Alia operates her own business as a beauty salon. Since the end of COVID-19 lockdowns in Melbourne,
Question:
Alia operates her own business as a beauty salon. Since the end of COVID-19 lockdowns in Melbourne, Victoria, Alia's business has increased in profitability. Alia decides to construct an adjoining café for clients to dine in or take away before or after their beauty appointment. She undertakes substantial renovations and the café opens on 1 January 2023.
Alia seeks your taxation law opinion on whether the following expenses incurred to complete the renovations are deductible for the income year ending 30 June 2023:
(a) $100,000 to extend the beauty salon and build the frames for the café. The construction was completed on 1 January 2023.
(b) $10,000 to install a new commercial dishwasher in the café. The dishwasher was installed on 1 January 2023 and has an effective life of 10 years.
(c) $30,000 to paint the walls and ceiling of the café.
(d) $50,000 in legal fees to negotiate the terms of a new lease for the beauty salon and new café.
Where relevant, use the diminishing value method to calculate a deduction for a decline in value of a depreciating asset. You do not need to consider any goods and services tax implications.
Please support your answer with relevant legislation and case law, and show any relevant calculations. (16 marks)
South-Western Federal Taxation 2020 Comprehensive
ISBN: 9780357109144
43rd Edition
Authors: David M. Maloney, William A. Raabe, James C. Young, Annette Nellen, William H. Hoffman