Advanced Taxation

Business Income

S.Antony, Senior Lecturer ATI, Trincomalee

 Definition of a Business

A person's income from a business for a year of

assessment is the person's gains and profits from
conducting the business for the year.
“business” includes;
(a)
i.Trade, profession, vocation or isolated arrangement with
a business character however short the duration of the
arrangement; and

i.a past, present or prospective business;

(b) exclude an employment.
S.Antony, Senior Lecturer ATI, Trincomalee
Prospective Business
When considered the profit motive factor, there
might be a difference between a prospective
business and an actual business.

With an actual business, the person will have

begun the actual activity by which a profit is
expected but with a prospective business this
will not be the case. A person may have a
prospective business even though the actual
business is never conducted.

S.Antony, Senior Lecturer ATI, Trincomalee

 Prospective business Cont…
•Concept 01
•Mr. Mari is in the middle of setting up a restaurant and
KFC Ltd approaches him. KFC Ltd runs a chain of
restaurants within Colombo and is concerned that Mr.
Mari might prove to be serious competition in the long
run. KFC Ltd offers to purchase Mr. Mari's prospective
business and under the terms of the arrangement Mr.
Mari will agree not to open up a restaurant in Colombo
for the next 15 years. Mr. Mari accepts the offer before
the restaurant is opened. State tax treatment for the
income from Mr.Mari’s prospective business.

S.Antony, Senior Lecturer, ATI, Trincomalee

 Gains and Profits from Business
All gains and profits from conducting the business for the
year of assessment has to be taken in to account in
computing the business income. Section 6 expressly
required to include the following items as gains and
profits from conducting a business for a year of
assessment.
a)Sale of any goods or article and receipts by providing a
service;
b)consideration received in respect of trading stock;
c)gains from the realization of capital assets and liabilities
of the business.

S.Antony, Senior Lecturer ATI, Trincomalee

d) amounts required to be included on the realization of
the person’s depreciable assets (2nd Schedule) of the
business;
e) amounts derived as consideration for accepting a
restriction on the capacity to conduct the business.
f) gifts received by the person in respect of the business;
g) amounts derived that are effectively connected with the
business and that would otherwise be included in
calculating the person’s income from an investment;
h) other amounts required to be included under this Act

S.Antony, Senior Lecturer ATI, Trincomalee

Concept Check 02
Advice whether the following items shall be taken in to
accounts in calculating business income of a company which
is engaged in the business of manufacture of articles.
i.Sale of manufactured articles
ii.Income received from transportation
iii.Income from warranty services
iv.Disposal of machinery for which depreciation is deducted
for income tax purpose
v.Sale of car for which no depreciation is deducted for
income tax purpose
vi.Insurance claim for damaged stocks
vii.Disposal of land acquired for capital appreciation purpose
S.Antony, Senior Lecturer, ATI, Trincomalee
Deductions
Deductions will be discussed relevant to the all source
of income, generally deduction of the act falls in to
three main categories; -
- Deductions not allowed (S.10)
- General deduction (S.11)
- Specific deductions (S.12-S.19)

S.Antony, Senior Lecturer, ATI, Trincomalee

Deductions not allowed (S.10)
The following deductions shall not be allowed in
calculating a person’s income.
a. Domestic Expenses
1)Where an individual incurs expenditure in respect
of himself, the expenditure shall be domestic
expenditure to the extent that it is incurred-
•In maintaining the individual, including in providing
shelter as well as meals, refreshment, entertainment or
other leisure activities;
•In the individual commuting (travelling) from home;

S.Antony, Senior Lecturer, ATI, Trincomalee

 Deductions not allowed (S.10) Cont….

• In acquiring clothing, including shoes, for the

individual, other than clothing that is not suitable
for wearing outside of work;

• In paying any personal debts, including credit

card debts, of the individual.

• In educating the individual, other than education

that is directly relevant to a business conducted
by the individual and that does not lead to a
degree or diploma; or

S.Antony, Senior Lecturer, ATI, Trincomalee

 Deductions not allowed (S.10) Cont…

2) Where another person incurs expenditure in

making a payment to or providing any other
benefit for an individual the expenditure shall
be domestic expenditure except to the extent
that- (Employer deduction]
• The payment or benefit shall be included in
calculating the income of individual;
• The individual provides consideration of an equal
market value for the payment or benefit;
• The amount of expenditure is so small as to make it
unreasonable or administratively impracticable to
account for it;
S.Antony, Senior Lecturer, ATI, Trincomalee
 Deductions not allowed (S.10) Cont..
b) Tax payable under this Act or other taxes and levies
specified by the Commissioner General of Inland
Revenue (CGIR). [NBT, VAT]
c) Interest, penalties and fines payable in relation to breach
of any written law.
d) Expenditure in deriving exempt amounts or final WHT
payments.
e) Retirement contributions, unless those are included in
calculating the income of an employee or consist of a
contribution by an employer to approved funds by the
CGIR (pension, provident or savings funds or provident
or savings society).
f) Dividends of a Company
S.Antony, Senior Lecturer, ATI, Trincomalee
Deductions not allowed (S.10) Cont…

g) An amount transferred to a reserve or provision for

expenditure or losses not yet incurred, but expected to
be incurred in a future year of assessment
h) Outlays or expenses for entertainment
“entertainment” means the provision to any
person of food, beverages, tobacco,
accommodation, amusement(Enjoyment),
recreation or hospitality of any kind”.
i) Amounts incurred on lotteries, betting or gambling,
other than amounts incurred from conducting a
business of lotteries, betting or gambling
j) No deductions for expenditure if relevant withholding
tax provisions have not been complied with.
S.Antony, Senior Lecturer, ATI, Trincomalee
Concept Check 03
A business which has a budgeted book profit of Rs.
40,000,000 for the year ended 31.03.2019, has forecasted
the following expenditure.
i. Expenses to maintain motor vehicle given to CEO of
Rs. 500,000. The business has considered a monthly
amount of Rs.30,000 as his personal benefit in his
employment income.
ii. Expenses incurred to provide housing facility to the
entity’s marketing manager of Rs. 1,200,000. Business
has considered a sum of Rs.40,000 as his personal
benefit in his employment income.
iii. Penal interest paid for outstanding overdraft facility
obtained by the business of Rs.105,000
iv. Surcharge on EPF of Rs.40,000
v. Penalty on NBT of Rs.85,000.

v. Cost of free meals given to executive officers Rs. 3,000,000.

v. Provision for gratuity of Rs. 5,000,000. The business has

made a sum of Rs. 2,500,000 during the year as gratuity
payments it is charge at income statement.

v. The total rent of Rs. 9,000,000. The company has failed to

deduct relevant withholding tax at the rate of 10%.

You are request:

Calculate the business assessable income for the year of
assessment 2018/2019

S.Antony, Senior Lecturer, ATI, Trincomalee

Main Deductions (S.11)
i. In calculating income from business or investment, the
following are deductible
(a) Expenses to the extent they are incurred during the
year; and
(b) Incurred in the production of income.

ii. No deduction shall be allowed for an expense of capital

nature. “Expenses of a capital nature” includes an
expenses that secures a benefit capable of lasting longer
than 12 months.

iii. An expense shall be deductible only if it is incurred in the

year of assessment

S.Antony, Senior Lecturer, ATI, Trincomalee

Concept Check 04
Identify whether the following items are deductible for the year
of assessment 2018/2019.

i. Commission payable for the year ended 31.03.2019 will be

paid only in June 2019.
ii. Arrears consultation fee paid in April 2018.

iii. Payment made for insurance in March 2019 for the period
relevant to 2019/2020

S.Antony, Senior Lecturer, ATI, Trincomalee

Ans.
i. Commission payable – Deductible because it is incurred
during the YA.

ii. Arrears consultation fee paid. – Not deductible it is incurred

during the YA.

iii. Payment made for insurance in March 2019 for the period
relevant to 2019/2020 – Not deductible, it is incurred during
the YA.

S.Antony, Senior Lecturer, ATI, Trincomalee

 Section 11 Cont..

iv) An expense shall be incurred in the production of

income
An expense shall be deductible if it is incurred in a year of
assessment as discussed above provided that it should be
incurred in the ‘production of income from business’.
An expense which satisfies the following requirements could
generally be treated as it is incurred in the production of income.
• Incidental expenses (Obvious expense)
• Expenses for direct purpose of earning the income
• Expenses which is closely connected to the business

S.Antony, Senior Lecturer, ATI, Trincomalee

Concept Check 05
A company which is engaged in manufacture of articles for local
and export market has incurred the following expenses.
i. Remuneration to employees
ii. Insurance for factory assets
iii. Fine for customs offence
iv. Donation
v. Cost of advertisement
vi. Foreign travelling for business purpose
vii. Management fee
viii. Consultancy fee
ix. Legal fee in relation to trade debt recovery
x. Legal fee in relation to dispute on the title of the land
purchased to construct a factory building.

S.Antony, Senior Lecturer, ATI, Trincomalee

xii. Legal fee for labor tribunal case.

xii. Legal fees in relation to outstanding income tax appeal

of Rs.400,000.

xii. Legal fees to purchase a land.

xii. Cost incurred in developing land to construct a factory.

xii. Exchange loss arising on importation of machinery.

xii. Exchange loss arising on import of raw materials

Write whether above expenses are allowed expenses or

disallowed expense.
S.Antony, Senior Lecturer, ATI, Trincomalee
Answer 05
i. Remuneration to employees - Deductible
ii. Insurance for factory assets - Deductible
iii. Fine for customs offence – Not Deductible
iv. Donation _ Not Deductible
v. Cost of advertisement – Deductible 100%
vi. Foreign travelling for business purpose - Deductible
vii. Management fee - Deductible
viii. Consultancy fee - Deductible
ix. Legal fee in relation to trade debt recovery - Deductible
x. Legal fee in relation to dispute on the title of the land
purchased to construct a factory building. – Not Deductible
xii.Legal fee for labor tribunal case.
xiii.Legal fees in relation to outstanding income tax appeal of Rs.400,000.
xiv.Legal fees to purchase a land.
xv.Cost incurred in developing land to construct a factory.
xvi. Exchange loss arising on importation of machinery.
Special Deductions (S.12-S.19)
Interest Expense (S.12)
The interest incurred by a person during the year
under debt obligation of the person shell be deemed
to be incurred in the production of income to the
extent that;
a) The borrowed money was used to acquire an
asset that is used during the year in the
production of income; or

b) The debt obligation was incurred in the

production of income

S.Antony, Senior Lecturer, ATI, Trincomalee

Concept Check 06
Advise whether the following interest expenses are
deductible for the year of assessment 2018/2019.
i. Interest paid on a loan obtained during the year
2017/2018 to construct a factory building and the
building is used during the year of assessment
2018/2019 in the production.
ii. Interest paid on a loan obtained during the year
2017/2018 to purchase a machinery.
iii. Interest paid on overdraft.
iv. Interest expense capitalized during the year
2018/2019 as per LKAS 23-Borrowing Cost in
constructing new office building [This is capital
cost so it is not allowed]
Allowance for Trading Stock (S.13)
“Trading stock” means assets owned by a person that
are sold or intended to be sold in the ordinary course
of a business of the person, work in progress on such
assets, inventories of materials to be incorporated into
such assets and consumable stores.

The definition of “capital asset" and “depreciable

asset" excludes Trading stock. However it depends on
facts of the case

S.Antony, Senior Lecturer, ATI, Trincomalee

Calculation of trading stock as sub section 2 of section 13

Opening value of trading stock of the business for the Y/A = ******
Plus: Expenses incurred during the on trading stock of the business = ****
******
Less: Closing value of trading stock of the business for the year. = ( ***)
Allowance for trading stock = ******

Closing valve of trading stock shall be lower of ;

a) The cost of the trading stock at the end of the year.
b) The market value of the trading stock at the end of
the year
According to this comparison, cost of the trading stock
shall be reset
S.Antony, Senior Lecturer, ATI, Trincomalee
Concept Check 07
A business which has a forecasted book profit of Rs. 53,000,000
for the year ended 31.03.2019 will have following transactions in
arriving at such profit.
i) The company’s value of stocks as at 31.03.2018 and
31.03.2019 were Rs.80,250,000 and Rs.97,680,000
respectively. Its cost of purchase of stocks during the year of
assessment 2018/2019 will be Rs.350,850,000.

ii. The company has charged s sum of Rs.240,500,000 as cost

of sales in the income statement for the year ended
31.03.2019. Apart from such cost of sale, it has written off
damaged stock worth of Rs.15,500,000
[DA]

Make relevant adjustments to the tax computation based on the

above information for the year of assessment 2018/2019.
S.Antony, Senior Lecturer, ATI, Trincomalee
Research and development expenses (S.15)
Research and development expenses and agricultural start
up expenses meeting the requirements of subsection (1) of
section 11( i.e for production of income) may be deducted
irrespective of whether they are of a capital nature or not.
“Research and development expenses” means expenses
incurred by the person in –
(a) carrying on any scientific, industrial, agricultural or any
other research for the upgrading of the person’s business
through any institution in Sri Lanka (or for any
innovation or research relating to high value agricultural
products, by the person or through any research
institution in Sri Lanka); or
S.Antony, Senior Lecturer, ATI, Trincomalee
b. the process of developing the person’s business
and improving business products or process,

which shall be beneficial to Sri Lanka, but shall

exclude expenses incurred that are otherwise included
in the cost of an asset under this Act.

Under the sixth schedule, a person is entitled for an

additional deduction which is equal to the 100% of
the total amount of research and development expenses
for three years after 01.04.2018 as a temporary
concession and it will expire 31.03.2021.

S.Antony, Senior Lecturer, ATI, Trincomalee

Concept Check 08
An individual has carried out two researches to
improve the quality of his product in his business and
one research carried out through Ceylon Institute of
Scientific and Industrial Research which at a cost of
Rs.500,000 in April 2018 and other research carried
out by him at a cost of Rs.100,000 in July 2018.
i. Determine the tax adjustment if such amount is
not already deducted from his profits.
ii. Determine the tax adjustment if such amount is
already deducted from his profits

S.Antony, Senior Lecturer, ATI, Trincomalee

Capital Allowances and Balancing Allowances (S.16)
For the purpose of calculating a person’s income from a
business for a year of assessment, the following shall be
deducted.
a) Capital allowances
b) Balancing allowances
Capital Allowance
Capital allowances are, granted in respect of depreciable
assets owned and used by a person at the end of a year of
assessment in the production of the person’s income from
a business; and calculated in accordance with the
provisions given in the Act.(second and fourth schedule)
S.Antony, Senior Lecturer, ATI, Trincomalee
Depreciable asset is defined as;
“an asset to the extent to which it is employed in the
production of income from a business and which is likely
to lose value because of wear and tear, obsolescence or the
passing of time; but excludes goodwill, an interest in land,
a membership interest in an entity and trading stock.”
• Conditions has to be considered in respect of the
depreciable asset, when
claiming the depreciation allowances
- Legal ownership of the assets should be available to
the relevant person (As per S.49(2), lessee has the
ownership of assets obtained on finance lease)
S.Antony, Senior Lecturer, ATI, Trincomalee
- Used by the person for production of income.
- If any depreciable asset is entitled for a deduction of
depreciation allowance, then such claimable cannot be
differed for future periods.
• Important Things to be considered in calculating
the depreciation allowance
- Straight line method and following formula should be
used.
Depreciation allowance =A/B
A - Depreciation basis of the asset at the end of year
of Assessment.
B - Number of years relevant to each depreciable asset
S.Antony, Senior Lecturer, ATI, Trincomalee
- Full Depreciation allowances will be granted for the year of
acquisition if such depreciable assets used up to the end of
the year of assessment.
- No depreciation allowance will be granted for the year of
disposal as such asset is not exists at the end of the year of
assessment.
- No depreciation is allowed on road vehicle. “Road vehicle”
does not include;
i. a Commercial vehicle; Commercial vehicle means a road
vehicle designed to carry loads of more than one or more than
13 passengers or vehicle used in transportation or vehicle
rental business.
ii. a bus or minibus
iii. a goods vehicle
iv. a heavy general purpose or specialized truck or trailer.
- Depreciation basis of a depreciable asset shall be the
sum of;
i. Depreciable basis (written down value) of the asset at
the end of the previous Year of
Assessment; and
ii. Amounts added to the depreciation basis of the asset

during the year of assessment in

respect of additions to the cost of asset.

S.Antony, Senior Lecturer, ATI, Trincomalee

Class Depreciable Assets No. of Years

1 Computers and data handling equipment together with 5

peripheral devices
2 buses and minibuses, goods vehicles; construction and 5
earthmoving equipment, heavy general purpose or specialized
trucks, trailers and trailer-mounted containers; plant and
machinery used in manufacturing

3 railroad cars, locomotives, and equipment; vessels, barges, 5

tugs, and similar water transportation equipment; aircraft;
specialized public utility plant, equipment, and machinery;
office furniture, fixtures, and equipment; any depreciable asset
not included in another class
4 buildings, structures and similar works of a permanent nature 20

S.Antony, Senior Lecturer, ATI, Trincomalee

Class Depreciable Assets No. of Years

5 intangible assets, The actual useful life of

excluding goodwill the intangible asset, or
where the intangible
asset has an indefinite
useful life, 20.

S.Antony, Senior Lecturer, ATI, Trincomalee

When a person invests in Sri Lanka (other than
expansions of an existing business) during a year of
assessment shall be granted enhanced capital
allowance, in addition to the capital allowances granted
under the fourth schedule
Percentage of
Criteria Limitation Capital
Allowance
exceeds USD 3
1. Depreciable assets
million but
used in a part of Sri
does not exceed 100%
Lanka other than the
USD 100
Northern Province
million

S.Antony, Senior Lecturer, ATI, Trincomalee

2. Depreciable assets used in
exceeds USD
a part of Sri Lanka other than 150%
100 million
the Northern Province
3. Depreciable assets used in exceeds USD
200%
the Northern Province 3 million
4. Depreciable assets of state
exceeds USD
owned company that are used 150%
250 million
in a part of Sri Lanka

S.Antony, Senior Lecturer, ATI, Trincomalee

Table 03: Claim of capital allowances for the assets acquired
prior to 01.04.2018
Category of Asset Rate
IT equipment and calculating equipment 25%
Acquisition of software developed in SL on or after 100%
01.04.2005
Plant and machinery (Business providing health care, 33 1/3%
printing on paper, gem cutting and polishing,
packaging) on or after 01.04.2006
Acquisition of plant and machinery for business of 25%
construction work (after 01.04.2007)
Other plant and machinery or equipment 33 1/3%
Motor vehicle or furniture 20%
Buildings 10%
S.Antony, Senior Lecturer, ATI, Trincomalee
Claim of capital allowances on the assets acquired under finance
leasing
Where an asset is leased under the finance lease, the lessor shall be treated
as transferring ownership of the asset to the lessee. Accordingly, the lessee
is entitled to deduct capital allowance in relation to the assets obtained
under finance leasing.
Balancing Allowances

Where a depreciable asset of a person is realized by the person before the

end of a year of assessment, balancing allowance is calculated as follows.

Balancing allowances (Disposable Loss)

Balancing allowances = {written down value of the asset -

consideration received for the asset}
S.Antony, Senior Lecturer, ATI, Trincomalee
When realizing a depreciable asset, where
consideration received exceeds the written down value,
it is called as assessable charges (Disposal profit) and
taxable as a business receipt.

Assessable charges (Disposable profit)

Assessable charges = {consideration received for the

asset - written down value of the asset}

S.Antony, Senior Lecturer, ATI, Trincomalee

Concept check 09
A business has acquired a machinery during the
year of assessment 2017/2018 for a sum of Rs.
30,000,000. The business has claimed due
capital allowances at the rate of 33 1/3% for the
year of assessment 2017/2018.
Advise whether the business can claim balance
capital allowance for the Y/A 2018.2019

S.Antony, Senior Lecturer, ATI, Trincomalee

Concept Check 10
Determine the relevant tax adjustment in respect of
following assets used by a business for the Y/A
2018/2019.
Additions during the Y/A 2018/2019
i) Machinery of Rs.60,000,000 which include a sum of
rs.10,000,000 obtained under fiancé lease.
ii)Equipment of Rs.2,500,000
iii)Office furniture of Rs.2,400,000
iv)Computers and accessories of Rs. 1,300,000
v) Building constructed and completed for stores in
June 2018 of Rs. 15,000,000
Additions prior to 01.04.2018
i) Acquisition of software developed in Sri Lanka in
May 2017 of Rs.1,800,000
ii)Air-conditioner purchased in April 2017 of Rs.
1,250,000
iii)Commercial building purchased in April 2015 of
Rs. 30,000,000
iv)Lorry purchased for transporting goods in
September 2105 of Rs.5,500,000
Depreciation expense charged in the income statement
amounting to Rs. 45,000,000

S.Antony, Senior Lecturer, ATI, Trincomalee

Concept Check 11
/Advice whether capital allowances can be deducted in
respect of the following vehicles acquired for the year
of assessment 2018/2019
i) Lorry purchased for transporting goods.
i) Car purchased for director’s official and private
travelling.
ii)Car purchased for finance manager for his office
travelling.
iii)Motor bicycles purchased.
iv)Cars purchased for the rental business
v) Car purchased for business of transporting goods.
S.Antony, Senior Lecturer, ATI, Trincomalee
Concept Check 12
A business which has a budgeted profit of Rs.15,900,000 from the
business of manufacturing goods has sold following assets during
the Y/A 2018/2019.
i) A machinery for a sum of Rs.8,000,000. It was acquired by the
business on September 2016 for Rs.12,000,000. The book written
down value of the assets at the time of disposal is Rs.5,500,000.
ii) A lorry for a sum of Rs. 2,000,000 and which was purchased by it
on August 2016 for Rs.4,000,000. The book written down value
at the time of disposal is Rs. 2,500,000.
Make relevant tax adjustment in relation to assessable charge and
balancing allowance for the Y/A 2018/2019.

S.Antony, Senior Lecturer, ATI, Trincomalee

Repair and Improvements (S.14)
Conceptually, repairs do not improve the value of an
asset but only maintain it. By contrast,
improvements enhance the value of an asset. It may
be difficult to draw a distinction between
repairs and improvements therefore Section 14
makes drawing this distinction irrelevant. It can be
deducted both repairs and improvements but subject
to the following limitations.

S.Antony, Senior Lecturer, ATI, Trincomalee

Limitation of the deductions
- On Buildings, structures and similar depreciable assets
The deductions shall not exceed five percent (5%) of the written
down value of the asset at the end of the previous year or actual
repairs and improvement expenses incurred during
the YA which ever less.

- On all other depreciable assets.

The deductions shall not exceed twenty percent (20%) of the
written down value of the asset at the end of the previous year or
actual repairs and improvement expenses incurred during the Y/A
whichever less.

S.Antony, Senior Lecturer, ATI, Trincomalee

The residual of repairs and improvement expense for
which a deduction shall not be allowed as a result of the
limitation shall be added to the depreciation basis of the
asset.

S.Antony, Senior Lecturer, ATI, Trincomalee

Concept Check 13
A business which has forecasted book profit of Rs.34,000,000 for the year ended
31.03.2019 will have following transactions in arriving such profit.
It has budgeted expense of cost of repair and improvements in respect of following
assets during the year of assessment 2018/2019.
i) Cost of repair and improvement for building of Rs. 3,500,000. The cost of the
building is Rs. 95,000,000 with the net book value of Rs.67,500,000. Its tax
written down value is estimated to be Rs.70,000,000 as at 31.03.2019.
ii) Cost of repair and improvement for machinery of Rs. 9,500,000. The cost of the
machinery is Rs.30,000,000 with net bokk value of Rs. 21,500,000. Its tax
written down value is estimated to be Rs.20,000,000 as at 31.03.2019.
iii) Cost of improvement for land of Rs.17,000,000. The cost of purchase land is
Rs.80,000,000.
Make relevant tax adjustments in respect of cost of repair and improvement
incurred by the company for the year of assessment 2018/2019.

S.Antony, Senior Lecturer, ATI, Trincomalee

Claim of business or investment losses (S.19)

In calculating the income of a person from a business

for a year of assessment, the following shall be
deducted:–

(a) an unrelieved loss of the person for the year from

any other business; and

(b) an unrelieved loss of the person for any of the

previous six years of assessment from the business or
any other business.

S.Antony, Senior Lecturer, ATI, Trincomalee

Act defines the term ‘loss’ and ‘unrelieved loss’ as
follows,

“loss” of a person for a year of assessment from a

business or investment shall be calculated as the
excess of amounts deducted in accordance with this
Act (other than under this section or subsection (5) of
section 25) in calculating the person’s income from
the business or investment over amounts included in
calculating that income; and
“unrelieved loss” means the amount of a loss that has
not been deducted in calculating a person’s income
under this section
S.Antony, Senior Lecturer, ATI, Trincomalee
Reverse of amounts including bad debts (S.24)
Recovery of expense deducted
Where a person deducts an expense in calculating the
person’s income and the person later recovers the
expense, the person shall, at the time of recovery, include
the amount recovered in calculating the person’s income.

S.Antony, Senior Lecturer, ATI, Trincomalee

Disclaim or write off income as bad debts
Where, in calculating income on an accrual basis, a person
includes an amount to which the person is entitled and the
person later –
(a) disclaims an entitlement to receive the amount; or
(b) in the case where the amount constitutes a debt claim of the
person, the person writes off the debt as bad.
the person may, at the time of disclaimer or write off, deduct
the amount disclaimed or written off in calculating the person’s
income.

S.Antony, Senior Lecturer, ATI, Trincomalee

THANK YOU