Need an answer for the below question from the Australian Taxation law perspective John owns a...

Need an answer for the below question from the Australian Taxation law perspective

John owns a convenience shop called City Conv. The following events occurred for John during 2019-2020 financial year. (i) John incurred legal expenses as he was sued for false advertising. (ii) John purchased new fridge to the shop - $800. In addition, his builder added more space to the shop front. This cost him $22,000. (iii) John ordered 1000 new T-shirts with printed City Conv’s logos for marketing purposes. These costs him $1,500. (iv) John received a City of Sydney fine for putting his sales item for display outside his shop without a permit. He required to apply for a permit to use the footpath.

Required: With reference to relevant legislation and case law advise John on the assessability and/or deductibility of above events. (10 marks, maximum 300 words)

Solutions

Expert Solution

The allowability or disallowability of the mentioned expenses have been explained below :

(i) Legal expenses - This is in relation to the business. This is allowed to be deducted since it is a part of Operating activities.

(ii) Purchase of new fridge - This is a capital expenditure. This $800 can be deducted in Cash flow statement under "Investment activities". This can be deducted by way of depreciation over a period of time.

Extension of Space - This is also a capital expenditure. This $22000 can be deducted in Cash flow statement under "Investment activities". Hence the value of Building increases by the amount. This can be deducted by way of depreciation of the building over a period of time.

(iii) Markteting expenses - This is an advertising expense. As per Australian Tax Office provisions, the advertisement expenditure is allowed to be deducted. Therefore ,the amount $1500 shall be deducted.

(iv)City of Sydney fine - As per the provisions of Australian Tax Office, fines and penalties imposed under Australian or any other law is not allowed to be claimed as deductions. Therefore, the above mentioned fine shall not be allowed to be deducted.

ekkarill92 answered 1 year ago

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