Feasibility expenditure generally refers to expenditure incurred by a business or organisation to determine the practicality and practicability of a new proposal. Most feasibility expenditure is non-deductible. Where it related to a project to create an asset that would be depreciable property, the expenditure is capitalised with a depreciation deduction on completion.
However, where it is expenditure that has assisted in earning taxable income and occurred as an ordinary part of your business, it may be deductible.
For more detailed information, you can read Interpretation statement 17/01: Income tax - deductibility of feasibility expenditure on our Tax Technical website.
From the 2020/2021 income year onwards, new rules apply around deducting feasibility expenditure. We are currently working on adding more detailed information on these changes to the relevant areas of our website. While that is under development, we have created a brief summary of the changes below.
From the 2020/2021 income year, an immediate deduction is available for feasibility expenditure incurred from the start of that income year in making progress towards completing, creating or acquiring an asset if this totals $10,000 or less in an income year.
Abandoned feasibility property
From the 2020/2021 income year new rules apply to expenditure incurred from the start of that income year on making progress towards completing, creating or acquiring an asset that is subsequently abandoned before the asset is completed or acquired.
Total expenditure incurred of over $10,000 can be spread in equal proportions over a 5-year period from when progress on the asset was abandoned.
This is provided that:
- the asset would have been depreciable property if completed,
- no other deduction is claimed for this expenditure (such as a Research and Development Tax Credit)
- it is not land as land is not depreciable property.
Certain expenditure will generally not be deductible, such as to expenditure on land, shares and goodwill.
Restarted feasibility property
Circumstances may change and a project which was previously abandoned may be restarted and completed.
Where a previously abandoned property is subsequently created, acquired or completed within 7 years of the last year a deduction was claimed under the 5-year spread, all feasibility amounts deducted are added back as taxable income. This will be taxable income in the year the property is completed, created, or acquired.
The completed property can then be depreciated as per standard tax depreciation rules.
Further information is available in a special report published April 2021 on our Tax Policy website.