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.