MLC301 Principles of Income Tax Law - Assessment Questions

QUESTION 4. 8:

Discuss the deductibility of the following expenses based on each of the two positive limbs of s 8-1. (At this stage it is not necessary to consider whether they may be excluded by some other provision of the Act.)
(a) The traffic and parking fines paid by a taxi driver that were incurred while using the taxi for income-producing purposes.
(b) Interest of $500 paid to the local city council by the owner of a rented property on monies outstanding to the council for road construction costs.
(c) A sum of $1.4m paid to an advertising agency for the development of an advertising campaign that was to run for the next two years.
(d) Interest paid on a loan that was borrowed for the purposes of acquiring a rental property.
(e) Expenditure incurred by an airline company in defending against the right of other airlines to fly similar routes.
(f) A lecturer at Deakin University incurred expenditure of $1200 in moving to Sydney to take up a position at the University of NSW.
(g) The taxpayer is employed by one employer as a farm manager and the farm is spread over two property. The taxpayer incurs travel expenditure of $1300 for the use of his own car as his employer requires him to live at one property and supervise both. He does not receive any travel allowance.
(h) T Smart lives in Melbourne and has two children attending Deakin University’s Warrnambool campus. In an attempt to reduce the cost of accommodation for his children, he purchases a small house in Warrnambool at a cost of $360 000 for his children to live in. To do this he borrowed money at 8% per annum and charged his children $5 per week rent and gave them the responsibility of maintaining the house. T Smart also pays each child an allowance of $180.00 per week.
(i) A Scribe is a freelance TV scriptwriter who has a room in her house where she does most of her work, even though she has been given an office at the television studio. On most days she rises at 5.00 am an begins work on either the television scripts or her freelance activities. At about lunch time she travels to the studio to discuss progress with the program director. Her costs include:
• electricity for lighting and heating
• rates on her home
• interest on a housing loan
• travel to and from the television studio
(j) A law/accounting student spends $1000 on postage trying to find a job.
(k) The following expenses are incurred by a company that manufactures shoes for the surf-wear market:
• company formation expenses
• employee wages
• factory rent
• purchase of trading stock
• repairs to production plant
• telephone and administration costs
• insurance on factor and plant
• childcare expenses of an employee