Recent changes to the Income Tax Assessment Act 1997 allow directors and/or shareholders to claim tax deductions for personal payments or contributions on a company’s behalf.
Certain tax provisions make directors personally liable or responsible for a company’s tax debts or obligations, e.g. lodging returns or failing to comply with an agreement under Section 222ALA.
Where an officer seeks advice from an accountant or lawyer regarding their legal obligations and responsibilities, the director may be entitled to a tax deduction for the cost of the advice.
Effective from 1 July 2005, directors and shareholders may be entitled to a tax deduction for payments made for certain business capital expenditure. Amounts paid in relation to insolvency administrations may be deductible during the year in which they were incurred or over 5 years.
Section 40-880(2) of the ITAA 1997 allows a deduction over 5 years for capital expenditure incurred in relation to a business which is:
- current;
- used to be carried on;
- is proposed to be carried on; or
- liquidated or deregistered, including a company, partnership or trust.
Other provisions of the ITAA 1936 and 1997 make certain payments deductible in the year they were incurred.
Generally, business related deductible expenses may include:
- contributions to a Deed of Company Arrangement.
- accounting and legal costs relating to an insolvency administration.
- costs to comply with legal obligations and responsibilities.
- accounting and legal costs to defend an insolvent trading claim.
If you would like any further information, please contact Tamie Schneider – Sydney – (02) 8346 6000 or Stewart Free - Newcastle – (02) 4962 2294.
