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Cooling Pty Ltd (Cooling or company) was established (incorporated) in March 1985 to operate a business of buying and selling outdoor furniture.

Cooling Pty Ltd (Cooling or company) was established (incorporated) in March 1985 to operate a business of buying and selling outdoor furniture. Cooling is owned by Jack Cooling (100 shares) and Beth Cooling (100 shares). Beth is completing Cooling's income tax return for the income year ending 30 June 2018 and is unsure of the tax treatment in respect to the following transactions:


The company purchased premises on 31 December 2017 for use as the retail premises (showroom) of the business. Previously, the company had only rented premises. The company paid $1.4m for the premises and $1m of this was borrowed from NorthPak Bank on a 7.5% interest rate loan with a loan period of 14-years. The loan was taken out on 30 December 2017 (date of settlement of purchase contract). The previous owner advises Beth that they had constructed the building (showroom) on the land and had commenced to use the premises for the first time on 1 January 2007. The construction cost of the premises was $400,000. The premises had been used in the previous owners' business of selling home electrical appliances and entertainment units.


QUESTION: The company incurred $16,000 in hiring specialist furniture removalists to move its trading stock to the new showroom from the old rented showroom. The removal of all the trading stock was completed in two days.


By reference to the extra facts, fully advise Cooling Pty Ltd on the assessability, deductibility, etc, of $16,000. Note, you do need to advise on the deductibility of the interest from the previous facts. (There is no need to calculate Cooling's taxable income because we do not have the information for this). Explain your advice by reference to tax legislation and tax principles. Show calculations where necessary.

 

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