Des is an Australian resident adult individual taxpayer entity who has carried on business for the past 20 years as a school bus operator under the business name "Des' Bus Services".

He derives his income by charging and receiving fares for providing bus trips mainly for schools.

Des is a "small business entity" and has chosen to use the "Small business entity" system and concessions. The Government has decided to provide subsidies of money to school bus operators to financially assist them to upgrade their school buses. The subsidies have been made available due to community concern about age and safety of some school buses. Bus operators who qualify for the subsidies must use the money received to purchase new buses to use only on school bus routes.

Des looked at the Government's document setting out the eligibility criteria for the subsidy but, as he has had only a limited education, he did not understand it and could not complete the necessary application form. He therefore engaged the Business Enterprise Centre (BEC) to explain the criteria to him and to complete his application for the subsidy, which was successful. Des paid the BEC $20,000 excluding Goods and Services Tax (GST) for its consultancy services.

Des qualified for a subsidy of $200,000 but as a condition of receiving it he had to enter into a Deed of Agreement contract with the Government. The Deed states that the $200,000 subsidy is provided to Des as financial assistance to be used towards the purchase price of a new bus that carries a minimum of 30 passengers, and that must be used only on school bus routes and school trips.

Des received the $200,000 on 31 December 2020and on that day used it to buy a new bus that cost$250,000, excluding GST, and that had an effective life of 10 years. His intention was to use the new bus on school bus routes and he does not expect to resell it or, if the possibility of sale arises in the distant future, he does not expect to make a profit from any future sale.

These expectations arise from his experience with his previous bus held for 20years.Des sold his previous bus on 31 December 2020 by trading it in on the new bus and received only $10,000 (excluding GST) for it. At the time the previous bus was traded in, it had a tax adjustable value of nil because of its old age.

Des had originally purchased it for $75,000 in January 2001and it had depreciated and declined in value under the prime cost rate of 10% per annum. You are required to briefly outline for Des your advice on all of the following:

(1) Whether or not the$200,000 subsidy is assessable income, including under the "capital gains tax provisions" (CGT). Yes

(2)Whether or not the $10,000 received for the sale of the old bus on trading it in is assessable income. if its profit

(3)Is the $250,000 purchase cost of the new bus a deduction. 

(4)How the $20,000 payment made by Desto BEC for its consultancy services is treated, including under CGT provisions

Answer rating: 100% (QA)

1 The 200 000 subsidy is assess able income including under the capital gains tax provisions C GT The 200 000 subsidy is assess able income because it ... View the full answer