4.12.7.20 Allowable & Non-allowable Deductions

Date of effect

This topic has effect to controlled private trusts and controlled private companies from 1 January 2002.

Summary

This topic contains information on:

  • allowable deductions, and
  • non-allowable deductions.

Allowable deductions

Allowable deductions from the business income of a private trust or private company are as follows:

  • expenses:
    • incurred while earning taxable income, OR
    • necessary for the conduct of a business with the purpose of earning taxable income,
  • depreciation:
    • allowed on plant and equipment actually used, or ready to be used, in producing assessable income,
    • NOT allowed on plant and equipment which ONLY provides an external environment for the income producing activity,
  • superannuation deductions paid to a complying superannuation fund (as per SIS),
  • interest of no more than 10% p.a. paid in respect to GENUINE non-commercial loans,
  • rent or mortgage interest, when business is conducted from the income support recipient's home,
    • a deduction is allowed from the gross income, ONLY for rent or mortgage interest on the portion of the premises actually involved in conducting the business, and
  • environmental impact assessments.

Act reference: SSAct section 7(2) An Australian resident is…

Non-allowable deductions

Non-allowable deductions from the business income of a private trust or private company are as follows:

  • prior year losses ITAA,
  • offsetting losses from unrelated businesses,
  • building depreciation,
  • borrowing expenses (ITAA sections 67 and 67A),
  • contributions to non-complying (as per SIS) superannuation funds,
  • donations (ITAA section 78(1)(a)),
  • income equalisation deposits/farm management bonds (ITAA sections 159GA - 159GDA),
  • double wool clip (ITAA section 26BA),
  • forced disposal of livestock (ITAA sections 36AAA or 36(3)(7)),
  • trading stock valuation adjustments (ITAA section 28),
  • premiums for personal life insurance policies or funds,
  • private health insurance premiums,
  • obsolescence (ITAA section 31(2)),
  • industry concessions/incentives,
  • amortisation of intangible assets,
  • provisions to defer taxation,
  • capital expenditure deductions,
  • entertainment, and
  • deductions for research and development.

For the legal authority and a complete list of the non-allowable deductions, please see the Disallowable Instrument, Social Security (Attribution of Income - Ineligible Deductions) Determination 2017.

Act reference: SSAct section 7(2) An Australian resident is…, section 1208B Permissible reductions of business and investment income

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Superannuation Industry (Supervision) Act 1993

Last reviewed: 20 September 2017