Question 1 Dr Lobo is a medical doctor working as a sole practitioner from consulting rooms he owns in the Brunswick Victoria. In July 2010 he was sued by a former patient for negligence. His lawyer advised him not to contest the case, however the matter was widely publicised in the local paper. Unfortunately, the publicity led to a significant downturn in the number of patients attending his surgery. He therefore decided to defend the case and in the course of doing so incurred legal expenses of $40,000. Nonetheless, he was extremely pleased when a Supreme Court jury found there was no negligence on his part. Since the case was decided there has been a steady increase in the number of patients attending his surgery. He also spent $40,000 updating and modifying the bathroom and toilet in his surgery. He also spent $5,000 replacing the carpets caused by wear and tear in the reception area and $1,000 replacing the glass in a window broken by a patient's young child with double glazing glass. Dr Lobo had also bought a secondhand video game machine for $2,000 to entertain children in the waiting room. 'When he first tried to use it he discovered that it would not operate as the screen was broken and needed replacing. He spent $1,000 on a new screen. REQUIRED: Advise Dr Lobo on the income tax implications of the above facts, referring to appropriate legislation and case law. [15 marks] Page 2 of 5 pages ubject utline EACEIB Taxation Law and Compliance 201E