Question

John purchased new machinery for his small business factory on 1st June 2018 for $8,000. The effective life of the machinery is determined to be five years. John sold his old business machinery for $4,000 on 31 August 2019. John used this machinery 90% for business purposes. With reference to the relevant legislation and case law, discuss the tax consequences arising from the disposal of the old machinery under the prime cost method. (Taxation Law Question)

Answer 1

John purchased new machinery for his small business factory on 1st June 2018 for $8,000. The effective life of the machinery is determined to be five years. John sold his old business machinery for $4,000 on 31 August 2019.

Anscere you calculate the capital loss as follows: Sum of reductions (Cost - termination value) * - Total decline. In these formulas: . . * "Surrido reductions" is the sum of the reductions in your deductions for the asset's declined in value that is atsibutable to your use of the asset, of the you have it installed seady for use , for a non- taxable puspose, * Total decline" is the decline in value os the depreciating asset since you started to hold it. Depreciation under prime cost method (straight-line Method) = 1600. for semaining 3-month year depreciation till. 31/08/2019 = 1600*3 = 400. 1 2

The sum of his reductions relating to his private use is $200 C10% of $2000), calculates of capital gain / loss from CGT event ky as follows: = ($8000 $4000) x (200 +- 2000) - + OOO Xo.| = $ 400. Capital Loss from CGT event K7 = $400 (bebore applying any discount). * "Like and Support "