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6.2. Main Differences between Commercial and Tax Accounting

Although a company engaged in business would normally use commercial accounting principles for the purposes of evaluating various aspects of its business operations, and the tax laws have been reformed in certain areas to align them with commercial accounting (e.g. in relation to the taxation of financial arrangements), such accounting is usually not determinative for tax purposes, even where there is no clear definition of a concept or terminology used in the tax law. An example of this is the concept of "incurred", upon which the deductibility of a loss or an expense is based. In this connection, the courts have held that although commercial principles may be used for evidentiary purposes in the determination of whether a liability was incurred in a particular year, this in itself is not conclusive and that the actual determination is to be made on the facts of each case. Similarly, commercial accounting principles may be referred to in the determination of whether income has been "derived" by a company, but this is not conclusive in itself.