Required: 1) Advise Tony what deductions he may be able to claim in respect of the above
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1) Advise Tony what deductions he may be able to claim in respect of the above expenditure and the income years in which those deductions can be claimed.
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Tony Van Diemensland who has worked for many years as a tax adviser based in Melbourne, is ready for a lifestyle change. On 1 July 2021 he initiated this change by purchasing a small farm in Tasmania for $550,000. Tony has always been a keen gardener and he plans to use the farm to grow organic vegetables on a commercial scale and a highly profitable variety of truffles. He spent most weekends in the latter half of 2021 setting up the property while still employed in Melbourne. He and his wife then moved onto the farm permanently in January 2022. They have rented their Melbourne home at $40,000 per annum. By 30 June 2022 Tony expects to have produced his first revenue from organic vegetable sales, though this revenue will be well below the annual expenses for that year. However, Tony estimates that in 2022/23, expenses will be much lower and sales will increase to the point where the business will break even. Tony believes that by 2023/24 the truffles line will be established and he expects a profit of $20,000. In the first year of activity to 30 June 2022, Tony's expenditures at the farm included the following items: (1) $14,000 being interest repayments on a loan of $200,000 at the rate of 7% per annum payable on the first day of each month commencing 1 July 2021 with the principal to be repaid in full by 1 July 2025. The loan was provided by the Rational Bank on 1 July 2021, using his family home in Melbourne as security. A loan establishment fee of $500 was also paid to Rational Bank. (2) $2,000 on legal expenses to defend charges (for pollution of water) in the local Magistrates Court in May 2022. (3) $2,500 in accommodation and travel expenses related to participation in a workshop in Byron Bay, New South Wales, in September 2021, on how to grow organic vegetables for profit. (4) $25,000 on rectifying defects that existed in the farmhouse at the time of settlement. Tony Van Diemensland who has worked for many years as a tax adviser based in Melbourne, is ready for a lifestyle change. On 1 July 2021 he initiated this change by purchasing a small farm in Tasmania for $550,000. Tony has always been a keen gardener and he plans to use the farm to grow organic vegetables on a commercial scale and a highly profitable variety of truffles. He spent most weekends in the latter half of 2021 setting up the property while still employed in Melbourne. He and his wife then moved onto the farm permanently in January 2022. They have rented their Melbourne home at $40,000 per annum. By 30 June 2022 Tony expects to have produced his first revenue from organic vegetable sales, though this revenue will be well below the annual expenses for that year. However, Tony estimates that in 2022/23, expenses will be much lower and sales will increase to the point where the business will break even. Tony believes that by 2023/24 the truffles line will be established and he expects a profit of $20,000. In the first year of activity to 30 June 2022, Tony's expenditures at the farm included the following items: (1) $14,000 being interest repayments on a loan of $200,000 at the rate of 7% per annum payable on the first day of each month commencing 1 July 2021 with the principal to be repaid in full by 1 July 2025. The loan was provided by the Rational Bank on 1 July 2021, using his family home in Melbourne as security. A loan establishment fee of $500 was also paid to Rational Bank. (2) $2,000 on legal expenses to defend charges (for pollution of water) in the local Magistrates Court in May 2022. (3) $2,500 in accommodation and travel expenses related to participation in a workshop in Byron Bay, New South Wales, in September 2021, on how to grow organic vegetables for profit. (4) $25,000 on rectifying defects that existed in the farmhouse at the time of settlement.
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Interest repayments and establishment fee on the loan Tony can claim a deduction for the interest pa... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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