Advise tax consequences of the above facts in the case study, referring to appropriate legislation and case law. important legislation INCOME TAX ASSESSMENT ACT 1997 Division 25--Some amounts you
1 © 2018 Thomson Reuters (Professional) Australia Limited Principles of Taxation Law 2018 Answers to Questions CHAPTER 14 – CAPITAL ALLOWANCES Question 14.1 On 1 June 2016, Rogan purchased a new scooter for $ 6,000 for use in his business. The Commissioner has assessed the effective life of sco oters as three years. Rogan decided to upgrade to a scooter and sold the old one to a reputable secon d-hand dealer for $3,000 on 31 August 2017.
Rogan estimates that he used the scooter for busine ss purposes 90% of the time.
Advise Rogan of his income tax consequences arising on the disposal of the scooter under both the diminishing value method and the prime cost method. Assume that Rogan does not qualify as a small business entity. Question 14.2 Jack and Jill jointly own and run a bed and breakfa st business. The business is run through their partnership, J & J Bed and Breakfast. Jack and Jill also own an investment property together which they purchased in equal proportions. During the yea r, they undertook the following transactions:
• Purchased furniture for their bed and breakfast bus iness for $3,000 on 21 December 2017. The furniture is expected to last for seven y ears.
• Purchased a printer for their bed and breakfast bus iness for $700 on 30 April 2018. The machine is expected to last for three years.
• Purchased an air-conditioner for their investment p roperty for $2,000 on 15 March 2018. The air-conditioner is expected to last for e ight years. Jack and Jill contributed to the purchase price of the air-conditioner equally.
Advise Jack and Jill of their income tax consequenc es arising out of the above information under both the diminishing value method and the prime cos t method (if relevant) for the year ended 30 June 2018. Assume that the business does not qualif y as a small business entity.
Question 14.6 An extract of the asset register of Alpha Pty Ltd ( “Alpha”) for the 2016-17 income year is as follows: Asset Cost Opening Adjustable Value Method Effective Life Decline in Value for This Period Closing Adjustable Value Desktop Computer 1,350 1,350 Diminishing Value 3 years 450 900 Furniture 5,000 3,000 Prime Cost 10 years 500 2,500 2 © 2018 Thomson Reuters (Professional) Australia Limited Filing Cabinets 1,200 1,080 Prime Cost 10 years 120 960 All depreciable assets are for 100% business use an d Alpha uses a low-value pool for all eligible assets. The closing value of the low-value pool at 30 June 2016 was $5,300. Alpha purchased a printer on 5 June 2018 for $700.
Advise Alpha of the income tax consequences arising out of the above information for the 2017-18 income year assuming Alpha is not a small business entity.
