Deck 7: Specific Deductions Andapplications Ofdeductibility

Question 1

Steel Pty Ltd, an Australian public company, has provided you with the following information for the 2019-20 tax year, so that you can advise the company accountant of its entitlement to any deductions. The company uses accrual accounting for income recognition.
Estimated bad debts, $5000
Provision for doubtful debts, $1,000
Debts written off during the year, $4,000
One years advertising paid on 1 January 2020 to a magazine $20,000.
The total allowable deduction for Steel Pty Ltd based on these four transactions is

A) $14,000
B) $30,000
C) $25,000
D) $15,000

Answer 1

$14,000

Question 2

On 1 July 2019 Max Gawn borrowed $50,000 from an International Bank for use in his business. Max incurred legal and accounting expenses of $2,000 in arranging the ten-year loan.
Which of the following statements is correct with regards to the Max's potential for an allowable deduction with regards to the costs of borrowing?

A) The costs associated with obtaining the loan are not deductible as they are capital
B) The costs associated with obtaining the loan can be written off over five years commencing on date that the loan was acquired.
C) The costs associated with obtaining the loan are fully deductible in the year in which they are incurred
D) The costs associated with obtaining the loan can be written off in equal instalments over the life of the loan.

Answer 2

The costs associated with obtaining the loan can be written off over five years commencing on date that the loan was acquired.

Question 3

Rosemary Peters is a sales representative for a curtain manufacturer. As part of her employment duties she leased a vehicle to travel to her customer's homes. Rosemary kept a log book which indicated that she travelled a total of 30,000 kilometres during the year the 2019-20 tax, of which 22,000 were for visiting her customers.
During the year Rosemary incurred the following expenses in relation to her vehicle:
Registration and Insurance $1,500
Petrol $4,500
Servicing the vehicle $900
Lease expenses $15,000
Parking fines $200
Based on the above information, Rosemary's entitlement to a tax deduction for her car expenses for the 2019-20 tax year (rounded to nearest dollar) is;

A) $12,702
B) $16,133
C) $21,900
D) $16,060

Answer 3

$16,060

Question 4

Paul Jones owns a rental property and incurred the following expenses in the 2019-20 tax year. Which of the items can he claim as a deduction under s25-10?
1 - Repainting the property before the first tenant moved in $6,000
2 - Replacing a valve in the hot water system after a tenant has left the property $300
3 - Replacing the tiled roof after owning the property for three years as a result of storm damage $8,000
4 - Putting in a new concrete driveway to the property after owning the property for 12 months $10000

A) Items 1 and 4
B) Items 1,2,3 and 4
C) Items 2 and 3
D) Item 2

Question 5

Susan Ross paid the following amounts to her registered tax agent.
How much can she deduct under ITAA97 s25-5?
1 - Lodgement of her own income tax return $900
2 - Obtaining FBT advice $400
3 - Income tax advice on creating a partnership with her husband $1,000
4 - Objecting to the ATO regarding an expense that they disallowed in her income tax return $700

A) Items 1 and 3
B) Items 2 and 3
C) None
D) Item 1 and 4

Question 6

Adrian Brown is a carer who is required to visit various clients at their homes. As part of his employment duties he purchased a vehicle to travel to his various client homes. Adrian did not keep a log book but he kept a diary which showed that he travelled a total of 6,300 kilometres in travel between client homes that related to visiting clients at their various homes during the 2019-20 year of tax. He is not claiming any travel from his home to the first client or from the last client to his home.
During the year Adrian incurred the following expenses (before any adjustment for work use) in relation to his vehicle:
Registration and Insurance $1,400
Petrol $2,500
Servicing the vehicle $600
Interest on the car loan $5,000
Depreciation on the vehicle $6,000
Adrian estimates that his overall work-travel would have been 60% if he had kept a log book. Based on the above information, Adrian's entitlement to a tax deduction for his car expenses for the 2019-20 tax year (rounded to nearest dollar) is;

A) $4,284
B) $3,400
C) $15,500
D) $9,300

Question 7

BGL Pty Ltd recently replaced the engine in one of its boats, used for charter boat tours, with a much larger (1/3^rd larger) more fuel efficient engine. Is this cost likely to be deductible as a repair expense under section 25-10 ITAA97?

A) Yes as the engine would not be an entirety as the entire asset would be the boat and so any costs that are not in relation to the entire asset would be deductible
B) Yes as the costs relate to a restoration of efficiency and would not be an improvement
C) No as the modifications would amount to an improvement.
D) No as the costs relate an asset only used for private purposes

Question 8

Neil owns a rental property and during the year ended 30 June 2020 he spent $1,500 fixing up holes in the walls after the previous tenants damaged some of the walls in the rental property. Which of the following statements is most correct?

A) The maintenance costs would constitute a repair and so would be deductible under s25-10 ITAA97 and would not satisfy the rules for deductibility under s8-1 ITAA97
B) The maintenance costs would constitute a repair and so would be deductible under the first positive limb of s8-1 ITAA97 as costs incurred in gaining income and would not be deductible under s25-10 ITAA97
C) The repair costs would be capital in nature and so not deductible under either s25-10 or s8-1 ITAA97
D) A repair cost, such as those described, could be deductible under s8-1 but as they are specifically deductible under s25-10 ITAA97, only the specific provision applies

Question 9

Eve saw her accountant for advice in March 2020 and paid him $300 for that advice and she then saw her accountant again in May 2020 and paid him $400 for assistance in preparing and lodging her 2019 tax return. Which of the following statements is correct?

A) Eve is entitled to claim $700 for her tax-related expenses and these will be claimed in her 2020 tax return
B) Eve is only entitled to claim $400 for her tax-related expenses and these will be claimed in her 2020 tax return
C) Eve is only entitled to claim $300 for her tax-related expenses and these will be claimed in her 2020 tax return
D) Eve will not be able to claim any deduction for these tax-related expenses as they are private in nature

Question 10

Ken purchased 10 tickets for $100 in the RSL lottery recently. Can Ken claim any or all of the $100 paid to the RSL under Division 30 ITAA97?

A) A full deduction of $100 is claimable under Division 30
B) No deduction is claimable as there is a material benefit provided
C) Ken can claim a deduction of $100 but only if none of his tickets actually wins a prize
D) Ken can only claim 50% of the $100 paid as that is the private portion of the donation made

Question 11

Lina has spent $340 on clothing recently and she has kept all her receipts and she wants to know if any of this expense is an allowable deduction. The clothing represents a non-compulsory uniform but one which the employer has not as yet registered the design on theRegister of Approved Occupational Clothing. Which one of the following statements is correct regarding Lina's entitlement to claim a deduction for this clothing purchase?

A) A full deduction of $340 is allowed for this clothing purchase
B) A deduction is allowable up to $150 for this clothing purchase
C) No deduction is allowable for this clothing purchase
D) As long as the uniform distinguishes staff that work for her employer then the clothing purchase of uniform items would be deductible and the employer's policy on staff wearing uniforms is not relevant

Question 12

In the 2020 tax year, Andrew derived $60,000 in assessable income but had deductions of $90,000. If Andrew also derived $20,000 of exempt income, what would Andrew's tax loss be for the 2020 tax year?

A) $0
B) $20,000
C) $30,000
D) $10,000

Question 13

Hari started up a new business this year selling old vinyl records. For the year ended 30 June 2020, Hari advises that his total sales were $18,000 and his expenses were $25,000. Hari rents a small shop in an outer suburb of Adelaide and the market value of that shop was $400,000. What is Hari's taxable income for the year ended 30 June 2020?

A) Tax loss of $7,000 and no deferred non-commercial loss
B) Taxable income of $0 and a deferred non-commercial loss of $7,000
C) Taxable income of $7,000
D) Tax loss of $25,000

Question 14

Michael is a lawyer for a large national law firm. His employer requires him to wear expensive latest style business suits to work. Michael would not normally purchase such expensive suits and he does not wear them privately. Which of the following statements is true?

A) A full deduction is allowable for Michael's clothing purchases of expensive suits
B) Michael should be able to claim a deduction for the difference in the costs of these expensive suits compared to the types of suits that he would normally buy
C) No deduction is allowable for Michael's clothing purchases of expensive suits
D) A full deduction is allowed because Michael would lose his job if he did not comply

Question 15

Which one of the following statements is true?

A) Travel from home to work is nearly always deductible
B) Travel between two different work places is deductible, as long as one of those workplaces is not also the home of the taxpayer
C) Travel from home to work is deductible but not travel from work to home
D) Travel from home to work is not deductible but travel from work to home is deductible

Question 16

Doris is an employee and of recent times she has been required to work from home. Which type of expenses can Doris claim (as long as she keeps appropriate records)?

A) A portion of her home running expenses such as electricity and gas and decline in value and repairs of depreciable assets
B) A portion of her home running expenses such as council and water rates and home insurance and interest on her mortgage
C) A portion of her home occupancy expenses such as council and water rates and home insurance and interest on her mortgage
D) No expenses can be claimed as her home is a private asset

Question 17

Tina is employed as a junior accountant and she wants to progress in the accounting firm she works for and so she has undertaken the first year of her Bachelor of Commerce degree. He employer has encouraged her to study and supports her with some paid time off for her revision and exams. The study is likely to lead to a promotion. During the year ended 30 June 2020, Tina has spent $3,000 on course fees (not HELP) and $400 on textbooks. What amount can Tina claim for her self-education expenses in the year ended 30 June 2020?

A) $400
B) $3,000
C) $3,400
D) $3,150

Question 18

Tom is a junior barrister and during the tax year 2020 he has spent $2,000 on his barrister's gowns. Tom has also spent $1,000 on two suits that he wears when he sees clients. What amount of clothing expenditure is Tom likely to be able to claim for the year ended 30 June 2020?

A) $0
B) $1,000
C) $2,000
D) $3,000

Question 19

Ron is a farmer and the year ended 30 June 2020 has been a bad one for his farm as he made a loss of $80,000 (on sales of $60,000). During the year Ron also worked part-time at a clothing store in the town to help supplement his income. Ron was paid $30,000 in gross wages for that part-time work. What would Ron's taxable income be for the year ended 30 June 2020?

A) Ron's taxable income would be a ($50,000) loss and there would no deferred non-commercial loss
B) Ron's taxable income would be a ($80,000) loss and he would have a deferred non-commercial loss of $30,000
C) Ron's taxable income would be a ($50,000) loss and he would have a deferred non-commercial loss of $30,000
D) Ron's taxable income would be $0 and he would have a deferred non-commercial loss of $80,000

Question 20

Travis had assessable income of $40,000 and deductions of $65,000 and he also derived $10,000 in exempt income in the year ended 30 June 2020. If in the deductions of $65,000, there was a donation of $5,000, what would Travis's tax loss be for the 2020 tax year?

A) ($25,000) loss
B) ($10,000) loss
C) ($15,000) loss
D) $0 tax loss

Question 21

Calculate Wendy's taxable income in light of the following:
· Assessable income = $35,000 (source is salary and dividends)
· Donation to political party = $2,000
· Interest on a loan to buy shares (which produced assessable income included in $35,000) = $4,000
· Compulsory work uniform costs = $220

Question 22

Brad is currently working as a storeperson but he wants to do more with his life and so two years ago he has started studying engineering part-time at a local university. If Brad incurred the following costs during the year ($4,000 HELP repayment + $2,000 course fees + $500 textbooks + $200 stationery), is he entitled to any deduction for these expenses?

Question 23

Teresa has 3 young pre-school age children and she is required to place these children into day care each day so that she can undertake some paid employment. The child care costs amount to $18,000 per annum. Teresa has receipts for her bus and train travel to the city to undertake her paid employment and these receipts add up to $3,400. Teresa is also required to wear clothing of a distinctive colour to work but there is no other identifying mark to identify her workplace. Teresa tells you that she spent $440 on various clothing items that she tells you she only exclusively wears to work. Can Teresa claim any of these expenses?

Question 24

MKW operates a radio broadcasting licence in an Australian country town. It is the only radio station in town but a rival is now seeking permission to be granted a new radio licence to operate in competition with MKW. On hearing of the rival's proposed entry into the country town's radio market, MKW engages a law firm and incurs $50,000 in legal fees to oppose the grant of the new radio broadcasting licence. MKW is successful in preventing the new issue of the new broadcasting licence. Would MKW be entitled to a tax deduction for the $50,000 incurred in legal fees?

Question 25

A refrigerator manufacturer (A) incurred legal expenses of $100,000 in opposing a rival manufacturer's (B) application to extend its patent of a refrigerator. A was planning to produce refrigerators based on this patent when the patent expired. Would this $100,000 in legal fees, or any part of it, be allowed as a deduction?