Net income or net loss is calculated by deducting annual allowable deductions from the total amount of gross income for an income year.
Annual allowable deductions are the sum of all amounts of allowable deductions incurred in an income year.
Only expenditures that relate to business will be an allowable deduction.
Generally speaking, item or service that is purchased in a course of carrying out business activities is deductible – meaning that item or service purchased for private use or is a substantial asset will not be deductible. However, when expenses are not completely for business use, you can claim an appropriate portion of the expense.
Expenditure from deriving salary or wages is not deductible as it has not incurred for business purposes.
Food, beverages, recreation, and related accommodation and transportation for business activities are 50% deductible.
The following expenses are 100% deductible:
Only interest for funds that are borrowed to purchase business assets are fully deductible – meaning interest for funds that are for private use or a use that does not produce income is not fully deductible. Portion of interest relating to the income producing use is deductible.
Bad debt that is written off is an allowable deduction – they can be wholly or partially written off.
Bursaries or payments alike offered by employers to attract staff are deductible – whether paid to, or on behalf of, an employee or for a prospective employee on condition that they stay with the employer for a stated amount of time.
Expenses such as penalties, bribes, use-of-money interest charges, and income tax are not deductible – including lawyers’ expenses in defending criminal or civil penalties.