Exam 8: Capital Allowances

Wildsong Enterprises Pty Ltd is a business (not a small business entity) that disposed of two assets in the year ended 30 June 2020. One asset, a van, had a written down value of $30,000 as at 1 November 2019 (the date of disposal) and it was disposed of for $40,000. The other asset, machinery, had a written down value of $42,000 and was disposed of for $28,000. What are the tax consequences of these two disposals of plant and equipment for Wildsong Enterprises Pty Ltd for the year ended 30 June 2020?

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Question 1

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The disposal of the van would give rise to an assessable balancing adjustment (under s40-285 ITAA97) of $10,000 ($40,000 - $30,000) to include in assessable income. The disposal of the machinery would give rise to a deductible balancing adjustment of ($14,000), ($28,000 - $42,000). The two disposals would then be netted off each other resulting in a deductible balancing adjustment of ($4,000).

Paul purchased an industrial building that is used in carrying on a business in June 2018 for $2.6 million. The construction costs of the building were determined by a quantity surveyor to be $2 million. What is the deduction that Paul can claim for the purchase of this building under Division 43?

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Question 2

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Yanni owns a medium size business that is not a small business entity but that has a turnover of less than $500 million. On 1 May 2020 Yanni purchased new machinery for use in business for $200,000. The effective life of this new machinery is ten years. What is the maximum depreciation deduction that can be claimed by the business for the purchase of this new machinery for the 2019-20 tax year?

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Question 3

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The maximum deduction for depreciation in 2019/20 will be calculated by the diminishing value method: s 40-72 ITAA97. For eligible taxpayer businesses (those with an aggregated turnover less than $500 million), new plant and equipment purchased after 11 March 2020 is eligible for an accelerated rate of depreciation equal to 50 per cent of the cost of an asset. Therefore, Yanni will be able to claim, as an immediate deduction, 50% x $200,000 = $100,000. He can then also claim depreciation on the balance of the asset's cost. The depreciation deduction will then be = $100,000 x 200%/10 x 61/366 = $3,333.

Ezy Fabricators Pty Ltd is a small business entity and has maintained a general small business pool. The opening value of this small business pool is $380,000. During the year the company sold an asset that was included in the pool, for $35,000. This asset had been originally acquired for $90,000. What is the closing balance of this general small business pool as at 30 June 2020?

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Question 4

Az Is IT has developed some software internally and it has chosen to capitalise all expenditure on the software during the development phase and then will depreciate the software when the software becomes fully operational. Which of the following statements about the claim for decline in value of this software are correct?

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Question 5

Eager Growth Ltd unsuccessfully attempted a takeover of a competitor business and incurred $130,000 in costs in doing so. Is there any deduction that Eager Growth Ltd may be entitled to?

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Question 6

Bay Sheetmetal Ltd owns a cutting machine that has an effective life of 5 years. The written down value of the cutting machine on 19 May 2020 is $14,320. On 19 May 2020, the company sold the cutting machine for $10,000. Does Bay Sheetmetal Ltd have to include any amount into assessable income or is it able to claim a deduction for the disposal of the cutting machine?

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Question 7

ABS Broadcasters Ltd owns a standard patent that cost $1 million that was acquired in 2013 and also a datacasting transmitter licence that cost $60 million and that was acquitted in 2007. What decline in value can ABS Broadcasters Ltd claim for these two items of intangible property for the year ended 30 June 2020?

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Question 8

Moving Big Pty Ltd is a transport business and which is a small business entity. On the 1 July 2019, it acquired a small truck costing $38,000 (with an 8-year life). On 1 May 2020 the company purchased a much larger truck for $140,000. Do not include any adjustment for the closing pool balance in your calculations. What amount can Moving Big Pty Ltd claim in relation to the purchase of the above assets for the 2019/20 tax year?

(Multiple Choice)

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Question 9

Zahid has incurred costs of $12,000 in establishing a new business structure. Zahid is eligible to be a small business entity. Is the $12,000, or any amount of it, deductible?

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Question 10

On 21 December 2019, Taylor acquired a one bedroom apartment in Pyrmont for$760000. She immediately rented this property out to tenants at $650 per week. Based on a quantity surveyor's report, she is advised that the apartment was built by Safety Builders in August 2016. The original construction cost of her one bedroom apartment was$400. What deduction can Taylor claim under Division 43?

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Question 11

Ace Accountants is a partnership that has purchased a new car for use in the partnership. The car cost $95,000 and the car was purchased on 17 March 2020. Ace Accountants is a small business entity. What is the decline in value that the partnership can claim in its partnership tax return for the year ended 30 June 2020?

(Multiple Choice)

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Question 12

AB Partners Pty Ltd spent $16,000 in converting their previous partnership structure to a proprietary company structure. AB Partners Pty Ltd is a small business entity. Is the $16,000, or any amount of it, deductible?

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Question 13

JG Pty Ltd incurred $400,000 in feasibility studies on 1 April 2020 and soon after (in May 2020) proceeded to start its manufacturing business. What amount can JG Pty Ltd claim as a deduction for the cost of the feasibility studies in its 2020 tax return?

(Multiple Choice)

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Question 14

DKN Pty Ltd owns machinery that has an effective life of 10 years. The opening written down value of the machinery as at 1 July 2019 was $56,000. On 1 June 2020, the company sold the machinery for $51,850. Does DKN Pty Ltd have to include any amount into assessable income or is it able to claim a deduction for the disposal of the machinery?

(Multiple Choice)

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Question 15

Which of the following statements is not true regarding the eligibility to claim a decline in value deduction for a depreciating asset?

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Question 16

Ron Edwards owns a courier company in Sydney. On 1 July 2019 Ron purchased a luxury van for $71,000, with an effective life of seven years which he used 90% for business purposes during the 2019-20 tax year. Given that the company does not qualify for the small business concessions, the maximum depreciation deduction that can be claimed by the business for the van for the 2019-20 tax year is

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Question 17

The trustee for the Residential Property Unit Trust completed the construction of eight apartments in a residential apartment complex on 1 September 2019. The construction cost was $2 million. What deduction can the trust obtain for the year ended 30 June 2020?

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Question 18

Cleaners Pty Ltd is a small business entity and during the 2019/20 tax year the company purchased a new cleaning machine that cost $29,000 on 1 September 2019 and a second hand cleaning machine that cost $24,000 on 1 June 2020. The company's opening balance of its general small business pool was $82,000. What is the decline in value that Cleaners Pty Ltd can claim for the year ended 30 June 2020 (also include the effect of its closing pool balance in this calculation)?

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Question 19

Smalls Pty Ltd is a photography business which is also a small business entity. On the 1 July 2019, it acquired a laser printer costing $11,000 (5-year life) and some camera equipment costing $10,000 (8-year life) for 100% use in the business. The maximum depreciation deduction that can be claimed by Smalls Pty Ltd in relation to the above assets for the 2019/20 tax year is:

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Question 20

Showing 1 - 20 of 25

Paul purchased an industrial building that is used in carrying on a business in June 2018 for $2.6 million. The construction costs of the building were determined by a quantity surveyor to be $2 million. What is the deduction that Paul can claim for the purchase of this building under Division 43?

Eager Growth Ltd unsuccessfully attempted a takeover of a competitor business and incurred $130,000 in costs in doing so. Is there any deduction that Eager Growth Ltd may be entitled to?

Zahid has incurred costs of $12,000 in establishing a new business structure. Zahid is eligible to be a small business entity. Is the $12,000, or any amount of it, deductible?

AB Partners Pty Ltd spent $16,000 in converting their previous partnership structure to a proprietary company structure. AB Partners Pty Ltd is a small business entity. Is the $16,000, or any amount of it, deductible?

JG Pty Ltd incurred $400,000 in feasibility studies on 1 April 2020 and soon after (in May 2020) proceeded to start its manufacturing business. What amount can JG Pty Ltd claim as a deduction for the cost of the feasibility studies in its 2020 tax return?

Which of the following statements is not true regarding the eligibility to claim a decline in value deduction for a depreciating asset?

The trustee for the Residential Property Unit Trust completed the construction of eight apartments in a residential apartment complex on 1 September 2019. The construction cost was $2 million. What deduction can the trust obtain for the year ended 30 June 2020?

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