4.1 Deductions%28word%290

4.1 Deductions%28word%290 - ACIS 254 19 MARCH & 25...

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ACIS 254 Lectures 11-13 Deductions - General permission, General limitations, Specific provisions Reading: NZT Chp 8. TOPIC 1. General [NZT 8.1-8.2] 1.1 Scheme of the Income Tax Act 2007 [NZT Chapter 8. 1 - 8.2.1] A taxpayer’s net income is calculated by deducting from the taxpayer’s income all deductions (see ITA 2007, Part B Flowchart B2 “Calculating and satisfying income tax liabilities”, second page). Section BD 2 ITA 2007 provides that an amount is a deduction of a person if they are allowed a deduction for the amount under Part D ITA 2007. The ITA 2007 has: (i) A general permission for determining what is a deduction in s DA 1. (ii) This general permission is subject to specific limitations (called the general limitations ) in s DA 2, which deny deductibility for expenditures that have satisfied the general permission . (iii) In addition, there are also specific provisions (Subpart DB to Subpart DZ), which may allow a deduction for certain types of expenditure or loss independently of the general permission (and which otherwise may not be deductible under the general permission). The layout of Part D requires that any specific provision may supplement or override the general permission and override any or all of the general limitations , but only to the extent that the specific provision states that to be the case (section DA 3). If a specific provision in Subpart DB to Subpart DZ is stated to supplement the general permission it means that it is not necessary to also satisfy the general permission – only the specific provision . Section DB 7 (Interest for companies) is one such example. Under this section most companies do not require a connection with income in order for interest to be deductible. If a specific provision overrides the general permission , the specific provision is modifying the general permission by providing a limit to or prohibition against the deduction. See for example s DD 1 (Entertainment expenditure). Entertainment expenditure incurred by a business would normally be deductible under the general permission but s DD 1 limits the amount of the deduction to only 50% of the amount incurred. As a general rule the general permission in s DA 1 should be the first point in determining whether an expenditure or loss is a deduction – then the general limitations and specific provisions should be considered. The deductions determined using the above sections are then: (iv) Allocated in accordance with s BD 4 to arrive at annual deductions, per Part B Flowchart B2 “Calculating and satisfying income tax liabilities”, second page, ITA 2007.
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Finally, a taxpayer cannot claim a deduction unless the item of expenditure is permitted by Part D, ITA 2007. 1.2
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4.1 Deductions%28word%290 - ACIS 254 19 MARCH & 25...

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