QUESTION 5

Section 8-1 deductions:

1) You can deduct from your assessable income any loss or outgoing to the extent that:
a) it is incurred in gaining or producing your assessable income; or
b) it is necessarily incurred in carrying on a business for the purpose of gaining or
producing your assessable income. 1

INTEREST:

Interest is deductible under Section 8-1 as a general deduction.

$100000 * 10% = $10000

BORROWING COSTS:

Borrowing costs are deductible over the life of the loan of 4 years.

$4000 / 4 years= $1000 p. a.

QUESTION 6
NEW METAL PRESS

Purchase of a new metal press capital expenditure

Depreciation of assets - Division 40

Cost of metal press
Delivery fee
Installation and testing fee
Costs for depreciation purposes

$130,000
$1,000
$1,000
$132,000

INCOME TAX ASSESSMENT ACT 1997 SECT 8.1 (1997) Retrieved on September 16th, 2014
from http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html

The new metal press was installed and ready for use on the 1 October 2014
- Prime cost method
- Formula Sec 40-75:

Asset's cost x Days held / 365 x 100% / Asset's effective life

$132000 x 334/365 x 20% (100% / 5) = $24158
- Diminishing value method
- Formula Sec 40-70:
Assets cost x Days held / 365 x 200% / Assets effective life
$132000 x 334/365 x 40% (200% / 5) = $48316
In order to claim the maximum amount Giovanni should use diminishing value method
because it gives more. Asset is acquired after May 2006 therefore times 200% over
100%.
The maintenance fee of metal press for 12 moths of $4000 is deductible under the
Section 8-1.

Sale of the computer

The adjusted value of the computer $1000, Giovanni sold it for $3000 so he made a profit
of $2000 which is included in his assessable income under Section 40-285
There is no capital gain or loss on the disposal of the computer because it is a depreciated
asset and no capital gain or loss arises on sale of depreciated assets.

QUESTION 7

Market value of shares Purchase price (cost base) = Gain

$130000 - $100000 = $30000
There is a 50% discount because Giovanni held the assets for more than 12 months.
$30000 less the 50% discount= $15000 net capital gain
A painting is a collectable item and a $10000 loss cannot be offset against the shares.

QUESTION 8
In order to qualify for Fringe Benefit Tax (FBT), there are three conditions for FBT to be
satisfied:

Fringe benefit has to be paid as a consequence of an employment relationship,

It has to be a benefit, which is broadly defined and includes any rights, privileges
and services,

It is not an exempt benefit.

Expense payment fringe benefit (Sec 20):

Step 1: Taxable value: $6000
Step 2: Grossed up taxable value: $6000 x 1,8868 = $11320,8
Step 3: FTB payable by employer: $11320,8 x 47% = $5320,8
Section 92-15: Employer can claim a tax deduction from fringe benefit provided in the
amount of $11320,8.
Reference list:

http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html

Http://www.ato.gov.au