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6.5.1. Main Rules for Deductions

As a general rule, any loss or outgoing may be deducted from taxable income to the extent to which it is incurred in gaining or producing such taxable income or is necessarily incurred in carrying on a business for the purpose of gaining or producing the taxable income.

The issue as to when a loss or outgoing is actually incurred depends on the circumstances of each case. In this connection, a number of core principles have emerged from court cases decided on the issue. Notably, an amount may be considered to have been incurred if the taxpayer is definitively committed to its payment. Except in the case of voluntary payments, an amount is considered to have been incurred if the taxpayer presently has a liability to pay it, even if the liability is defeasible by others or the amount involved cannot be ascertained in precise terms.

The principles stated above would, without more, cover a broad range of expenses that are normally or typically incurred in carrying on a business (other than expenses of a capital nature, for which the depreciation provisions apply), such as payments for the rental and insurance of business premises, employee salaries, and interest on borrowed money and bank charges for various financial transactions. Effective 1 July 2019, an income tax deduction will not be allowed for certain payments (such as salary, wages to an employee, director’s fees, payment for the supply of labour etc.) if the associated withholding and reporting obligations have not been complied with. Specific expenses that are deductible include the following.