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Special Deductions - Coggle Diagram
Special Deductions
Bad Debts
- If the taxpayer is a VAT vendor, the bad debt allowance is based on the amount excluding VAT.
- A bad debt deduction cannot be claimed for debts that were sold or reversed and the taxpayer may not claim a bad debt in a later year of assessment.
- An employer who makes a loan to an employee and the employee subsequently fails to repay the loan is not entitled to a bad debt deduction.
- The debt must be ceased active recovery collection, handed over to an attorney or debt collector, and written off in the taxpayer's books.
- If an amount previously written off as bad debt is recovered, the amount must be included in gross income.
- Section 11(i) allows for a bad debt deduction in respect of debts that are due to the taxpayer, became bad during the year of assessment and were included in the taxpayer's income in the current or any previous year of assessment.
- The bad debt deduction must be claimed in the year the debt becomes bad.
Legal Expense
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Legal costs must be incurred in respect of a claim, dispute, or action at law relating to such claim, by or against the taxpayer
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Restraint of trade
The deduction is limited to the amount that constitutes income for the recipient and is capped at the lesser of
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Or the amount incurred divided by the number of years the restraint will apply, whichever is less.
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The deduction applies to amounts incurred in the course of carrying on a trade as compensation for a restraint of trade.
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Doubtful Debts
In years of assessment commencing on or after 1 January 2019, the allowance depends on whether the taxpayer applies IFRS 9 to the debt for financial reporting purposes.
If IFRS 9 is applied to a debt, a doubtful debts allowance of 40% may be claimed.
If IFRS 9 is not applied, the doubtful debts allowance is calculated on a formula based on the age of the debt in arrears.
For both IFRS 9 and non-IFRS 9 debts, the 40% allowance may be increased to any amount up to 85% for debts older than 120 days, subject to a directive from the Commissioner.
Section 11(j) allows for a deduction of doubtful debts which would have been allowed as a deduction had they become bad.
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Any doubtful debts allowance must be added back to the taxpayer's income in the next year of assessment.