MLC301 Principles of Income Tax Law - Assessment Questions

QUESTION 4. 27

Consider the deductibility of the following transactions taking into account the possible application of s 8-1, any specific deduction available and any exclusions that may apply. Some of these questions have been considered before but now need to be reconsidered using all aspects of deductibility.
(a) A successful Australian retailing company sells its trade name and logo to its overseas parent company for $2m. The contract of sale states that the parent company will allow the Australian company exclusive use of the name and logo at a cost of $1m per year.
(b) Legal costs incurred in defending a challenge against a company patent that forms the basis of the company’s business.
(c) A feasibility study conducted by a large bank to determine the profitability of entering the insurance business. The feasibility study showed it was not profitable and the bank did not proceed with the new business venture.
(d) A forestry business spends $20 000 per year controlling weeds in a timber plantation – there will be no income for 15 years.
(e) Legal expenses of a business in relation to:
• purchase of a business
• advice on whether to form a company
• action taken to prevent a competitor from breaching the company’s patent
• advice on whether they could enter an agreement with a competitor not to compete in the local area.