New rules around feasibility expenditure 11 Nov 2020

The Government is bringing in some new rules about claiming feasibility expenditure.

The rules are in the current tax Bill before Parliament. They are therefore not yet law and there could be changes.

If you abandon work on property, it’s proposed you will be allowed to write off the feasibility cost as long as that property does not have a 0 percent rate of depreciation. This means if you abandoned a project on commercial property the feasibility expenditure will qualify because there are new rates of depreciation applying to this current year.

However, since residential rental buildings have a depreciation rate of 0 percent, you won’t be able to take advantage of the new feasibility write-off.

If the total amount spent on a commercial feasibility study is $10,000 or less in any year, it can be treated as a tax deductible expense even though the project is not abandoned. Where the amount exceeds $10,000 and the project is abandoned, the cost has to be written off in equal instalments over five years starting with the year in which it has been abandoned.

A typical example of feasibility cost is a study of a proposal for earthquake strengthening.

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