Specific Deduction Question Answer 2022

Running head: SPECIFIC DEDUCTION
Specific deduction
Name of the Student:
Name of the University:
Author note:

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SPECIFIC DEDUCTION
Table of Contents
Answer to question 1.......................................................................................................................3
Taxability of interest on loan.......................................................................................................3
Taxability on expenses................................................................................................................4
Taxability on oven.......................................................................................................................5
Derek’s labour.............................................................................................................................6
Electrical cable.............................................................................................................................6
Electric generator.........................................................................................................................6
Disposal of electric generator......................................................................................................7
Answer to question 2.......................................................................................................................8
Reference list.................................................................................................................................11

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SPECIFIC DEDUCTION
Answer to question 1
Taxability of interest on loan
(1) Issue: Derek took a loan of $480000 to purchase a house and paid interest on loan of
$35000. He also rented the house to a tenant for $610 per week.
Law: According to the income tax rule if someone takes a loan to purchase a property
and paid interest on such loan can claim deduction if such property has been rented in
the year of income for which deduction has been claimed.
Conclusion: Yes, interest on loan is deductible in the hand of Derek as he took loan to
purchase a house and given it for rental purpose. But Derek cannot claim deduction if he
use the property for private purpose (Budak, James & Sawyer,2016).
(2) Issue: Derek paid legal fees, interest on loan and stamp duty charges of $6800 related to
the expense for procuring the asset.
Law: Under section 8-1 is a deduction section which covers deduction for expenses
incurred for income producing. In its positive limb it explains that anyone can deduct loss
from the assessable income up to an extent it incurred in producing the assessable income
in carrying a business for the purpose of producing assessable income. In its negative
limb one cannot take deduction of loss up to the extent when it is a capital loss in nature
or it is a loss of domestic nature, it is incurred while producing exempt income or any
provision prohibit for allowing deduction (Bundgaard, 2014).
Conclusion: So according to the section 8-1 Derek is allowed for deduction for his
expenses of $6800 on legal charges, interest charges and stamp duty chargess as these
expenses is incurred for producing income and is of revenue nature.

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SPECIFIC DEDUCTION
(3) If interest expenses do not satisfy section 8-1 then deduction is not available as the
expense is of capital in nature. So all those expenses which Derek incurred are not
deductible under section 8-1(Chardon, 2014).
Taxability on expenses
1. Borrowing cost are those expenses that are directly incurred for taking loan of a property
which includes legal charges, loan charges, stamp duty expenses and many other costs
that lender requires to incur. Borrowing cost does not include expenses like interest
expenses and insurance premiums.
2. Expenditure incurred in borrowing money or discharge of mortgage is non-deductible
capital expenditure. The borrowing costs such as banks regular charges, fees for
establishment, valuation fees, stamp duty charges, and other fees required for taking loan
which are of capital in nature and not deductible under section 8-1(Chardon, Freudenberg
& Brimble, 2016).
3. According to the question if section 8-1 does not apply then to claim deduction under
section 8-5 following rules can be followed –
 One can take deduction from his assessable income of an amount that is allowed
to deduct.
 Under this section some act prevent the taxpayer to deduct the amount that could
be deductible or can limit the amount of deduction.
 Some deduction is deductible under this provision which is known as specific
deduction (Devos & Zackrisson,2015).
4. There are some condition applicable for deduction are as followed: