Prohibited Deductions (SECT 16)

While the “general deduction formula”

contains its own restrictions further
restrictions on deductibility arise under
section 16.
In one part it forbids a deduction despite the
expense passing the tests of ‘Purposes of
trade, non-capital nature, etc..’ and
In another it merely ensures a disallowance
of certain items of expenditure, the
deductibility of which might be in doubt.
 Prohibited Deductions Cont’d
a) Maintenance costs for taxpayer, family and
establishments
b) Domestic and private expenses
c) Losses which are recoverable
d) Tax and interest on tax for penalties
e) Retained income or transfers to reserve
funds
f) Unproductive interest/ expenditure on
exempt income
g) Contributions to proved and unproved
funds
 Prohibited Deductions Cont’d
h) Notional interest
i) Rent on property not occupied for business
j) Restraint of trade
k) Excess cost of leasing a Passenger Motor Vehicle (10,000
maximum cost for 2009)
l) Cost of shares awarded to employees
m) Entertainment allowance paid by the employer
n) Expenditure on foreign company dividends
o) Expenditure incurred on interest earned from local
financial institutions-taxed at source
NB* STUDENTS TO REFER TO HANDOUT AND TO
SECTION 16 OF THE ITA