Question

Abby runs a printing business and leases a building for which she pays rent of $75,000 per annum.

During the year ended 30 June 2020, Abby incurred the following expenses:

Painting of the exterior of the building at a cost of $12,000. The original paintwork was peeling and mouldy and didn’t represent the kind of look Abby wanted for her business.

Re-surfacing of the dirt carpark with a new non-slip cement to fill in pot-holes and create a safer environment for her customers $8,000

Replace torn awning over the front door for $1,500. The replacement awning was made of the same material as the original awning.

Payment of $22,000 for a commercial embroidery machine so that Abby could introduce clothing design and printing into her business. The machine was purchased on 10 February 2020 and installed on 26 February 2020.

Advise Abby if the expenses would be deductible with reference to relevant statute or other supporting documents.

Answer 1

This is One of the principles underlying the tax rules for deductions is that the income learnings for a particular year should only be offset by these expenses that Contributed to coming the income. Expenses to acquire or improve a business asset that will last longer than a year are not deductible as business expenses

A capital asset is an asset that benefits the business for more than one year, Most businessed will need capital assets such as equipment, a car, Computer, land, building and office furniture. But expenses that represents a repair, or an improvement to a capital assets tax deductible.

Thus the painting of the exterior of the bilding and resurfacing of he diet carpak are tox deductible as these are betterment and restoration expenses required for the business which are tax diductible

Same goes for replacing turn awning over the front door. it is a betterment cost and thus treated us a Capital expense. The purchase of equipment used by business is not accounted for as an expense in one year, rether the expense s Spread out over the life of the equipment which called depreciation.

Thus, for the year 2020, only a part of the embroidery machine can be deductible.