Lecture Notes on Allowable and Disallowable Expenses in Taxation

These flashcards cover key concepts from the lecture on taxation, specifically focusing on allowable and disallowable expenses relevant to the assessable income and chargeable income.

What are the conditions under Income Tax Act, ACT 896 for an expense to be allowed as a deduction?

Expenses must be wholly, exclusively, and necessarily incurred in the production of income.

Which expenses are generally considered disallowable for tax purposes?

Capital allowances, court fines, and expenditures not related to the production of income.

What are allowable deductions for repairs and improvements under tax law?

Repairs are deductible if they do not exceed 5% of the written down value of the pool at year-end.

Under what conditions can a bad debt be claimed as a deductible expense?

Must have been included in assessable income, related to normal business, and proven to be bad after reasonable steps taken.

What does the term 'chargeable income' refer to?

Total assessable income from employment, business, or investment minus allowable deductions.

What defines an expense as deductible in the context of research and development?

It must be wholly, exclusively, and necessarily incurred in generating income for the business.

How are financial costs treated under tax law?

Financial costs are deductible up to the sum of financial gains plus 50% of adjusted chargeable income.

What is the maximum percentage of financial cost that can be deducted in a year of assessment?

It shall not exceed the financial gains derived and included in assessable income.

What happens to excess financial cost deductions?

Excess financial costs can be carried over for the next 5 years.

What are the key components to compute allowable financial costs?

The sum of financial gains plus 50% of the adjusted chargeable income.