Instruction: Please do research from textbook & internet and then explain the following exercises in your own opinion and understanding, also make sure to input references as well.
Exercise 1: Zeta recently purchased a milk bar business. Can she claim a deduction under s40-880 ITAA97 for the amount paid under the contract to acquire the goodwill of the business?
Zeta purchasing the milk bar business ought to be a start-up to claim deduction under Sec 40-880 ITAA97. It is because the said legislation is applicable for tax deductions on the business expenditures by the small businesses. This provision is applicable since 2015-16 income year and Zeta is an individual who could apply for such deductions (Ato.gov.au, 2019). Section 40-880 enables to write off the capital expenses like the expense to acquire goodwill for a period of 5 years. So Zeta could claim deduction on the goodwill costs for the business under the aforesaid provision but it ought to be a start-up business.
Exercise 2: What is the aim of the consolidation cost setting rules? Identify the main consequences that flow if a group of entities consolidate.
The aim of the Consolidation Cost Setting rules is to ascertain the tax cost of each assets of the subsidiary on the basis of its allocable cost amount (ACA). The ACA would comprise of the costs on the membership interests for the business along with its liabilities. So it tends to make certain adjustments in the process to find out the undistributed profits, financial losses of the joining firms and specified deductions for the holding company (Ato.gov.au, 2011). So the ACA is quite useful in understanding the apportionment of the cost base assets of the subsidiaries in alignment to its market worth.
Exercise 3: Explain how the pooling rules for low cost and low-value assets in Sub-div 40-E ITAA97 operate. What assets cannot be allocated to a pool under Sub-div 40-E? What is the reason for this?
As per Section 40-E ITAA97, the allocation of the low cost asset having a low-value pool for the income year could be used for tax claims. The low-cost asset is a depreciating resource ought to be started at the end of the year or installed to be used with a value less than $1,000 for the low-value pool.
Section 40-E ITAA states that the depreciation asset could not be allocated to the low-value pool if the costs does not exceed $300 and if it does not emerges from business income. Again, if the asset is not held by the assesse exceeding $300 is also not suitable for allocation.
Australian Government. (2011). Consolidation reference manual. Retrieved from https://www.ato.gov.au/law/view/document?docid=CON/C2-1-010
Australian Government. (2019). Net income or loss from business. Retrieved from https://www.ato.gov.au/Individuals/myTax/2019/In-detail/Net-income-or-loss-from-business/?page=9
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