BUSINESS DEDUCTION (Timing Of The Expenditure (• Expenditure incurred…
10.2 Principles of Deduction
Revenue Capital Expenditure
• Capital receipt are not taxable under the ITA and deduction .
• Expenditure must be ravenue vharacter tobbe allowed as deduction
Expenditure Incurred By The Taxpayer Carrying On A Business
• Taxpayer must have link with business carried on by the taxpayer.
• Personal expenditure in nature are not deductible.
• Expenditure that incurred before start or ending of the trade are not deductible.
• There exception of deduction under such circumstance are allowed and considered later under pre-operating expense.
Qualifying deduction under the ITA
• Certain expenditures that are allowable under sec 33 and disallowable expenditures under sec 39.
• Specific provisions are also in place to allow deduction under specific situation.
Timing Of The Expenditure
• Expenditure incurred in period which income brought to change.
• Expense are not deducted before or after and when starting the business.
• Provision made for anticipated future liability or loss will not qualify.
Expenditure Wholly And Exclusively Incurred In Production Of Gross Income
• This is cardinal requirement of sec 33 ITA
• The deduction tight and there is rich collection of cases that have been decided by the court considering deductibility using strict rules of sec 33.
• Expenditure considered properly incurred under ordinary accounting rules may yet be disallowed by the ITA.
10.3 Character Revenue & Capital Expenditure
• Lump Sum Payment
• Magnitude Of The Expenditure
• The Accounting Treatment