Taxation Questions: Deductibility, Depreciation, Net Capital Gain/Loss, CGT Event, And Expenses

Calculating Claude’s Net Capital Gain or Loss

Provisions in relation to deductions are provided under the provisions of SECT 8-1 of the INCOME TAX ASSESSMENT ACT 1997. It has been stated by the section that an expense or loss which has been generated for the purpose getting the assessable income is deductible. In the case of Herald and Weekly Times Ltd v FCT the court held that the legal fees which had been incurred in relation to defending a claim for defamation by a newspaper company are deductible. This is because the defamation was related to a publication used to gain assessable income. Thus in the present case the legal expenses incurred by Paper co for defending the criminal claim which was related to the way in which they get their assessable income is will also be deductible

1. As per section 110-25(4) of the ITAA any cost of maintaining or repairing a property is the third element of cost base. thus the repair of the pipeline would be cost base even if the property is rented out.
2. 110-25(3) of the ITAA 97 makes it the second element of cost base as the fees paid to the auctioneer in the given situation is an incidental expense.
3. Under the provisions of 110-55(1) this would not be a cost base as there is a loss in the given situation and element 3 which is the cost of ownership is not included in the reduced cost base.
4. The Cost of acquiring in the given situation would be $400 000 as per the market value and under 110-25(2)  it would be a cost base.

The total proceeds is 640000 as along with the sale price of 600000 Claude received a boat worth $40000 and as per section 116.20(1) The capital proceeds are Money received and market value of any form of property which is received against the sale. Here Claude chooses flat 50% deduction rather than indexation. The following is the capital gain which she has got.

Under section 40-25 of ITAA 97 a deduction can be claimed against the value of declining assets which are used for producing an assessable income. The Diminishing value depreciation method has been used to calculate the depreciation in this case under section 40-70.

Thus the maximum value of deductible depreciation is $ 401.10 under Diminishing value depreciation

1. Cost of a golf club membership incurred by an accountant who likes to take clients to play golf each Friday would not be a deductible expense as it not in the course of gaining the assessable income under Section 8-1
2. in this case the travel expenses would be deductible as the expenses had been gained in course of business satisfying the first limb of the section Section 8-1 and not triggering any negative limb.
3. In the given situation the expenses would not be deductible under the provisions of 26-10 ITAA97 untill the payment is actually not made as also discussed in Nilsen Development Laboratories P/L v FCT (1981) 144 CLR 616
4. Borrowing expenses will be deductible under  s 8-1.

Under section s. 11620 the capital proceeds includes the amount which has received in relation to the sale of capital asset or which is entitled to be received. Further it has been stated through the provisions of S116-30 of the ITAA 97 that only when no money is received the market value of the property is considered capital proceeds. Under s.110-25 acquisition cost is the cost base.  The following is the net capital gain of Lucy

In the given situation it can be stated that the lump sum payment of $50 000 to the Victorian Government made by the taxpayer would be deductible. This is because the expenses satisfy the first limb of section 8-1 of the ITAA 97 as it is in course if gaining the assessable Income and also it does not fall within any of the negative limb of the section. The expenses have been purely incurred in this case for business purpose. These expenses cannot be considered to be that of a capital nature as they have been made only for two years. Here the government provided discount to the users of the services and thus it will help for gaining the business income.

1. In the given situation CGT event C1 has taken place under section s 104-20(1).  Here any compensation which has been received is will be treated as the capital proceeds under s 116 – 20(1). Thus in the given situation where the factory owned was destroyed by fire and the tax payer received $500 000 as insurance the capital proceed will be $500 000. Thus when the capital proceeds are deducted by the cost of base of $200 000 there would be a capital gain of $300000. There would be no 50% discount or indexation as the property had been purchased after 21 sep 1999
2. Yes in the given situation the $120 000 would be treated as a capital gain as similar facts had been discussed in the case of In Hepples v FCT (1991) 22 ATR 465

Under section 8.1 only expenses which have been incurred in the course of attaining the assessable income are to be deducted, any expenses which is incurred for private use are not deducted, where the expenses are not for both private and work use they are apportioned. In the given situation the internet cost which is borne for business use of $1000 will be deducted. The interest on mortgage of $4 000 will  be only deducted by 10% as only 10% house is used for office use. In addition the fees paid to the accountant will be deductible as they are used to gain the business income.

In the given situation the market value of the property at the time it had been inherited would be deemed as the cost of acquisition. Further in order to calculate the net capital gain or loss cased to Steph the total gain is to be subtracted for the total loss capital gain losses can be offset against capital gains. Thus the net capital gain which Steph has in the given situation is $  175,000.00

References

Income Tax Assessment Act 1997