Essay Taxation Law

2234 Words Sep 23rd, 2014 9 Pages
Are the repairs made to the electricity poles on Mc Donald’s farm tax deductable? Is it a case of merely a repair or its nature is of restoration or replacement?
What are his tax implications on insurance claims Mc Donald received from damage to electricity poles by natural disaster?
What are his tax implications on Mc Donald for resurfing the road (owned by neighbour Peppa) to access his farm?

Law 1.) Assessable income consists of ordinary income and statutory income as per Income Tax Assessment Act 1997(ITAA97) section 6-1 (1). Section 6-5 of the Income Tax Assessment Act 1997 states that ordinary income is income according to ordinary concepts derived directly or indirectly from all sources whether in or out of
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These include; tax related expenses, repairs, borrowing expenses, losses from profit making undertakings or plans, payments for memberships or association, gifts under ITAA97.

4.) Repairs: Section 25- 10 ITAA97 provides deductions on expenditure on repairs to premises and depreciating assets used or held for the purpose of producing income such as rent. A ‘repair’ involves restoring an asset to its original condition. The object of a repair is to make good the deterioration in an asset through wear and tear without changing its essential character. This can involve “renewal or replacement of subsidiary parts of a whole” but not “reconstruction of the entirety” (Lurcott v Wakely and Wheeler [1911] 1 KB 905, per Buckley LJ at 923). In restoring an asset, it is not necessarily essential that identical materials be used. It is, however, essential that the function of the asset does not change.

5.) A repair should be distinguished from an improvement which involves making an item functionally better than it originally was. Likewise, a repair should be distinguished from a replacement, which involves substitution of an original item with a new item. Although these distinctions may seem obvious, it is not necessarily always clear whether an item has been repaired, improved or replaced. In W Thomas & Co Pty Ltd v FC of T (1965) 115 CLR 58, Kirrto J stated that: The words ‘repair’ and ‘improvement’ may

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