Reference no: EM132110175

Ruby Engineering. Pty Ltd [Ruby] was incorporated in 1990 and produced engine components used in the Australian car industry. In 2016 the business and company assets were sold to Diamond Ltd. Tinder the terms of the agreement. Ruby remained liable for any claims arising before 2016. The company used the fluids to invest in real estate and shares.

During the year ended 30 June 201S Ruby incurred the following expenses:

Required:

Advise the directors of Ruby Pty Ltd of the tax deductibility of the above amounts. You must make reference to appropriate authorities and legislation.

(a) Ruby has owned and rented .a residential property since 2008. Rental income for the current year is $35 ,000 . During the year the company replaced the old kitchen fittings, including cupboards that had deteriorated through water damage and wear and tear. The new cupboards were of the same type as the old ones and the kitchen layout was not altered substantially. The cost was $8,500.

(b) In another of the rental properties a visitor to the tenants slipped on the steps and sustained injuries requiring medical attention. She claims one of the steps was loose and commenced legal proceedings against the partnership alleging her injuries were caused by the poor condition of the building. Ruby incurred legal expenses to date of S7,000 and the action has not been settled at 30 June.

(c) In March 2015 the company owned sold a batch of parts that were subsequently found to be defective. The purchaser, an Australian car manufacturer lodged a claim for damages in the Federal Court. The claim was settled in November 2017 and the company paid an amount of $750,000 to the car manufacturer.

(d) The directors of Ruby were concerned about the claim in (c) and the effect it had on the year's reported profit. They resolved to set aside a small amount of hinds annually to meet any future claims. Accordingly, an amount of S100,000 was set aside in a provision in the accounts for the year ended 30 June.

(e) In August 2017 the directors of Ruby decided to investigate the possibility of re-entering the car parts manufacturing industry using a new type of alloy. An amount of 5220.000 was paid to consultants investigating the proposal but. due to uncertainty in the motor vehicle industry. the directors decided not to proceed at the time.