For a few years now, very generous provisions have been in place that allow business to claim the cost of assets used in the business in the year of purchase instead of having to deduct them over time. But, this has led to some serious problems where some products have been promoted as being tax deductible without proper consideration being given to the way the tax rules operate.
Artwork is one example
If your business buys an artwork to display in areas of your office where it would be viewed by clients, then assuming it is used in connection with your business and is likely to decline in value, the business can generally claim depreciation deductions for tax purposes. Depending on the situation, it might be possible to claim an immediate deduction. If, however, the artwork is displayed in a home office then the risk of the ATO querying this is much higher.
If the artwork is an investment piece and you expect it to appreciate in value, then it’s unlikely to be a depreciating asset and would not normally qualify for an immediate deduction.
Another scenario is a boat used for “marketing purposes”
If your business buys a boat, and claims the cost of the boat and the expenses – the ATO will expect to see the benefit to your business of this and will be checking to see if the boat has been used privately by employees or shareholders (yes, they do look at your social media). If there is private usage of the boat then this can give rise to a range of complex tax issues. For example, this could trigger an FBT liability or a deemed unfranked dividend under the rules in Division 7A. It gets very messy.
In general, the ATO is likely to review any expense where the cost outweighs the likely value to the business of acquiring it, particularly for assets that people are likely to want for their own pleasure.