David Reese Purchased A Factory in Broad Meadows
David Reese purchased a factory in Broad meadows, Victoria on the 1st September 2019 for $800,000. He also incurred an additional expense to the value of $150,000. This included machinery, valued at $80,000, with an effective life of 10 years and minor internal capital improvements to the factory building so as to get it ready for production. David borrowed $900,000 on 1st September 2019 for 25 years to purchase the factory. Interest paid on the loan for the tax year ended 30 June 2020 was $48,000. The legal fees, loan charges and stamp duty paid in relation to the loan were $10,000.
On the 12th September 2019 David had moved into the factory, had hired labor, and commenced manufacturing Jet Skis.
The factory was set up such that 90% of the building was used for production and 10% was taken up by an office area. A month into production, he realized the factory building needed some major repairs made to it. He then decided to repair part of the roof as it was leaking. He replaced the roof tiles and plaster and reinforced the timber frame on the 15th October 2019.
As the building was more than 20 years old the materials, he could find to repair the roof were modern and more durable, than the previous ones.
The total cost of the repairs including materials was $125,000. The timber floor in the main entrance / office area was replaced due to water damage caused by the leaking roof. It was replaced with a concrete floor on 1st November 2019 at a cost of $16,000. In order to comply with health and safety requirements he installed a refrigerated cooling system for the wellbeing of his employees. The total cost of the unit and installation on the 1st February 2020 was $50,000, with an effective life of 15 years. Required: David seeks your professional tax advice as to what deductions (if any) he might be able to claim in respect of the above expenditure for the 2019/20 tax year. In your answer refer to case law and relevant sections of the tax act, including worked calculations where applicable. (Maximum word limit: 1000 words.)