What is an Expense Incurred for the Early Stage Test

2023-11-23 11:43:57


The ATO has issued TD 2023/6 outlining the Commissioners’ views on what is considered an 'expense' for the purposes of the Early-Stage Test, more specifically, what is included in the 1 million dollar per annum (or 1m over 3 year count back).

The determination raises quite lofty points and maybe difficult to interpret for some, however a key, and simple message is reenforced in the compliance approach mentioned, when the commissioner confirms 

'There is low compliance risk in a company and its investors relying on the amount reported as 'total expenses' in the company tax return' 

In essence, Item 6 of the return is a helpful guide, which is reinforced by the Explanatory Memorandum that accompanied the Bill in 2016.

Importantly, the ruling goes on to discuss what is an expense and what is 'incurred', confirming that assets are not counted and that 'incurred' holds its usual interpretation in regards to section 8-1. Whilst these principals have been applied in many a private rulings it is comforting to see this expressed in the TD format.

Given the logical application of 'incurred' the commissioner goes on to confirm that provisions, such as the provision for bad debts, will not be included within the construct of expense and neither will 'depreciation expense' within the statutory context of Division 360.

Let’s hope any prior startups did not fall foul of the expense threshold due to ignorance.


Published By: Matthew