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Principles of Taxation Law 2018
Answers to Questions
CHAPTER 14 – CAPITAL ALLOWANCES
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.
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.
An extract of the asset register of Alpha Pty Ltd (“Alpha”) for the 2016-17 income year is as follows:
Asset Cost Opening
Method Effective Life Decline in
1,350 1,350 Diminishing
3 years 450 900
Furniture 5,000 3,000 Prime Cost 10 years 500 2,500
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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.