Question

Which of the following items of expenditure is fully and immediately deductiblefor income tax purposes? why is correct and why are not correct?

The cost of a new deck at Jeffrey’s house that he rents out to residential tenants.

(b)       Replacing the microwave in the office kitchen at Jill’s office premises.

(c)        The cost of patenting a new invention.

(d)       The legal costs of $11,500 incurred by Limited Ltd when buying a new piece of machinery from an overseas manufacturer.

Answer 1

A) Not deductible: Since the expenditure is made for personal use, thus the same shall not be deducted for the purpose of Income tax

B) Deductible: Since the expenditure is made for replacing of office furniture and thus forms part of business expenditure.

C) Deductible: Patents are part of the business and thus any expenses incurred on patenting a new invention that is related to the business shall be deductible from the Income tax

D) Not Deductible: any cost incurred on machinery forms part of cost of machinery. Thus legal costs incurred is on purchase of an asset and not an expense and thus is not immediately deductible from Income tax

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