‘Blackhole’ Expenses

In an Interpretative Decision, the Tax Office states that an entity cannot deduct the balance of any ‘blackhole’ expenses in the income years after the entity stops carrying on a business to which the expenditure relates.

The Tax Office says that this is because the entity will not exist for those income years.

Broadly, ‘blackhole’ expenses are expenditures incurred by a taxpayer when establishing, expanding or ceasing its business. For an expense to qualify as a ‘blackhole’ expense, it must not form part of the cost base of an asset, deductible under another provision of the tax laws and expressly made non-deductible.

The deductions for the expenses are spread over five years in equal proportions.