Question

The taxpayer incurs the following expenses in relation to business premises he leases in a 711 shop.

• $500 - Payment of a penalty to the council, for breaching certain by-law
• $1,000 - Bond forfeiture given repairs were required by landlord after taxpayer's lease had ended
• $4,000 - Re-painting of the walls, which had been painted 4 years before
• $6,000 - Payment to replace a wooden floor with a concrete floor and tiles.

What deductions are available to the taxpayer under s25-10 and s25-15 ?

Select one:

a. $1,500

b. $500

c. $5,000

d. $10,000

e. $11,500

Answer 1

As per section s25-10(1) of the Australian income tax act, you can deduct expenditure for repairs to premises (or part of the premises) or on a depreciating asset held for purpose of prodcing assessable income. The tax law does not require that the property or depreciating asset be owned by the taxpayer.
it may be owned by the another entity, such as landlord.
however, where the expenditure is on repair and the taxpayer holds or uses the property in the income year for the purpose of producing assessable income then the deduction is allowable provided that,
* expenditure should be incurred by the taxpayer claiming the deduction
* expenditure should be incurred in the year of income that the deduction is claimed, and
* expenditure should be incurred in respect of the premises.
* the expenditure should NOT be the form of capital bature

what is the meaning of repair here?
while a repair obviously improves the condition of an item which existed before the repair took place, a repair essentially involves the restoration of a thing to the condition it formerly had without changing its character.
in order to determine whether work carried out is a repair or not, it is more important to decide whether there has been the restoration of efficiency or function rather then an exact repetition of form or material.

As per section s25-15 of the Australian income tax act, you can deduct an amount for failing to comply with the lease obligation to make repairs to the premisses if you use or have to be used to produce assessable income.

According to these provisions,
repainting of wals of $4000, would be a deductible expenditure since the expenditure is of revenue nature.
Payment of $6000 to replace a wooden floor with a concrete floor and tiles.
the total expenditure shall be aallowed as deduction $10000 for lessee.

#payment of a penalty for breach of law is NOT allowed as deduction.
#bond forfeiture given repair required by landlord isNOT allowable.

Hence,
  OPTION d , $10000 is an allowable deduction for the lessee