Taxation Report: Analysis of Deductions in Partnership and Investment

This report, focusing on taxation, provides an analysis of deductions related to investment properties and partnerships. It begins by examining the implications of the taxation ruling TR 97/23, specifically addressing the initial repair of investment properties and the classification of related expenditures, concluding that repainting costs are considered capital expenditure and thus, not allowable deductions. The report then moves on to the taxation ruling of TR 2005/7, discussing the treatment of partnership salaries and their non-deductible status under section 8-1 of the ITAA 1997. Furthermore, the report discusses capital expenditure, such as extending a bathroom in an investment property, referencing section 25-10 (3) of the ITAA 1997 and the Hallstroms Pty Ltd v. FC of T (1946) case, which confirms that expenses incurred to extend a profit-making structure are not deductible. Lastly, the report addresses the non-deductibility of private expenditures, referencing section 51-(1) of the ITAA 1936, by stating that expenses incurred by Mary to maintain her father's bills are not permissible deductions.

Running head: TAXATION
Taxation
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................2
Reference List:...........................................................................................................................5

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Answer to Question 1:
Computation of Partnership Income

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Answer to Question 2:
Assumptions:
a. The taxation ruling of TR 97/23 is concerned with the analysis of claiming
deductions regarding the expenditure that is incurred by the tax payers in regard to the
initial repair (Barkoczy 2016). As understood in the current situation of Mary it is
found that she incurred expenditure on the investment property after immediately
purchasing the property. This represents an initial repair under section 8-1 of the

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ITAA 1997. Therefore, the cost that is incurred in repainting the property is a capital
expenditure and the same will not be allowed as allowable deductions for Mary. The
expenditure is incurred in the acquisition of the capital asset that is to be rented out by
the taxpayer in making the property necessarily suitable for using it.
b. The taxation ruling of TR 2005/7 is concerned with the assessment of the partnership
salary. Partnership salary is considered as the payment or drawing in regard to the
partnership that is characterised as expenditure and is not considered as the allowable
deductions under section 8-1 of the ITAA 1997. The salary paid to Mary in
partnership is non-allowable deductions under section 8-1 of the ITAA 1997.
c. Subsection 25-10 (3) of the ITAA 1997 specifically defines that capital expenditure
will not be allowed as repair. Mary reported an expenditure that was incurred in
relation to the investment property regarding the extension of the bathroom. Expenses
that are incurred in establishing, replacing or extending the profit yielding structure is
not allowed as allowable deductions. Cost of enlarging the bathroom in the
investment property is a capital expenditure. The judgement of federal court stated in
the case of Hallstroms Pty Ltd v. FC of T (1946) stated that expenses incurred
relating to the extension of the profit making structure will not be allowed as
allowable deductions (Woellner et al. 2016). Similarly, in the case of Mary, the cost
reported for the extension of the bathroom is a capital expenditure and will not
permitted as permissible deductions.
d. Mary reported an expenditure which she incurred in maintaining the bill of her father.
As defined under section 51-(1) of the ITAA 1936, expenditure that is occurred
having private nature will not be allowed as allowable deductions. Expenses incurred
by Mary is a private expenditure and will be barred from being considered as the
permissible deductions for income tax purpose.

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Reference List:
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian
Taxation Law Select: Legislation and Commentary 2016. Oxford University Press.