Toni and Kym are qualified accountants running separate practices in a small town in rural Tasmania. They have recently agreed that the town cannot support two full-time public accountants. Toni offered Kym a lump sum of $75,000 plus $25,000 for each of the next three years on condition that Kym cease her business and not open a competing business within 250kms of the town.  Kym agreed to Toni’s offer and was paid the appropriate amounts. Which of the following statements would be most correct in relation to Toni’s ability to claim tax deductions for the payments to Kym under sec. 8-1 of the Income Tax Assessment Act 1997?
The payments relate to circulating capital and are accordingly deductible.
The payments were necessarily incurred in the course of carrying on Toni’s business and are deductible.
The payments were incurred to expand Toni’s business and earn more assessable income and should be tax deductible.
The payments seek to establish or expand Toni’s business entity and are therefore capital in nature and not deductible.
The payments were made to Kym as a reward for a service and should be an allowable deduction for Toni.

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solution In the given case In a small town in rural Tasmania Toni Kym qualified accountants qualifie... View the full answer