A Classification Of Incidental, Relevant And Business Expenses (Case Study Sample)

Name: Instructor’s Name: Course Details: Date of Submission: Tax Liability Question 1 The Cost Base of the Property The cost base of the property is given as follows. Purchase price $500,000 Add: Stamp duty and legal costs on acquisition $25,000 Upstairs extension cost $250,000 Legal costs to defend title $5,000 Cost base of the property $780,000 Rates and taxes worth $25,000 was tax deductible but Louisa could not claim a deduction for the rest of the expenses because the property was not used to generate any income until it was sold. The Type of CGT Event that the Sale of this Property is The sale of this property is under the CGT Event A1 - Disposal of a CGT asset. The Capital Gain that Louisa Made that is Liable to Capital Gains Tax Capital gain is given as follows. Capital income from the disposal  $1,500,000 Less:  The properties cost base $780,000 Prior year’s capital loss $40,000 Capital gain liable to capital gains tax $680,000 Question 2: Expenses that would be ‘Incidental and Relevant’ and have an Essential Character that Stamps them as ‘Business’ as Opposed to ‘Living’ Expenses Hairdressing costs by a model are incidental and relevant and the models do them for business purposes because they are paid for hair-modelling. My answer would not be different if the model had 3 hair dressing appointments per week on average to meet requirements of her clients/employers. Sunscreen worn by a bricklayer is an incidental and relevant expense because the bricklayer is likely to get skin cancer if he or she does not cover up and use the sunscreen. Therefore, the sunscreen in this case is used for business purposes because the bricklayer will continue making the bricks if his or her health is good, hence, earn from that. In addition, an alarm clock owned by a night-shift worker is an incidental and relevant expense because it wakes the employee up to get to work in time, hence, earn from the job instead of getting late to the place of work, which might lead to layoff and lack of income. Therefore, the alarm clock in this case is used for business purposes because the night-shift worker will continue going to work in time, hence, maintain his or her job and earn from that. The relevant law here is the Income Tax Assessment Act 1997 (ITAA 1997) Section 8-1, which permits a deduction for all the losses that a firm incurs in creating assessable income but excludes the expenses that are capital or private in nature or relate to the receipts of revenue that is exempted from taxes (Clarke). Question 3: Whether the following will be Depreciable Items under s 40-30 of the ITAA Buildings in respect of which Div 43 deductions are available Buildings in respect of which Div 43 deductions is available are depreciable items under s 40-30 of the ITAA because they have a limited effective life and their values drop over the period that people use them. Patents Patents are depreciable items under s 40-30 of the ITAA because the government grants them for a particular limited period, hence, the owner benefits from it for a limited time. According to Joyce, et al., the patents’ legal life is seventeen years. Goodwill Goodwill is not a depreciable item under s 40-30 of the ITAA because it is a capital asset, which regularly grows when a firm conducts certain activities on the income account. Therefore, businesses do not expect the goodwill’s value to drop over the period it conducts the activities on the revenue account. Land Land is not a depreciable item under s 40-30 of the ITAA because it does not have a limited effective life and we do not expect its value to drop over the period that an individual uses it. Trading stock Trading stock is not a depreciable item under s 40-30 of the ITAA because it does not have a limited effective life and when its value drops, organizations take it as loss and reduce their value. Question 4 Advise to Yan’s Employer as to the FBT and Income Tax Conseq...