Expert Plumbing Pty Ltd purchases a Mercedes Benz car on 15 August 2017 for $89,

Question

Expert Plumbing Pty Ltd purchases a Mercedes Benz car on 15 August 2017 for $89,350 (GST inclusive). From the next day date, the car is available for the sole use of the company's managing director. The managing director uses the car 65% of the time for private purposes. Expert Plumbing Pty Ltd also pays the following expenses related to the car during the 2017-2018 income year (all amounts are GST exclusive): Registration Fuel Insurance $560 $2,800 $780 Expert Plumbing Pty Ltd is not an SBE and the effective useful life of car is 8 years. Expert Plumbing Pty Ltd uses the diminishing value method for purposes of Div 40. Expert Plumbing Pty Ltd is registered for GST purposes. Expert Plumbing Pty Ltd purchased a large machine during its 2016-2017 income year for $250,000 GST exclusive), and claimed Div 40 capital allowances of $80,000 during that income year. The company sold the machine for $80,000 (GST exclusive) on 1 June 2018. Div 40 capital allowances on the machine in the current income year total $40,000. You are required to: Calculate Expert Plumbing Pty Ltd's taxable income for the 2017-2018 income year. Show all your calculations and provide reasons for your answers, referencing relevant sections of the Income Tax Assessment Act, relevant case law and relevant ATO documents. All amounts shown in this question excludes GST where appropriate.

Explanation / Answer

Adjustable value is nothing but carrying value of the asset (purchase price less allowance)

Purchase price = $ 250000

Less : first year allowance =- $ 80000

Less : 2nd year allowance = $40000

Total allowance is ($80000+$40000 = $120000)

Adjustable value = $250000-$120000= $130000

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