Theory And Problem SOlving

Paper, Order, or Assignment Requirements



Question 1

Sam purchased plant for $10,000 on 1 July 2012.  It has been depreciated under the diminishing value method. The plant has an effective life of 10 years and has been used 50% for business purposes.


  1. Calculate the deduction available for the plant for the 2013/14 income year.

(2 marks)


  1. What are the tax implications if it is sold on 30 June 2014 for $6,000 (ignore CGT consequence)?                                                                                     (2 marks)


  1. What are the tax implications if it is sold on 30 June 2014 for $12,000 (also calculate any capital gain or loss)? (3 marks)



Show workings and assume that the business is not a SBE.



Question 2

Fred owns a rental property in Sydney.  During April 2014 there is a massive hail storm and 80% of the tiles on the roof of the house are destroyed.  Fred is told he will have to wait 6 months for new tiles and that other hail storms are forecast. He therefore decides to replace the entire tiled roof with corrugated iron, even though he is aware that in Sydney’s humid environment it will rust relatively quickly.  At least the building will be safe from future hail storms.  It would have cost $10,000 to replace the damaged tiles whereas the new corrugated iron roof will cost $15,000.


  1. Can he claim a tax deduction for all or any part of the cost of the roof?

                                                                                                                  (4 marks)

  1. What if he had just purchased the house with the roof in an already damaged state?                                                                                                                              (1 mark)



Question 3


Redneck is a solicitor in a sole practice in Cairns.  He employs a secretary but has no other staff.  He returns his income on a cash basis.  While studying for a Masters Degree in Taxation he decides that he wants to move to an accruals method of accounting for his assessable income.  Why do you think he wants to do this?  Can he?

(3 marks)


Question 4

Clyde is in a professional partnership. He has heard that he may be able to obtain real tax advantages (as well as considerable personal peace of mind) if he assigns (by gift) part of his interest in the partnership to his wife.   What would the tax consequences be for Clyde following the proposed assignment?                                                         (5 marks)