Taxation Law Assignment: Depreciation, CGT, Deductions and Taxation

This assignment focuses on taxation law, specifically addressing depreciation, capital gains tax (CGT), and deductions. It analyzes scenarios involving Enviro-Spray Ltd and Duster Ltd, examining the application of relevant sections of the Income Tax Assessment Act 1997 (ITAA 1997). The assignment delves into the deductibility of expenses related to repairs and the implications of replacing equipment. Furthermore, it calculates the CGT consequences for Duster Ltd following the sale of an aircraft, including the determination of capital gains, depreciation, and taxable capital gains, with consideration for the 50% CGT discount. The assignment references legal precedents such as "FC of T v Western Suburbs Cinemas Ltd (1952)" to support its arguments and calculations.

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

1TAXATION LAW
Table of Contents
Answer to 1:...............................................................................................................................2
Answer to 2:...............................................................................................................................2
Answer to 3:...............................................................................................................................2

2TAXATION LAW
Answer to 1:
“Section 25-10 of the ITAA 1997” allows an individual to claim deductions for
expenditure incurred in repairs to depreciating asset that is held or used for generating the
taxable income. As held in “FC of T v Western Suburbs Cinemas Ltd (1952)” replacing a
portion of structure i.e., old colotex with fibro represents a capital item and more than meets
the needs for restoration. The ceiling provided considerable advantage over older one and it
cannot be termed as repair.
The taxpayer in Enviro-Spray Ltd incurred $45,000 on the spray of new equipment.
The cost incurred by Enviro-Spray Ltd was much more than meeting the needs of restoration,
which provided considerable advantage over the old one. The replacement of worn out
equipment with new spraying equipment represents capital in nature. Therefore, it is non-
deductible.
Answer to 2:
In compliance with the provision of tax legislation, tax payers are only allowed to
claim deductions under section 25-10 of the ITAA 1997 for expenses incurred on notional
repairs. As held in the case of “Western Suburbs Cinemas Ltd v FCT (1952)” the court of
law defined “Notional repairs” as the cost which could have been occurred by the taxpayer
given the taxpayer has repaired property instead of improving or replacing it entirely.
In the current case of Enviro-Spray Ltd if the taxpayer had replaced the worn out
spraying equipment with the old outdate equipment then the taxpayer would not be allowed
to claim deductions as the expenses represents notional repairs. This is because the expenses
on spraying equipment would result on saving on future expenses for repairs which would be
deductible.

3TAXATION LAW
Answer to 3:
Determination of Capital Gains Tax consequences for Duster Ltd on sale of Aircraft
to Enviro-Spray Ltd
Computation of Capital Gains tax
In the books of Dusters Ltd
Particulars Amount ($)
Purchase Price of Aircraft (A) $ 10,00,000
Less: Depreciation Claimed (B) $ 4,00,000
Aircraft at Cost (A-B) = C $ 6,00,000
Selling Price of aircraft (D) $ 7,50,000
capital gain (D-C) = E $ 1,50,000
Taxable capital gains (50% CGT Discount) $ 75,000