Question:
Deduction for franchise establishment fees denied
Answer:
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
The Tribunal has knocked out a claim for deductions over five years for franchise “establishment fees” made by a branch of the Bendigo Bank. This puts doubt on similar payments for other franchise groups.
It is common practice for a franchisor or to charge a significant up-front fee to enter into the franchising agreement. There are usually subsequent charges either annually or in the case of this branch of the Bendigo Bank payable every five years. The subsequent charges are considered to be on revenue account and deductible when incurred. The establishment fee however is generally agreed to be of a capital nature.
The 97 Tax Act does provide for business-related capital costs to be deducted over a period of five years subject to specific conditions. Under those conditions, you can’t claim the deduction if the expenditure could … be taken into account in working out the amount of a capital gain or capital loss from a CGT event.
The Tribunal considered that the upfront payment of over $100,000 should be taken into account as part of the cost base of the franchise rights and accordingly not deductible under the business-related capital cost provisions.
s 40-880(5)(f) of the 97 Tax Act, AAT Case [2011]
AATA 607, Re-Inglewood and Districts Community Enterprises Ltd and FCT, WTB 1421
