Any expenditure that is incurred solely and necessarily in relation to the transfer of a capital asset can be deducted from the full value of consideration. This means that only expenses that are directly connected to the transfer of the asset can be claimed as a deduction.
It is important to note that the expenditure must be wholly and exclusively in connection with the transfer. This means that even if a small element of the expenditure is unrelated to the transfer, the entire amount cannot be claimed as a deduction. The end use of the expenditure must be exclusively for the purpose of the transfer of the capital asset.
Vague claims regarding the purpose of the expenditure will not be accepted as a basis for deduction. Therefore, it is crucial to carefully examine all the conditions and ensure that they are in line with the requirements.
The words “wholly” and “exclusively” have specific meanings in this context. “Wholly” refers to the entire amount of expenditure, while “exclusively” refers to the motive, objective, and purpose of the expenditure. These two words give the taxing authority jurisdiction to determine whether the expenditure was incurred in connection with the transfer.
Expenditure that is not genuine or is a sham will not be allowed as a deduction. However, it is not within the jurisdiction of the authorities, tribunal, or court to question the subjective commercial expediency or reasonableness of the expenditure. As long as the expenditure is genuine and factually expended and paid to a third party, the discretion exercised by the assessee who incurred the expenditure must be respected.
When it comes to the deduction of expenditure incurred in connection with the transfer of a capital asset, two words are crucial: “wholly” and “exclusively“. “Wholly” refers to the amount of money spent, while “exclusively” relates to the motive, objective, and purpose of the expenditure. These two words give the taxing authority the power to determine whether the expenditure was truly incurred in connection with the transfer.
If the expenditure is not genuine or is deemed to be a sham, it will not be allowed as a deduction. However, this does not mean that the authorities, tribunal, or court can question the subjective commercial expediency of the expenditure or apply a subjective standard of reasonableness to disallow it on the grounds that it should not have been incurred or was unreasonably large.
In the absence of a statutory provision, the discretion exercised by the person who incurred the expenditure must be respected. Interference on a subjective basis will lead to unpalatable and absurd outcomes. The jurisdiction of the authorities, tribunal, or court is confined to investigating and deciding whether the expenditure was actually incurred and whether it was genuine and paid to a third party.
It is important to keep in mind that for the expenditure to be deductible, it must be wholly in connection with the transfer. It cannot be that only a small portion of the expenditure is related to the transfer, and the whole amount is considered for the deduction. There must be an exclusive element of the expenditure that is used for the transfer of the capital asset. Therefore, if there are any vague claims that the expenditure was incurred for the purpose of the transfer, they are likely to be disallowed.
It’s crucial to examine all the conditions to ensure they are in line with the requirements. The words “wholly and exclusively” require that the expenditure be genuine, while the phrase “in connection with the transfer” mandates that the expenditure be connected to and for the purpose of transfer. Therefore, it’s essential to ensure that the expenditure satisfies both these conditions to be deductible.
In conclusion, the deduction of expenditure incurred in connection with the transfer of a capital asset is subject to certain conditions. The expenditure must be wholly in connection with the transfer, and there must be an exclusive element of the expenditure that is used for the transfer of the asset. Additionally, the expenditure must be genuine and connected to the transfer. While subjective judgments are not permitted, it’s important to ensure that all the conditions are met for the deduction to be allowed.
