Australian Taxation law ( Deduction)

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Principles of Taxation Law 2018

CHAPTER 12 – GENERAL DEDUCTIONS

Question 12.1

Jeremy runs his own public relations business. During the year he incurred the following

expenses:

(a) salary costs of $500,000; (b) salary costs of $5,000 for his daughter who worked with him for one week as part of

her university training;

(c) travel expenses of $7,000 for travel between home and work; (d) travel expenses of $3,000 for travel from a client's premises to his home; (e) $1,500 on a new suit to impress his clients; (f) $700 on membership of the local sports club where he entertains clients; and (g) $8,000 in meal expenses on entertaining clients.

Advise Jeremy of his tax consequences in relation to the above expenses.

Question 12.2

Sulin is an accountant at a large accounting firm. In May, she went to Hong Kong for an

accounting conference. She incurred expenses of $2,000 on the plane ticket and $500 on

hotel costs. Her employer did not reimburse her for those expenses but provided Sulin with

a daily allowance of $200 for her meal and local transportation costs. Sulin had chosen to go

to the conference because her family is in Hong Kong and she took the opportunity to visit

them while she was there. The conference ran for two days and she stayed on for an

additional four days at her parents' home.

Advise Sulin as to the deductibility of the airfare and hotel costs.

Question 12.4

Rumpole is a scientist. He uses his own car to travel to various locations to conduct

experiments. He acquired the car on 1 October 2017 for $60,000. The acquisition cost was

funded entirely by a loan at an interest rate of 15%. He has determined that the

depreciation deduction on the car would be $2,300 for the year. In addition, Rumpole

incurred the following expenses during the year:

• Registration and insurance = $2,000; • Repairs and maintenance = $1,000; and • Oil and fuel costs = $1,500.

For the period 1 October 2017 to 30 June 2018, Rumpole estimates that the car travelled a

total of 15,000 kilometres, 12,000 of which were for business purposes. You may assume

that Rumpole has maintained all necessary records and a logbook.

Calculate Rumpole's deduction for car expenses under the two methods in Div 28 of ITAA

1997. Assume that depreciation has been adjusted for part year use and the impact of the

car limit.

Question 12.5

Sarah is employed as a personal assistant to Martha Tallis, a successful freelance lifestyle

consultant and motivational speaker. One day, Martha told Sarah to go to the library and

borrow a book which Martha needed to prepare for a speech. Sarah borrowed the book and

gave it to Martha. Four weeks later Sarah received an email from the library advising her

that the book was overdue. Sarah asked Martha for the book so that she could return it.

Martha could not find the book. When Sarah told the library that the book was lost, the

library demanded that she pay a $110 fine for the loss of the book.

Advise Sarah as to the deductibility of the $110 fine payment.

Question 12.6

Following on from 12.5, Sarah did not have $110 in cash in order to pay the library fine, so

she charged the fine payment to her credit card, which incurred interest at a rate of 20% per

annum. On that same day, Sarah also paid a $190 speeding fine with her credit card, which

was the result of her speeding to get to work on time. Twelve months later Sarah was able

to pay off the total amount of $300 which she had charged to her credit card. By that time,

she had paid an amount of $60 in interest.

Advise Sarah as to the deductibility of the interest.

Question 12.8

Following on from 12.5–12.7, after Martha reimbursed Sarah the $110, she discovered that

Sarah had sent out to all of Martha's clients an email describing Martha as “a fraud and a

bully”. Unfortunately, the email had been passed on to a popular gossip website and it was

running as its lead story “Martha Tallis bullies PA”. Martha realised immediately that this

could seriously impact upon her business. She fired Sarah and called her lawyer again. Her

lawyer agreed to begin preparing a defamation suit against Sarah and the gossip website.

Three weeks later Martha's lawyer sent her a bill, which included:

(a) a charge of $250 for the oral advice given over the phone in relation to whether Martha should reimburse Sarah for the library fine (described in Question 12.7); and

(b) a charge of $10,000 for the lawyer's work in preparing the defamation suit.

Advise Martha as to the deductibility of the legal fees.