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Clinic and Taxman Lock Horns Over Expense Deductions

Updated: Aug 22, 2023


A clinic wanted to reduce some of their expenses on their tax return. But the taxman looked deeper into some of the expenses, including:

  • training,

  • repairs,

  • maintenance and

  • general expenses,

and didn't seem to agree.


Instead, the clinic said these expenses were related to caring for patients and selling healthcare products and were, therefore, very important expenses for the business.


However, the clinic has not provided enough evidence to prove this, and no one has come forward to support the clinic's argument.


Most importantly, there is no evidence to prove that these expenses are related to their business.


The expenses appeared to be more like the personal expenses of the Director of the company and had nothing to do with the business, not the day-to-day marketing costs of the business. As a result, the Income Tax Officer would not allow the clinic to take a tax deduction.


This case also involves another issue: whether the clinic director's personal MLM income can be reported as clinic income.


The clinic argued that the Director's MLM income should be reported together with the clinic's income. However, the taxman argued that these were two different sources of income and should be reported separately.


In the end, the clinic failed to prove that they were right. They provided too little evidence to support their claim.


At a hearing before The Special Commissioners of Income Tax, the taxman's view was accepted, and he won; the clinic was subject to a tax recovery and additional penalties.


This incident shows us that it is important to keep good records of your business activities and ensure that income and expenses are linked. A lot of evidence needs to be provided to justify a tax deduction.

有一家诊所,他们想要在报税时减少一些费用。但是税务员对一些费用进行了深入调查,包括:

  • 培训;

  • 修理;

  • 维护; 和

  • 一般费用,

似乎不太同意。


诊所却说这些费用和照顾病人、卖保健品有关,因此对业务来说是非常重要的开支。


然而,诊所却没有提供足够的证据来证明这一点,也没有人出来支持诊所的观点。


最重要的是,没有证据能够证明这些费用和他们的生意有关。


这些费用看起来,比较像是公司 Director 的个人开支,与生意毫无关系,不是业务的日常营销成本。因此,税务员 (Income Tax Officer) 不让诊所拿来扣税。


这个案例也涉及到另外一个问题,那就是关于诊所 Director 个人的多层次营销(MLM)收入,可不可以报为诊所的收入。


诊所认为应该把 Director 多层次营销(MLM) 的收入和诊所的收入一起申报。但税务员却认为这属于两种不同的收入来源,应该分开申报。


最后,诊所没有能够证明自己的观点是对的。他们提供的证据太少了,不能支持他们的说法。


在所得税特别委员(The Special Commissioners of Income Tax)听证会上,税务员的观点被接纳,因此赢了;诊所因而遭到追税以及追加罚款。


这件事告诉我们,要好好记录自己的生意活动,确保收入和费用都有明确的关联。要扣税,需要提供很多证据来证明。


Reference:

208.1 KISB_v_KPHDN_31012020
.pdf
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