Selected financial year is highlighted in each table
Section 40-880 — Black Hole Expenditure
Capital expenditure deductible over 5 income years at 20% per year (straight line). Section 40-880 is a provision of last resort — it only applies if the expenditure is not deductible under any other provision and cannot be included in the cost base of a CGT asset or a depreciating asset. Refer to TR 2011/6 for the Commissioner's detailed views on scope and eligibility.
✓Takeover defence costs — capital expenditure incurred by a target company defending against a takeover bid
✓Unsuccessful takeover costs — capital expenditure on an unsuccessful attempt to acquire another entity
✓Business wind-up costs — deregistration, liquidation costs incurred by a member, partner or beneficiary
✓Business relocation costs — capital costs of relocating a business to new premises
✓Feasibility study costs — where the proposed business actually commences within a reasonable time (TR 2011/6 ¶¶ 30–45)
✓Due diligence costs — where not included in the cost base of a CGT asset (TR 2011/6 ¶¶ 46–49)
✓Employee share scheme cancellation payments — confirmed as deductible under s40-880 in Clough Limited v Commissioner of Taxation [2021] FCA 108
✓Certain legal costs of a capital nature — where incurred in relation to the business and not otherwise deductible
Does NOT qualify
✗Expenditure deductible under s8-1 (general deductions) or any other specific provision
✗Borrowing costs — these are governed by s25-25 (loan term or 5 years, whichever shorter)
✗Expenditure forming part of the cost base of a CGT asset
✗Expenditure forming part of the cost of a depreciating asset (Division 40)
✗Private or domestic expenditure
✗Expenditure relating to exempt or non-assessable non-exempt (NANE) income
✗Cost of land
✗Remaining balance where taxpayer ceases to exist (e.g. company wound up) — balance is lost, not accelerated
Authority: s40-880 ITAA 1997 · TR 2011/6 · Clough Limited v Commissioner of Taxation [2021] FCA 108
Section 25-25 — Borrowing Costs
Borrowing costs are deductible over the shorter of the actual loan term or 5 years, pro-rated by days from the date the money is first borrowed. If the loan is repaid early, the remaining undeducted balance is fully deductible in the year of repayment. This is a separate provision to s40-880 and has different rules — including acceleration on early repayment.
Qualifying Expenditure — s25-25
✓Loan establishment fees — application fees, origination fees charged by the lender
✓Mortgage broker fees — where the borrowed money is used for an income-producing purpose
✓Stamp duty on mortgage documents — not stamp duty on the property transfer itself
✓Title search and valuation fees — incurred as part of obtaining the loan
✓Lender's legal costs — where charged to the borrower as a condition of the loan
✓Lenders mortgage insurance (LMI) — where the borrowed funds are used for income-producing purposes
✓Mortgage registration fees — government charges for registering the mortgage
Key Rules
→Under $100: deduct immediately in full in the year incurred — no spreading required
→Over $100: spread over the shorter of the loan term or 5 years, pro-rated by days in year 1
→Early repayment: remaining undeducted balance is fully deductible in the income year the loan is repaid — including vehicle trade-in where the loan is refinanced or discharged
→Mixed purpose loans: deduction must be apportioned — only the income-producing portion is deductible
→Interest is separate: interest on the loan is deductible under s8-1, not s25-25
Does NOT qualify under s25-25
✗Stamp duty on the property or asset transfer — this is a CGT cost base item
✗Interest charges — deductible under s8-1, not s25-25
✗Borrowing costs where the loan does not proceed
✗Borrowing costs on loans used for private purposes