Tax Deductions - Section 33 (Part 1)

Tax Deductions from Gross Income - Section 33
By Tan Thai Soon

Section 33 (1)
The adjusted income of a person from a source for the basis period by deducting from the gross income of that person from that source for that period all out goings and expenses wholly and exclusively incurred during that period by that person in the production of gross income from that source, including:-
(a) Interest expense on money borrowed;
(b) Rent;
(c) Repairs and renewals.

Comment:
(1) Allowable expenses must be revenue expenses and not capital in nature. For example, goodwill. fixed asset purchase, purchase of license and franchising fees are capital in nature, therefore not deductible;

(2) Allowable expenses must be wholly and exclusively to derive gross income. It follows that the "motive and object" must be incurred in the production of income in order to meet the deductibility test;

(3) The allowable expenses must "incurred" in the year concerned and "incurred" means expenses paid and payable. Similarly, the liability must be real and not "anticipated losses or contingent liabilities" (Edward Collins & Sons Ltd vs. CIR); and

(4) It must be allowable by common law or a provision in the law. Section 34 provides a special provisions on tax deductions. On the other hand, Section 39 provides special provisions where expenses are not allowed as a deduction against the gross income.