Episode 2 – Valuation Fees Can Be Deductible Against Your Business Income

02 August 2022

Video Transcription

There’s an interesting case law development that’s come up recently. It’s the case of Cempaka Properties which came up sometime in June 2019 at the High Court level. It reverses the current thinking about the valuation fees. 

Normally we think about validation fees and we say that’s non-deductible in relation because of the company expenditure, but the judge said the valuation fees are deductible and the grounds were very simple. He said that actually the evaluation fees were incurred for dual purposes – one for meeting the FRS accounting standards and the second one was needed for valuing the unsold properties because it was needed for the balance sheet purposes. 

When you’re in the property development business whereby the valuation is needed for not only your year-end valuation purposes but, also for marketing your pricing of the product that is a necessity. The judge said that there is a correlation between the incurring of the expenditure on the valuation fees and the generation of the income because you had to sell the properties at the best possible price. Now it reverses the complete thinking in the past that this kind of expenditure was a regulatory expenditure and it was not deductible. That’s not the case if you can link it to your income generation and it’s incurred in the production of your income that is for your business purposes.

The other thing that comes out of this case is also that they went back and they actually reopened the earlier years using Section 131 called an error or mistake claim. There is a provision in the act that allows you to go back. If you’re in 2020 year of assessment, you can go back to 2015 and reopen to make a claim. You can file that with the director general and if he disagrees, you can go to the special commissioners and get a special permission in order for the 131 which happened in this case where the special commissioners allowed them to actually reopen the earlier years.

This is something that we are doing at the moment – reopening cases. So if you need our help please come back to us and let us know. Thank you.

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