Specific deductions

Question 1

No double deductions

Answer 1

Some specific deductions may be deductible as a general deduction plus under a specific section • Expenses for repairs
• Deduction under ITAA97s8-1and under ITAA97s25-10
• If an amount is deductible under both sections the specific provision applies
• Cannot claim a deduction under two sections, there are no double deductions ITAA97s8-10

Question 2

Specific Deductions

Answer 2

• Costs in managing tax affairs and complying with tax laws ITAA97 s25-5
• cost of preparing lease documents ITAA s25-20
• Borrowing expenses can be written off over 5 years ITAA97 s25-25
• Writing off bad debts ITAA97 s25-35
• Travel between places of work ITAA97 s25-100
• Gifts ITAA97 s30-15
• Tax Loses ITAA97 s36-10

Question 3

Repairs to buildings and depreciating assets

Answer 3

Taxpayers allowed deductions for “repairs” to premises and depreciating assets held or used for the purpose of producing assessable income ITAA97s25-10

What is a repair?
•Involves restoring an asset to its previous condition without changing its character
W Thomas v FCT(1965))
•Can involve the “renewal or replacement of subsidiary parts of a whole” but not “reconstruction of the whole asset”
•Essential that the asset’s function does not change, restoration of “efficiency”of function without “improving”the item’s function
Principles Ch13.30 - 70

Question 4

Repairs

Answer 4

Deductible ‘Repairs ’for tax purposes:
•Repainting faded walls
•Replacing broken windows
•Restoring broken doors or fences Non-deductible ‘Repairs’ for tax purposes:
•Replacing a wooden floor in a building with a concrete floor
•initial repairs
•notional repairs

Question 5

Summary of issues for repairs

Answer 5

• Is the expense for restoring or replacing the assetPart (repair)Whole (capital nature)
• Repair (back to original) or improvement (beyond original)
• Initial repair when the repair is required when item is purchased to make it serviceable - (cost of repair is really of capital nature)

Question 6

Substantiation

Answer 6

Certain expenses incurred are not deductible unless specified documentary evidence is held to substantiate them
•Employee work expenses ITAA97 s900-30
•Business travel expenses ITAA97 s900-10
•Cars ITAA97 s28-1 However:
•Taxpayers are not required to submit the evidence with their tax return
•The expenses must be supported by documentation and this may be asked for by the ATO

Principles Ch12.320

Question 7

Calculating car expense deductions

Answer 7

• Travel is less than 5,000 km in a year Claim cents per km - medium sized car the rate is 66c km ITAA97 s28-25 or the log book method
• Travel is more than 5,000 km per year Log book method –log book recording all travel must be kept for 12 weeks. Requires substantiation s28-90

•Travel is more than 5,000km per year
Claim 12% of original value of vehicle s28-45 or
one-third of actual car expenses - keep evidence of expenditure - “substantiation”

•Regardless of distance travelled
Log book method - log book recording all travel must be kept for 12 weeks. Also requires substantiation s28-90