40-880. Spending the time to analyse when the costs were incurred may be the difference between an increased cost base for goodwill or a deduction over 5 years
  • redundancy costs may be deductible under section 8-1 if the payment is in the future interests of the business. Otherwise, if the payment relates to past services, it may be deductible under section 25-50, but importantly these amounts cannot create or increase a tax loss.

 

As business continues to evolve, it is critical to take the time to review the costs incurred to ensure the tax treatment is correct.

 

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