Unable to deducting the costs of a failed startup

Discussion in 'Accounting & Tax' started by Orion, 26th Jun, 2019.

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  1. Orion

    Orion Well-Known Member

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    I know someone who spent $150k building a mobile app startup. It is an amazing product, but in the end after a solid 6 months of marketing he found his target market isn't lucrative enough to make it all worthwhile. The startup is on hold, but quite likely might never make any money.

    His accountant told him that because the startup didn't make any money, the $150k is all 'black hole' and not claimable. He was advised the startup needs to make at least $20k of income, and only then it can start claiming the costs over a 5 year period.

    This didn't sound right to me. Is this right?

    (FYI he has also explored the R&D incentive and also the Export Marketing grant - both a no go).
     
  2. Christina46

    Christina46 Well-Known Member

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  3. Orion

    Orion Well-Known Member

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    $0 unfortunately. Was very close with many sales proposals, but at the end of the day, his target market (Nanny Agencies) just couldn't afford it.

    Reading through that link it seems his Accountant was correct...
     
  4. Christina46

    Christina46 Well-Known Member

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    I'm not an accountant, but it does seem pretty clear cut. How disheartening for your friend.
     
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  5. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    With hindsight, there are potential ways around this, put your mate in touch with @Terry_w if he wants to do another venture. This is really outside the scope of what an accountant can provide advice on.
     
    Last edited: 26th Jun, 2019
  6. Orion

    Orion Well-Known Member

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    Agreed - no good. The gov will start taking 30% on that first dollar you make though...

    I've advised him to try to make at least $20k of sales, even if you have to slash prices.

    Thanks for your responses.
     
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  7. money

    money Well-Known Member

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    What happens if he decided to sold his mobile app subscription to someone for $1 in income so he would have some income. Then later he decided to close the business. Would that make it deductible if that person decided to close up his business?
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    No
     
  9. Nem

    Nem Well-Known Member

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    R&D claims love failed projects :) I would speak with R&D experts... Pm me if you'd like details
     
  10. Mike A

    Mike A Well-Known Member Business Member

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    the key lesson here is right in the first paragraph. Understand your market and research it thoroughly BEFORE developing anything.