For Questions 1-5 identify which items are assessable and which items are deductible. Follow Figure 2.3 of ‘Principles of Taxation Law’ textbook to answer the problems:
Step 1: Understand the question and the facts
Step 2: Identify the taxation law issues that are raised (see below items)
Step 3: Research the relevant legislation and case (see ‘Principles of taxation law’ Topics, 2, 5, 6,7,8, 9,11,12,13,14, 25.)
Step 4: Apply the law to the problem, referring to relevant cases and legislation
Step 5: Form a conclusion.
Q1: Items to be identified:
Salary
Airfares
Hotel Accommodation
Acquisition of property in Bendigo
Rent
Interest
Q2: Items to be identified:
Cost of Ramp
Structural Improvement and capital works
If an item comes with Division 40 (depreciating asset) and Division 43 (capital works), Division 43 takes priority
Q3: Items to be identified:
Sale of property
Real estate agent’s commission
Solicitor’s fees
Cost base of a CGT asset.
Q4: Items to be identified:
FBT
Reimbursements
Q5: Items to be identified:
Rent
GST
FBT
Deductible expense
Suggested Method/Steps for Approaching an Item of Expenditure
1.Is the expenditure deductible (which may include an analysis as to whether the expenditure is of a capital nature) under s 8-1? If “Yes”, then the amount is fully deductible under s 8-1. Deductions are not available elsewhere. If “No”, you should proceed to Step 2.
2.Is the asset/advantage a “Depreciating Asset” within Division 40 (ss 40-30(1) and 40-30(3))? If “No”, then no deductions are available under Division 40. From there, the most likely step is the CGT Regime (i.e. cost base inclusion). We can generally jump directly from Division 40 to the CGT Regime (i.e. ignore Division 43) because it is very unlikely that Division 43 will apply to an item that cannot meet the definition of a Depreciating Asset in Division 40. In other words, something that comes within the definition of buildings (and extensions to buildings) or structural improvements (and extensions to structural improvements) in s 43-20 will, in all probability, come within the definition of a depreciating asset within s 40-30.
If “Yes” (i.e. item is a Depreciating Asset within Division 40), we cannot automatically assume deductions will be available under Division 40. We need to see whether Division 43 applies to the expenditure? There is a need to work through the requirements of s 43-10, in conjunction with s 43-70. For example (the most common example), if the item is “plant”, it will be excluded from Division 43. Therefore, if the item is plant, deductions will be available under Division 40. On the other hand, if the requirements in s 43-10 are satisfied (which includes the conclusion that the item is not plant), then Division 43 will apply to confer deductions.
3.Rare, but if the item does not come within Division 40 or Division 43 (e.g. unimproved land), then the cost of acquisition goes solely into the cost base of the CGT asset under the CGT Regime.
Sample Solution