Week 7 – Tutorial Solutions

Week 7 – Tutorial Solutions
Specific deductions and capital allowances
Question 1
Advise Cheryl of her tax consequences from the following transactions:
(a) Donation of $300 to the building fund of her local public primary school.
Deductible: Item 2.1.10 s 30-25(1).

Not deductible – benefit to donor
(c) Payment of $700 membership fees to the real estate agents’ association. Cheryl is a
professional real estate agent, but she has not been working as one for the last two
years following the birth of her child. However, she maintains her membership of the
association as she intends to go back to work one day.
Deductible under s 8-1? If not, limited to $42 under s 25-55 ITAA97
Question 2
Digby owns a bookstore. He undertakes the following activities:
(a) replastering and repainting a wall which had been damaged due to a leak;
Deductible – repair under s 25-10 ITAA97

Equivalent material? Repair under s 25-10 ITAA97
(c) installing a new payment counter with new display signs; and
Renewal – capital, not deductible. Capital allowance under Div 40 ITAA97

Capital – not deductible. May be deductible under Div 43 (capital works)
Advise Digby of his tax consequences arising from the above information
Question 3
Alina recently inherited a large block of land from her uncle. She built a house on the land
and subsequently sold the house and the land for $900,000. Alina received advice on the tax
consequences of the sale from her accountant, who is a registered tax agent. The accountant’s
fees for the year were $1,800. The fees related to the lodgment of Alina’s income tax return
($500) and the advice regarding the sale ($1,300). Advise Alina as to whether the $1,800 paid
to her accountant is deductible for income tax purposes.
Deductible under s 25-5 ITAA97
Question 4
In Year 1, Beta Pty Ltd has $600,000 of assessable income and $1,000,000 of deductions. In
Year 2, Beta has $300,000 of exempt income, $200,000 of assessable income and $500,000
of deductions. In Year 3, Beta has $500,000 of assessable income, $200,000 of exempt
income and $200,000 of deductions.
Advise Beta of its taxable income (or loss) in each year.

*Exempt Income – Tax Loss = Remaining Tax Loss
$300,000 – $400,000 = ($100,000)
Tax Loss for the year: Assessable Income – Allowable Deductions – Remaining Tax Loss
$200,000 – $500,000 – $100,000 = ($400,000)
**Exempt Income – Tax Loss = Remaining Tax Loss
$200,000 – $400,000 = ($200,000)
Tax able Income for the year: Assessable Income – Allowable Deductions – Remaining
Tax Loss
$500,000 – $200,000 – $200,000 = $100,000
Question 5
Big Shoes Pty Ltd sells shoes exclusively online. Customers are invoiced for the shoes when
they are shipped and are only required to pay for the shoes once they have been received and
deemed satisfactory. Big Shoes includes the invoice amount in its assessable income when
the invoice is issued. As of 30 June, Big Shoes determined that it had $10,000 in unpaid
invoices. Its records indicated that 70% of the invoices related to shoes sold within the last
month, which was considered acceptable. However, of the remaining $3,000, $1,000 related
to invoices which were more than three months overdue. In accordance with its customary
practice, Big Shoes wrote off the $1,000 of outstanding invoices. Its standard practice is to
issue payment reminders before writing off the debt and turning it over to a debt collector.
Big Shoes also created a provision for bad debts of $2,000 at this time.
Advise Big Shoes as to what amount (if any) it can deduct in relation to the unpaid invoices.
$1,000 under s 25-35 ITAA97
Question 6
Rumpole is a medical doctor and a scientist. He works at a local hospital in the mornings,
attending to patients. At lunchtime he takes a train to the local university where he works in a
research laboratory. At the end of the day, he takes the train home.
Advise Rumpole as to the tax deductibility of the train fares.
Train from hospital to university deductible.