CHAPTER 14 – CAPITAL ALLOWANCES

1 © 2018 Thomson Reuters (Professional) Australia Limited

Principles of Taxation Law 2018

Answers to Questions

CHAPTER 14 – CAPITAL ALLOWANCES

Question 14.1

On 1 June 2016, Rogan purchased a new scooter for $6,000 for use in his business. The

Commissioner has assessed the effective life of scooters as three years. Rogan decided to upgrade to

a scooter and sold the old one to a reputable second-hand dealer for $3,000 on 31 August 2017.

Rogan estimates that he used the scooter for business purposes 90% of the time.

Advise Rogan of his income tax consequences arising on the disposal of the scooter under both the

diminishing value method and the prime cost method. Assume that Rogan does not qualify as a

small business entity.

Question 14.2

Jack and Jill jointly own and run a bed and breakfast business. The business is run through their

partnership, J & J Bed and Breakfast. Jack and Jill also own an investment property together which

they purchased in equal proportions. During the year, they undertook the following transactions:

• Purchased furniture for their bed and breakfast business for $3,000 on 21 December 2017. The furniture is expected to last for seven years.

• Purchased a printer for their bed and breakfast business for $700 on 30 April 2018. The machine is expected to last for three years.

• Purchased an air-conditioner for their investment property for $2,000 on 15 March 2018. The air-conditioner is expected to last for eight years. Jack and Jill contributed to

the purchase price of the air-conditioner equally.

Advise Jack and Jill of their income tax consequences arising out of the above information under

both the diminishing value method and the prime cost method (if relevant) for the year ended 30

June 2018. Assume that the business does not qualify as a small business entity.

Question 14.6

An extract of the asset register of Alpha Pty Ltd (“Alpha”) for the 2016-17 income year is as follows:

Asset Cost Opening

Adjustable

Value

Method Effective Life Decline in

Value for

This Period

Closing

Adjustable

Value

Desktop

Computer

1,350 1,350 Diminishing

Value

3 years 450 900

Furniture 5,000 3,000 Prime Cost 10 years 500 2,500

2 © 2018 Thomson Reuters (Professional) Australia Limited

Filing

Cabinets

1,200 1,080 Prime Cost 10 years 120 960

All depreciable assets are for 100% business use and Alpha uses a low-value pool for all eligible

assets. The closing value of the low-value pool at 30 June 2016 was $5,300. Alpha purchased a

printer on 5 June 2018 for $700.

Advise Alpha of the income tax consequences arising out of the above information for the 2017-18

income year assuming Alpha is not a small business entity.