James carries on a hardware retail business from his own business premises and h

Question

James carries on a hardware retail business from his own business premises and had the following expenses during the current year ended 30 June: On 25 May of the current tax year he incurred $19 000 to replace the surrounding fence to his business premises. The original fence was made of wire. The new fence was made of a titanium compound metal and James considered that the new fence would be safer, easier to maintain and would have a substantially longer life than the original fence. On 25 June of the current tax year James put a new engine in his delivery truck (used 100% for business purposes) at a cost of $5500. The old engine had travelled 220 000 kilometres and was becoming very unreliable. The new engine had similar specifications to the original engine. On 30 June of the current tax year James incurred $1200 in replacing the tyres on his car. The car is used 60% of the time for business purposes. Based on these transactions what amount can James claim as a tax deduction under s 25-10 ITAA 97 in the current income year ended 30 June?

Select one: 1. $20 200 2. $6700. 3. $6220. 4. $25 220. 5. $25 700.

Explanation / Answer

3. $6220

25-10(1) You can deduct expenditure you incur for repairs to premises (or part of premises) or a depreciating asset that you held or used solely for the purpose of producing assessable income.

Here, James has put delivery truck which is used 100% for business. So, the same can be deducted.

Also, 60% of car can be deducted. So, $720 can be deducted. (1200*60%)

25-10(2) If you held or used the property only partly for that purpose, you can deduct so much of the expenditure as is reasonable in the circumstances.

25-10(3) You cannot deduct capital expenditure under this section.

We cannot deduct the replacement of surrounding fence because the same is capital expenditure.

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