Tax Planning

1309 Words May 27th, 2006 6 Pages
Section 14(1) of the Income Tax Act states the general deduction formula: "…there shall be deducted all outgoings and expenses wholly and exclusively incurred during that period…in the production of the income". We shall now discuss the general deduction formula, determine deductibility of expenses, and examine non-deductible expenses that are given special concessions.

"Wholly and exclusively"
The judgment in Bentleys, Stokes and Lowless v Beeson (1952) 2 All ER 82 at 85 clearly highlights that expenditure incurred must be for the sole objective of income production. If the intention behind an expenditure is a purely business benefit but an incidental personal benefit arises, a deduction is allowed. Thus, the taxpayer's intention and
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Head Office and Management Expenses
When the "head office" of a group of companies provides services such as investment management and financial management, partial recouping of expenses from the group members are justifiable and acceptable. This is due to the fact that a centralized "expertise" results in greater business efficacy and that allocation of expenses must be consistent and conducted at arm's length. Allocation should adhere to the following rules: (i) all direct expenses applicable to each territory must be charged to that territory; and (ii) all indirect common expenses should be allocated using a practical and fair basis and be charged by way of a management fee to the relevant territory.

Overview of Special, Further and Double Deductions
Certain expenditures that are not deductible under s14 can qualify for Special, Further and Double Deductions under s14A, 14B and 14D-O.

Research and Development (R&D) expenditure (s14D-E)
- Double and Further Deduction
To promote a knowledge based economy, incentives like deductions for R&D expenditures incurred are given to the companies. The companies may enjoy double tax deductions if expenditure is incurred on an R&D project in Singapore which is related to its trade or business and approved by the

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