Question

Rubber Co manufactures tennis balls. On 1 January 2010, Rubber Co purchased a

new machine for $1.1m (inclusive of GST) which it used to produce the tin cans in

which its tennis balls were placed for sale to retailers. At the time of acquiring the

machine , Rubber Co estimated that the machine would have an effective life of 10

years before it needed to be replaced. Subsequently, on 1 January 2014, as a result

of new technology, a better quality machine became available and Rubber Co

decided to sell the original machine for $330,000 (inclusive of GST) and purchase a

new machine for $2.2m (inclusive of GST).

Requirement:

What are the tax consequences of these arrangements under Div 40ITAA97?

Answer 1

On 1 January 2010, Rubber Co purchased a new machine for $1.1m (inclusive of GST), its effective life is 10 years. On 1 January 2014, Rubber Co decided to sell the original machine for $330,000 (inclusive of GST) and purchase a new machine for $2.2m (inclusive of GST).
According to the tax consequences of these arrangements under Div 40ITAA97, taxes will be paid from the both purchases and one sell.