MLC301 Principles of Income Tax Law - Assessment Questions

QUESTION 4.13

Discuss the deductibility of the following items for taxation purposes, giving reasons.
(a) A bonus of $10 000 paid to a building contractor by the owner of the building, for the early completion of an income producing building. This bonus represents a share of the extra income received due to early completion.
(b) The taxpayer is a large pharmaceutical firm and conducts continuous research on a cure for the common cold.
(c) A retail business borrowed $500 000 to expand its business by building a new shop. The loan was for 10 years. When borrowing these funds the business incurred expenses of $2000 to arrange and establish the loan.
(d) A large beer manufacturer operates a system whereby it pays hotels a fee of $50 000 for entering an agreement that requires the hotel to only sell the manufacturer’s brand of beer. This practice has been undertaken for the last 2 years and hundreds of hotels throughout Australia have taken up the offer. During the current year the company paid $1m to hotels under these arrangements.
(e) The taxpayer is in the business of gas exploration and spends $2m investigating the viability of commencing a business of laying gas pipelines.
(f) A company has spent $50 000 advertising against a government proposal to remove taxation concessions currently enjoyed by the business.