06 Jan 2010

Deductibility of Entertainment Expenses - Australia

by Darren

Let's compare the basic rules on eligibility to deduct entertainment expenses across the region, starting with Australia. Generally entertainment expenses are not deductible. The term entertainment expenses has been defined as entertainment in the form of food, drink or recreation. Recreation includes amusement, sport and other types of leisure activities. This is known to include recreation and amusement in vehicles, vessels or aircraft such as joyflights and sightseeing tours.

Examples of entertainment are business lunches, cocktail parties, sporting or theatrical events, and also covers accommodation or travel associated with any of these items.

The Australian Tax Commissioner has issued a ruling which determines whether food and drink constitutes the provision of entertainment.

In summary when identifying whether food and drink is deductible for your business ask yourself the following questions:

  • Why is the food and drink provided? — Where it has been provided for the purposes of refreshment, it will generally not be entertainment. Where provided in a social situation, it will generally be entertainment. For example a client comes to your office and you offer a coffee or tea this is not entertainment.
  • What food and drink is being provided? — The more elaborate the meal, the more likely it will be entertainment.
  • When is the food and drink being provided? — If provided during work time or while traveling, it is less likely to be entertainment. However, a social function such as year end parties held during work time will still be treated as entertainment and not deductible.
  • Where is the food and drink being provided? — Where provided your business premises, it is less likely to be entertainment. If provided in a function room, hotel, restaurant or consumed with other forms of entertainment, it is likely to be treated as entertainment.

The following items are deductible:

  • Food and beverages offered as part of your businesses in house dining facility
  • If your business is to provide entertainment to paying clients or customers such as theaters and restaurants, the cost of entertainment is in the ordinary course of your business and is deductible.
  • Seminars -  the cost of food, drink, accommodation and travel that is reasonably incidental to a person''s attendance at a seminar lasting at least four hours.However, if recreation activities are attached it the seminar that component of the cost is non-deductible.
  • Entertainment expenses incurred to promote your business and goods or services. For example, A deduction could be allowed for promotional shows at a shopping mall, but not for food and drink provided at a product launch restricted to selected guests.
  • Overtime meals and allowances paid to your employees as required by law or under a contract
  • Recreational facilities offered to your employees which are located on your business premises

Next we will look at how Singapore deals with entertainment expenses.

05 Jan 2010

2010 and the Global Tax System

by Darren

Welcome to 2010. I am currently vacationing in Cape Town South Africa and enjoying the free time to think clearly without the distractions of my paid career. So what does 2010 have in store for us in terms of the international systems. Starting in the USA, the health care reform package will result in new taxes being levied. Some of the expected taxes include:
  • Tax penalties on individuals, such as independent contractors, who opt not to obtain health coverage.
  • A payroll tax on businesses that do not provide health benefits for their staff. This is aimed at encouraging small businesses to provide health coverage.
  • A tax surcharge on high income individuals for which approximately one third are small business owners.
In The UK the big news is the bonus tax. The UK government has announced a new tax of 50% on bonuses paid to employees in the financial sector on amounts in excess of GBP25,000. The French Government has followed suit by imposing a 50% tax on bonuses over
22 Dec 2009

Prohibited Deductions Under Section 17 of the Income Tax Ordinance

by Darren

Under section 17 of the Hong Kong taxation law certain expenses are not deductible from a taxpayer's assessable profits. These include:
  • domestic or private expenses
  • expenses not incurred for profit-producing purposes
  • expenditure of a capital nature, or any loss or withdrawal of capital
  • the cost of improvements
  • sums recoverable under insurance contracts
  • expenses connected with premises not occupied for profit-producing purposes
  • tax paid under the Ordinance other than salaries tax paid in respect of employees' remuneration
  • Total payments or provisions made as ordinary contribution and insurance premium which exceed 15% of the total compensation of the relevant employee
  • payments to or for benefit of spouses or partners
08 Dec 2009

Specific Deductions Under The Income Tax Ordinance

by Darren

A specific deduction under Hong Kong taxation law is one specifically defined within the Tax ordinance. A non-exhaustive list of deductions are identified under the Ordinance but subject to certain restrictions and conditions. To be deductible, a listed outgoing or expense must also satisfy the general conditions of deductibility. The allowable deductions listed include:
  • expenses connected with borrowing money
  • rent
  • foreign tax
  • bad debts
  • repair costs
  • replacement costs
  • the costs of registering trademarks and designs and the costs of registering or granting patents and
  • any other deductions prescribed by any rule made under the Ordinance
I will go into the detail on each of these over the next few weeks.
01 Dec 2009

Deductions for Foreign Enterprises in China

by Darren

Since January 2008 the new enterprise income tax law has taken effect. This new law specifically identifies those items which are allowed as a deduction from your businesses gross income. Items which are deductible include:
  • Costs, expenses, taxes and losses incurred directly relating to the income you derive
  • Compensation paid to employees
  • Loan interest payments and related borrowing costs
  • Entertainment, advertising and promotional expenses
  • Depreciation of fixed assets
  • Exchange Losses
  • Leasing costs
  • Donations
  • Research and Development
  • Investment in venture capital enterprises
  • Tax losses
  • Foreign taxes
Items which are not deductible include:
  • Management fees between associated enterprises
  • Dividends paid to investors
  • Enterprise income tax payments
  • Surcharges on late payments
  • Fines and penalties
  • Sponsorship fees
We will analyze each of the deductible and non-deductible expenses in future blog entries.
28 Nov 2009

Tax Deductions for small businesses in Singapore

by Darren

Under Singapore tax law you are entitled to claim a tax deduction for expenses that are wholly and exclusively incurred in generating income. To qualify for tax deduction, the expenses must also satisfy the following conditions:
  • The expenses must be revenue in nature, that is expenses in the normal course of operating your business. Capital expenditure is not allowable as a tax deduction.
  • The deduction must not be prohibited under the Income Tax Act.
  • The expenses must be incurred, that is, it cant be a contingent liability/ expense.
To assist your tax preparation for your business, the below is a non-exhaustive list of expenses you can claim as deductions
  • Accounting, audit, bookkeeping and tax fees
  • Advertisement
  • Bank charges
  • CPF deposits,
  • Exhibition expenses
  • Interest expenses
  • Legal and professional fees
  • Medical expenses (restricted to 1% of total remuneration)
  • Office upkeep and stationary
  • Periodicals & newspapers
  • Property tax
  • Rental of business premises
  • Research and development
  • Secretarial fees
  • salary, bonus and allowances including director's remuneration
  • Staff training
  • Telephone
  • Traveling expenses
  • Wages
  • Water & electricity
26 Nov 2009

US tax deductions - Small business Expenses

by Darren

Under US tax law to be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. It is important to separate business expenses from the following expenses:
  • The expenses used to calculate the cost of goods sold,
  • Capital Expenses, and
  • Personal Expenses.
Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value your inventory at the beginning and end of each tax year to determine your cost of goods sold. Cost of goods sold is deducted from your gross income to to determine your gross profit. Once an expense is included in your cost of goods sold, you cannot deduct it again as a business expense. The following are types of expenses maybe included:
  • Cost of products or raw materials, including freight
  • Storage
  • Direct labor costs
Capital Expenses You must capitalize, rather than deduct, certain costs. Capital expenses are considered assets in your business. There are, in general, three types of costs you capitalize.
  • Business start-up cost
  • Business assets such as furniture, buildings, computer equipment
  • Improvements
Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for your business and partly for personal purposes, you may split the total cost between business and personal and deduct the business component. For example, if you borrow money and use 70% of it for business and the other 30% for the purchase of a car for personal use, you are entitled to deduct 70% of the interest as a business expense. The remaining 30% is personal and not deductible. This is a general overview if business deductions. We will go into the detailed expenses and their deductibility over the next few US related entries
24 Nov 2009

General Deductions Under The Income Tax Ordinance

by Darren

Under the Hong Kong tax ordinance, in order to ascertain your taxable profits, allowable (general and specific) deductions are subtracted from the taxpayer's taxable receipts A general deduction is allowed for all outgoings and expenses incurred in the production of assessable profits in the relevant year of assessment a general deduction is allowed for all outgoings and expenses incurred by the taxpayer in the production of profits which are chargeable to tax in any period . To be deductible the expenses must have been incurred and must not be prohibited under section 17 of the ordinance. "Outgoings" are sums actually paid out whereas an expense includes a liability to pay. Therefore, deductibility is not necessarily confined to amounts which have actually been paid but are due and payable. Outgoings or expenditure must be incurred in the production of taxable profits if they are to be deductible. To determine if an expense is deductible there have been numerous cases to assist in applying this rule. 2 core examples include: Severance Payments related to cessation of business these have been concluded as deductible as they were made to satisfy contractual and statutory obligations which the taxpayer had incurred in the course of running its business and earning its assessable profits Foreign taxes paid by a Hong Kong taxpayer have been characterized as deductible. The imposition of sanctions by the tax authorities in the relevant jurisdictions for failure to pay the taxes would have forced the taxpayer to cease its operations, the taxes were held to have been paid with a view to producing profits and were deductible. Next we will look at the specific deductions.

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