General and Specific Deductions – Law Assignment Help


Question 1:  General and Specific Deductions.

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A. Berne Building Products Ltd (BBP) manufactures cladding and related materials which they on-sell to mostly professional builders, architects, and commercial building product retailers. The directors of BBP are currently facing prosecution for failing to disclose that a popular residential “feature” cladding is flammable and should not be installed in areas of bush fire risk. The directors have spent $195,000 this tax year on legal advice.

Required: Advise BBP whether the expenses are deductible with reference to relevant cases, legislation or rulings? (5 marks)

B. Zydeco five years ago started a business and borrowed $400,000 from the bank at 5% interest per annum. At first his business went very well and so he borrowed one year later another $500,000 at 4.5% per annum to expand the business. However, on the 1st of July last year he had to shut down his business as COVID had made it too unprofitable to continue. He still had $150,000 outstanding on the second loan and $50,000 on his first loan after selling everything of the business. His bank manager allowed Zydeco to consolidate the two loans into one loan Luckily, he is now of retirement age and can collect a pension, but he still has to repay his loan and the 5% interest.

Required: Advise, with reference to relevant tax cases, legislation and/or rulings whether he is able to deduct the interest on the loan? 

Question 2: Trusts and Tax Administration.

A trust was established by Antoinette Greene on 1 July 2015 for the benefit of her grandchi dren. The trustee ABC Pty Ltd reported to you the following information about the trust for the tax year ended June 2022.

Income received by trust:

51.000.000 received from commercial rental properties 5700.000 received from private residential properties $150,000 interest from high yield bank accounts 510.000 full franked dividends from Coalition Pty Ltd 517,000 unfranked dividends from United Pty Ltd


$15,000 in bank fees
5750.000 repairs
55.000 investor advice fees

Payments to Beneficiaries

30% of the net income of the trust to Leigh (granddaughter) aged 21 who is enrolled full time at university and has 522,000 gross income from her part time job.

20% of the net income of the trust to Angus aged 14 (grandson) who is enrolled full time at high school. The trustee made the payment directly to the Northern Grammar School for school foes for Angus.

The remainder of the income was retained in the trust to grow the capital.

A. The repair expenses included an unusual payment of 5200.000 due to substantial rain damage to one of the investment residential properties held in northern NSW. Due to flooding which required that all four ground floor units be drained via a water pump (58.000). Further. each unit had to have all the carpet and linoleum flooring had removed and new vinyl tiling laid (57,000). replastering and repainting of the ground floor walls (56.000). and a brand-new kitchen fit out of 535.000 each. The kitchen installer advised that the kitchens have an effective life of 15 years given their non-commercial use.
Required: Advise the trustee whether any of the repair costs are deductible and if not how they should be treated for tax purposes? In giving this advice assume aN expenses have been paid in full in the tax year and that the trustee prefers to maximise deductions. (8 marks)

B. Calculate. taking into account your advice on the repair expenses, the net income of the bust for the 2021/2022 tax year. (2 marks

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