On 13 May 2021 XYZ Pty Ltd purchased a disused warehouse for $1,500,000. Due to the need to install heavy manufacturing equipment on the floor, XYZ spent $400,000 in resurfacing and strengthening part of the floor. XYZ is unsure as to whether the amount may be claimed as a deduction.

Required:

1. Advise XYZ of what course of action it should take.

2. Suppose XYZ claimed the cost of $400,000 as a deduction for the tax year 2020/21 and, upon a subsequent audit, the Commissioner disallowed the deduction and issued an amended assessment.

3. What penalties may be imposed on XYZ?