Monday 19 January 2009

Tax Audit

Lately two of my clients being tax audit by IRB.

Client A

Nothing to add back, so IRB added back certain portion of upkeep of office equipment expenses

Reason: Capital nature


Client B

Scenario 1 : Loss of cash - embezzlement by an employee

IRB's action: Do not allow such loss of cash as a deduction

IRB's reply: Why no legal action? Why not sue the Staff?

Reason behind the reason: Police report was lodged, policemen managed to catch the staff, the staff was released two days later. After that, "no more" action. (Can I ask IRB to call the policeman to find out WHY?)


Public Ruling 5/2005: Loss of cash caused by theft, defalcation or embezzlement by an employee is allowable as it arises directly from the necessity of delegating certain duties of the business to subordinates.

Scenario 2: Upkeep of Motor Vehicles

This Company is having a lot of salesmen. They all using their own motor vehicles to carry out their duties (travel around whole country to get sales).

Salesman is not allowed to claim car maintenance from the Company but they are allowed to go to the panel workshop to service their cars.

The workshop will send in a statement to this Company every month end for services rendered and of course demand for payment.

IRB's action: Added back fully the expenses, meaning that it is 100% not deductible

IRB's reply: Not logic, where got Company so nice one??

The general deduction test is provided in the opening paragraph of S 33 (1).

Business expense has to fulfill all the following conditions in order to secure a deduction from the gross income of a business source:

(a) the scope of expenses refers to "outgoings and expenses";

(b) the expenses have to be "wholly and exclusively"'

(c) incurred;

(d) in the production of gross income fromt that business source


(What can I say about: 1st our policeman, 2nd our IRB officer????????)

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