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QUESTION 1 (15 MARKS) Francis is an experienced businessman working in the hospitality industry for many years. He has recently purchased an old restaurant. The commercial kitchen in the restaurant...

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QUESTION 1 (15 MARKS) Francis is an experienced businessman working in the hospitality industry for many years. He has recently purchased an old restaurant. The commercial kitchen in the restaurant was in poor condition. Replacing the whole commercial kitchen will cost Francis $23,000. The cost of repairing the kitchen appliances will be $4,900, however some parts may not be available in the market anymore as these appliances are too old and obsolete. Francis decided to replace the commercial kitchen with brand new modern appliances because new modern appliances in the market have better features and durability. Advise Francis on the deductibility of the above transactions. Your advice must be supported by reference to relevant legislation and principles of tax law.QUESTION 2 (10 MARKS) Tom owns a business called Tom’s Band in Westfield Sydney selling musical instruments. Tom also teaches guitar on a casual basis at the Sydney Guitar School a local musical college. The following are Tom’s receipts during the XXXXXXXXXXfinancial year: Particulars $ Tom’s Band sales include $2,500 from sales of musical instruments made last year. In addition, there is a sale of $3,200 made in April of the current year but not yet paid. 220,000 Salary from the Sydney Guitar School. This includes Long Service Leave of $4,200 which Tom is going to take in July of the following year. 53,000 Tom has withdrawal from bank. This was made up of the original capital deposited of $20,000 plus interest of $1,000 which was paid last year and reinvested. Interest of 5% was paid on the invested money. 22,050 Fully franked dividends includes franking credits of $5,143 were attached. 12,000 Unfranked dividend 4,000 Required: Assuming Tom does not have allowable deductions, you are required to calculate Tom's taxable income and net tax payable.
Answered Same Day May 25, 2021 HA3042


Soumyadeep answered on May 28 2021
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Question 1
Section 25.10 of the Income Tax Assessment Act 1997 state that
For Repairs
· Expenditure incu
ed to repair premises or part of a premise or an asset which is depreciating can be deducted for the purpose of producing assessable taxable income.
For Property held or used partly for that purpose
· If the property was held or used partly for that purpose, then only proportionate or so much of the expenses, deemed reasonable under these circumstances should be deducted
No deduction for capital expenditure
· This section has no provision for deduction of capital expenditure
Previously it was subject to subsection 53.1 of the Income Tax Assessment Act 1936.
For the application of this section we need to understand what constitutes a repair. Taxation Ruling TR 97/23 released in December 1997 provides for what constitutes a repair. As per the ruling, the ordinary meaning of the term “repairs” would be any action undertaken to remedy or make good any damages or defects to a property that is deteriorating and it also assumes that the property will continue to exist.
According to the rule, any work that has been done anticipating or preventing any future damage to the asset is in itself not a repair unless it involves co
ecting existing defects or damages to the asset. Repairs generally involves an action to restore the function or efficiency of an asset to state in which it existed before the damage and does not include changing or improving its base functionality. If, however there an incidental or minor improvement as a result of the repair, it may still qualify as a repair.
On the contrary, if the action results in a substantial improvement, addition or alternation to the asset then it can no longer be classified as a repair and hence such...

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