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Fiji Revenue And Customs Authority: Tax And You

Fiji Revenue And Customs Authority: Tax And You
September 26
11:06 2015

Unnecessary expenditure and losses can ultimately impact a company’s gross income.

This is why there is a provision under the Fiji Revenue and Customs Authority’s taxation laws for allowable deductions. This is of course there for the benefit of the taxpayer.

And in order to ensure the system is not abused, deductions are allowed only to the extent to which the expenditure or loss was incurred in deriving the gross income.

We interviewed the Fiji Revenue and Customs Authority chief executive, Jitoko Tikolevu, who elaborated more on the issue of allowable deduction for income tax.

Understanding Allowable Deduction for Income Tax

What does allowable deduction include? 

  • Cost of trading stock disposed of during the tax year.
  • Decline in value of a person’s depreciable assets through use in deriving amounts included in gross income during the tax year.
  • A net loss incurred in the conduct a venture or concern in the nature of a trade, commerce, agriculture or manufacture, or in the carrying on or carrying out of a profit-making undertaking or scheme.
  • Expenditure actually incurred in the repair of property for the purposes of a business or in respect of when income is receivable (such as in relation to a rental property).
  • An expenditure or loss that is specifically deductible under the Income Tax Act.

What is an allowable deduction?
Allowable deduction is simply the deduction of expenditures and losses for a tax year from gross income.
A person is allowed a deduction for an expenditure or loss to the extent incurred during the tax year by the person in deriving gross income.

A deduction is allowed only to the extent to which the expenditure or loss was incurred in deriving gross income.
How do you determine an allowable deduction?
To qualify for a deduction, there must be a sufficient connection between the expenditure or loss and the derivation of gross income.
This is so that it can be said that the expenditure of loss was incurred in deriving gross income.

What happens in cases where the expenditure incurred is not linked to the business?
An expenditure or loss incurred for a purpose other than deriving gross income is not allowed as a deduction.
For example, there is no deduction for an expenditure or loss incurred in deriving an amount that is exempt income, an amount subject to separate taxation, or an amount subject to final withholding, as each of these amounts is not included in gross income.

Similarly, there is no deduction for an expenditure or loss incurred for some purpose other than deriving income, such as for a private purpose (e.g. personal consumption), unless a deduction is allowed under a specific provision in the Act (e.g. the deduction for charitable donations).

Thus, an expenditure or loss incurred partly to derive gross income and partly for some other purpose (such as to derive exempt income or for a private purpose) must be apportioned so that only that part relating to the derivation of gross income is allowed as a deduction.

Apportionment of the expenditure or loss must be made on any reasonable basis having regard to relative nature and size of the activities or purposes to which it relates.

Feedback: rachnal@fijisun.com.fj

 

 

 

 

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