A bank loan of $800,000 was obtained by PWP Ltd on 1 August 2020 to purchase its business office, warehouse and factory and an upfront establishment fee of $8,000 was paid on that date. The period of the loan was eight years and the bank charged interest at the rate of 10 percent.

1.Explain what deductions are available to PWP for 2020/21 in relation to the establishment fee and interest paid on the bank loan.

2.What deductions would be available if PWP repaid the $500,000 loan in full-on 30 June 2022?