Muses of a retired tax accountant MUSING ON SOME THORNY QUESTIONS ON THE TOTAL ASSET METHOD (11 of 13)

9.?? REVISITING THE UNDERLYING ASSUMPTION

“Revisiting? Haven't you mused enough?”

“I blabbed too much. Too long-winded. Might have lost many readers. I want to pull everything together in a few short paragraphs.”

“Ha! You are capable of keeping to a few short paragraphs? That’s earth-shattering news!” Voice said scornfully.

Voice could be an irritating idiot.

I will keep this short:

1.???? Isn’t the underlying assumption in the eTaxGuide a deviation from the prescription in Section 14(1)(a)?

Yes, I believe it is.

Section 14(1)(a) governs the deductibility of interest incurred on borrowings, irrespective of forms and types of borrowings. “Incurred” falls back to the meaning of an obligation or a liability contracted. If the interest expense is too tenuously linked to an income-producing asset, it is not deductible against the income from that asset. That much of the law is clear.

What if the interest expense is too tenuously, or totally not, linked to a non-income-producing asset? Should this interest expense be assumed to form part of the common interest expenses for attribution with the TAM even when the taxpayer could prove the absence of this nexus? If it is, isn’t the underlying assumption overriding Section 14(1)(a)?

I think it is.

2.???? Isn’t the written confirmation of the bank an affirmation of the exact overdraft interest incurred to fund the purchase?

Yes, I believe it is.

This written confirmation should be indisputable third-party evidence of what was incurred. Should the administrative discretion confer the powers to disregard the evidence so that the TAM remains the default method and full force given to the underlying assumption and its ‘extensions’ in the eTaxGuide?

I think not. But as I mused earlier, what I think is not important. It is what the court thinks. Especially whether the court still endorses TAM as the default method, regardless of the taxpayer’s factual circumstances, as legally tenable and reasonably applied on the facts.

3.???? For Section 14(1)(a), doesn’t case law require the interest incurred on borrowings to be directly linked to the assets acquired?

Yes, I believe it does.

Can administrative discretion assume a nexus that does not exist in reality??

I think not. Again, what I think is not important. What the court thinks is.

4.???? Does the exercise of administrative discretion include the power to disregard or deny the taxpayer’s reliance on the law in Section 14(1)(a) and the case law guidance?

Toughie this one is. I hesitate to say more here. Reason? What I think or say is not important. This one is definitely for the court to decide.

“Never mind what you think. The discretion will bulldoze through your muses, flatten it onto the surface of the paved road”, Voice sneered.

“Maybe you are right. Still, I cannot accept an administrative discretion should deny the taxpayer’s access to Section 14(1)(a)”, I insisted stubbornly.

“Lest the taxpayer operating a bank overdraft is taxed based on an assumption when it could show the exact interest expense his bank charged him for the money used to buy the specific asset!”

With a few moments of quietness, I reflected on what Voice just said. It was not without merit. IRAS may consider my muses as mere assertions, arguments, and not incontrovertible facts, not enough to dislodge the discretion even just a bit.

I am okay with that. Really. After all, my muses are intended to scratch the itches built up over 40 years!

(Continue in the next instalment.)?