Question

Q1 Required: The following are all resident taxpayers. In each case, calculate the deduction available for decline in value as well as any assessable income (if any) arising from the disposals during the 2017/18 tax year.

1. Trevor sold shop fittings from his retail store on 31 October 2017 for $3,700. The fittings had originally cost $5,600 and were depreciated using the diminishing value method using an effective life of 10 years. The opening adjustable value was $4,000 on 1 July 2017. The fittings were originally purchased in 2010/11. Decline in value on Trevor’s other assets was $15,000.
2. Hannah sold equipment from her factory on 31 May 2018 for $9,200. The equipment had originally cost $11,000 and was depreciated using the prime cost method using an effective life of 5 years. The opening adjustable value was $6,000 on 1 July 2017. Decline in value on Hannah’s other assets was $1,700.
3. Joe sold office equipment from his law practice on 1 November 2017 for $600.  The office equipment had an original cost of $1,800 but was added to the low value pool in 2015 when it became a low value asset. The low value pool had an opening balance of $3,500 and there were no additions to the pool during the year.
4. Tommy, an employee of Kwikee Couriers, sold a phone on 15 May 2018 for $50. He had purchased the phone in 2016 for $250 and had claimed the full cost of the phone as a deduction in that year.

Answer 1

a. Decline in value for 17/18 year = 5600/10 * 62/365 * 200% = 560 * 0.17 * 200% = $190.4

AV for 1 October 2017 = $4,000 - $190.4 = $3,809.6

Decline in value of other assets = $15,000

Balancing adjustment (loss on disposal) = $3,809.6 - $3,700 = $109.6

Deductions = $15,109.6

b. Decline in value for 17/18 year = 11,000/5 * 334/365 = 2,200 * 0.92 = $2,024

AV on the date of sale = $6,000 - $2,024 = $3,976

Decline in Value other assets = $1,700

Balancing adjustment (gain on disposal) is assessable income = $9,200 - $3,976 = $5,224

Therefore, $3,524 is included as assessable income.

c. Low Value Poll decline in Value = $1,050

Balancing adjustment (Termination value) = $600

Deductions = $1,650

Closing Balance = $1,850

d. Balancing adjustment (gain on disposal) is assessable income = $50

Therefore, $50 is included as assessable income.