Tax Treatment of Business Expenses (Q - R)

Deductibility of specific expenses such as registration costs for patents, trademarks, designs and plant varieties, reinstatement costs, renovation and refurbishment works expenditure, R&D expenses and retrenchment payments and outplacement support costs.

Registration Costs for Patents, Trademarks, Designs and Plant Varieties

To encourage businesses to invest in innovation and facilitate the commercialisation of innovations, tax deduction will be granted on costs incurred in registering patents, trademarks, designs and plant varieties (collectively referred to as “qualifying intellectual property rights” or “IP” in the following paragraphs) under Section 14A of the Income Tax Act.

Under Section 14A, a tax deduction is allowed on the qualifying expenditure incurred on the registration of patents, trademarks, designs and plant varieties up to Year of Assessment (YA) 2020. In addition, the qualifying expenditure also qualifies for PIC benefits from YA 2011 to YA 2018. Refer to Registration of Patents, Trademarks, Designs and Plant Varieties for more details.

Enhancement of Tax Deduction

The expiry of the PIC scheme after YA 2018 would mean that only 100% tax deduction will be allowable to a person who has incurred the qualifying IP registration costs from YA 2019 to YA 2020.

To encourage businesses, in particular smaller ones, to register and protect their IPs, the Minister for Finance announced in Budget 2018 that the tax deduction for qualifying IP registration costs will be:

  1. Extended till YA 2025;
  2. Enhanced from 100% to 200% on up to $100,000 of qualifying IP registration costs incurred for each YA from YA 2019 to YA 2025. 100% tax deduction will continue to be allowable on qualifying IP registration costs incurred in excess of $100,000 for each YA from YA 2019 to YA 2025.

Qualifying costs for Tax Deduction

The tax deduction will apply to costs incurred by a company in registering patents, trademarks, designs and plant varieties for the purpose of its trade or business.

Details of Qualifying IP Registration Costs

Registration Costs

The registration costs qualifying for tax deduction are official fees and professional fees .

Official fees refer to payments made to the Registry of Patents, Registry of Trade Marks, Registry of Designs or the Registry of Plant Varieties in Singapore or an equivalent registry outside Singapore for the:

  1. filing of an application for a patent, for registration of a trademark or design, or for the grant of protection of a plant variety;
  2. search and examination report on the application for a patent;
  3. examination report on the application for grant of protection of a plant variety; or
  4. grant of a patent.

Professional fees refer to fees incurred in relation to the registration of a patent, trademark, design and/or plant variety, including fees payable to a person acting as an agent for:

  1. applying for any patent, for the registration of a trademark or design, or for the grant of protection of a plant variety, in Singapore or elsewhere;
  2. preparing specifications or other documents for the purposes of the Patents Act (Cap. 221), the Trade Marks Act (Cap. 332), the Registered Design Act (Cap. 266), the Plant Varieties Protection Act (Cap. 232A) or the intellectual property law of any other country in respect of patents, trademarks, designs or plant varieties; or
  3. giving advice on the validity or infringement of any patent, registered trademark, registered design or grant of protection of a plant variety.

Allowable Costs

Examples of allowable costs include prior art searches and translation costs where overseas intellectual property offices require documentation or specifications to be submitted in their native languages.

Ownership of Intellectual Property Rights (IP)

Tax deduction on registration costs is allowed on the condition that both the legal and economic ownership of the IP must belong to the business entity in Singapore that incurs and claims for the deduction.

Economic ownership means the economic benefits from the exploitation of the intellectual property will be accrued to the business entity.

Qualifying Period

To qualify for tax deduction, the registration costs must be incurred during the qualifying period as follows:

Registration of

Qualifying Period

Patents

Registration costs incurred from 1 Jun 2003 to the last day of the basis period for Year of Assessment (YA) 2025*

Trademarks, Designs and
Plant Varieties

Registration costs incurred during the basis periods from YA 2011 to 2025*

*Extended to YA 2025 in Budget 2018

Amount of Tax Deduction 

Year of Assessment

Details

YA 2011 to 2018

As part of the PIC scheme, the qualifying costs qualify for 400% tax deduction (comprising 100% base deduction and 300% enhanced deduction) subject to a certain expenditure cap.

 

100% deduction on the balance of qualifying costs exceeding the cap.

YA 2019 to 2025

Enhanced deduction of 200% (comprising 100% base deduction and 100% enhanced deduction) on up to $100,000 of qualifying costs incurred.

 

100% deduction on the balance of qualifying costs exceeding the cap.  

Claiming Tax Deduction for Registration Costs

Companies claiming a tax deduction for registration costs need not submit any supporting documents with their Income Tax Return.

However, companies need to prepare and retain* the following information:

  1. brief description of the intellectual property;
  2. country in which the intellectual property was registered;
  3. name and tax reference number of joint-owners (if any);
  4. breakdown of registration costs; and
  5. confirmation that:
    1. the intellectual property is / will be legally owned by the company; and
    2. the economic benefits from the exploitation of the intellectual property is / will be accrued to the company.

* The relevant information must be retained for a period of at least five years from the YA of claim and it should be submitted to the Comptroller of Income Tax upon request. For more information on record keeping, please see Business Records That Companies Must Keep.

Disposal of Patents, Trademarks, Designs and Plant Varieties

Where a tax deduction has been allowed to the business entity in respect of costs incurred in registering any qualifying intellectual property rights, and it sells, transfers or assigns all or any part of these intellectual property rights, it may be subject to claw-back adjustments:

  • Base deduction - The proceeds received for selling, transferring or assigning the rights shall be deemed as income and taxed in the year of disposal. The amount to be taxed is capped at the 100% base deduction previously allowed.
  • Enhanced deduction - Where the company was previously granted PIC benefits or the 100% enhanced deduction in YA 2019 to 2025 on qualifying registration costs, these benefits will be subject to claw-back if the rights are disposed within one year from the date of filing of the application:
    • For claw-back of PIC benefits (cash payout / enhanced deduction/ PIC Bonus) granted in YA 2011 to 2018, you may refer to Table 1 of Annex B of the e-Tax Guide, Productivity and Innovation Credit (Fifth Edition) (831KB)Revised!
    • For claw-back of the 100% enhanced deduction granted in YA 2019 to 2025, the enhanced deduction shall be deemed as income of the company for the YA relating to the basis period in which the sale, transfer or assignment occurs. 

Reinstatement Costs (expenses incurred to reinstate premises to its original condition prior to vacating it at the end of the tenancy agreement)

Generally, reinstatement costs are not deductible as they are considered to be capital expenditure disallowed under section 15(1)(c) of the Income Tax Act (ITA). This is because such expenditure are usually incurred in respect of business premises vacated and hence no longer used for acquiring income. Following a review of the tax treatment for reinstatement cost, we concluded that there are merits in considering costs incurred under certain conditions to have a nexus to the leasing of the premises for use by the business and hence deductible under Section 14(1) of the ITA. Specifically, we are prepared to allow the deduction where the costs incurred meet the following conditions:-

(a) Costs claimed do not relate to provisions made under FRS 16(1) (i.e. expense has been incurred); 

(b) Costs claimed are contractually provided for in the tenancy agreement and hence considered to be part of the costs of renting the property for use in the business in the first place; and

(c) The premises are not vacated due to cessation of business.

(1) Under paragraph 16 of FRS 16, the cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item, restoring the site on which the item is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

Renovation or Refurbishment Works Expenditure (Section 14Q)

Tax deduction will be granted on qualifying renovation and refurbishment (R&R) works incurred from 16 Feb 2008 under Section 14Q of the Income Tax Act.

S14Q deduction is given to businesses that are carrying on trade, business or profession. Hence, investment holding companies do not qualify for S14Q deduction as they do not carry on a trade or business for tax purposes, but own investments such as properties and shares for long-term investment and derive passive investment income such as rental, dividend or interest.

Generally, R&R expenditure does not qualify for capital allowances as the expenses incurred are in relation to the business setting and not for "plant or machinery". R&R expenditure that forms part of a building may, however, qualify for Industrial Building Allowance or  Land Intensification Allowance.

The following items qualify for Section 14Q deduction provided they do not affect the structure of the business premises:

  • general electrical installation and wiring to supply electricity;
  • general lighting;
  • hot/cold water system (pipes, water tanks etc);
  • gas system;
  • kitchen fittings (sinks, pipes etc);
  • sanitary fittings (toilet bowls, urinals, plumbing, toilet cubicles, vanity tops, wash basins etc.);
  • doors, gates and roller shutters (manual or automated);
  • fixed partitions (glass or otherwise);
  • wall coverings (such as paint, wall-paper etc.);
  • floorings (marble, tiles, laminated wood, parquet etc.);
  • false ceilings and cornices;
  • ornamental features or decorations that are not fine art (mirrors, drawings, pictures, decorative columns etc.);
  • canopies or awnings (retractable or non-retractable);
  • windows (including the grilles etc.); 
  • fitting rooms in retail outlets;
  • hacking work on premises;
  • water meter installed to enable renovation works;
  • hoarding works; and
  • insurance for renovation works qualifying for S14Q deduction.

Deductions are not allowed on expenditure relating to:

  • any designer fees or professional fees;
  • any antique;
  • any type of fine art including painting, drawing, print, calligraphy, mosaic, sculpture, pottery or art installation; or
  • any works carried out to a place of residence provided to or to be provided to employees.

With effect from YA 2013, the amount of R&R costs that qualify for tax deduction as a business expense is capped at $300,000 for every relevant three-year period, starting from the year in which the R&R costs are incurred.

Prior to YA 2013, the cap was $150,000 for every relevant three-year period.

The deduction must be claimed by the company over three consecutive YAs starting from the year in which the R&R costs are incurred, i.e. 1/3 of the R&R expenditure can be claimed in each of the three YAs.

The S14Q deduction is given only if the business continues to carry on the trade, business or profession for which the R&R costs were incurred. If the trade, business or profession ceases permanently during any basis period of the 3 YAs, the S14Q deduction also ceases with effect from that YA. The balance of the S14Q deduction yet to be claimed will not be allowed as a deduction in the subsequent YAs.

Any R&R costs that have not been claimed in the YA relating to the basis period in which they were first incurred will not qualify for deduction in the subsequent YAs.

Example

  YA 2012 YA 2013 YA 2014 YA 2015 

Total Qualifying R&R Expenditure Incurred

$160,000

$30,000

$320,000

-

Qualifying R&R Expenditure

$150,000*

$30,000*

$120,000*

 -

R&R allowed

$50,000
($150,000 / 3 years)

$60,000
($50,000 +
$10,000 [$30,000 / 3 years])

$100,000
($50,000 +
$10,000 +
$40,000 [120,000 / 3 years])

 $0 **

* The qualifying expenditure cap was $150,000 for YA 2012. In YA 2013, the amount of qualifying R&R expenditure allowed is $30,000 (as the combined qualifying R&R cost for YA 2012 and YA 2013 is still within the expenditure cap of $300,000 for the relevant three-year period).
In YA 2014, qualifying R&R expenditure allowed is capped at $120,000 ($300,000 - $150,000 - $30,000).

** The company permanently ceases business within the basis period of YA 2015. As such, the balance of S14Q deduction yet to be claimed at $90,000 ($10,000 from YA 2013 qualifying expenditure and $80,000 from YA 2014 qualifying expenditure) will not be allowed as deduction in YAs 2015 and 2016.

Relocation of business premise

If a company incurred qualifying R&R costs and claimed S14Q deduction (1/3 of R&R costs) in Year 1 and relocated its business to a new premise in Year 2, the company can continue to claim the balance of the R&R costs (2/3 of R&R costs incurred Year 1) in Years 2 and 3 so long as it continues to carry on the trade or business for which the R&R costs were incurred in Year 1.

Companies claiming Section 14Q deduction do not need to submit any supporting documents with their Income Tax Return. They must, however, prepare and keep* the following documents / information:

  • An itemised list of the R&R works done to the business premises (e.g. all related costs, addresses of the premises, etc.);
  • Confirmation that the renovation or refurbishment works in the itemised list do not require the approval of the Commissioner of Building Control; and
  • Invoices and payment details of the relevant expenditures.

* The relevant documents / information must be kept for a period of at least five years from the relevant YA, and should be submitted to the Comptroller of Income Tax upon request. For more information on record keeping, please refer to Business  Records That Companies Must Keeping.

Any unutilised amount of Section 14Q deduction will form part of the company's adjusted trade loss and can be offset against all other income of the company. This can be:

  1. transferred under the group relief system from YA 2013 as announced in Budget 2012 subject to qualifying conditions. (Prior to YA 2013, any unutilised Section 14Q deduction is not allowed to be transferred under the group relief system.);
  2. carried back to the immediate preceding YA to be offset against the assessable income under the loss carry-back relief, subject to the shareholding test.
  3. carried forward to offset against the company's assessable income for future YAs, subject to the shareholding test.
For more details on Section 14Q deduction, please refer to:

Research & Development (R&D) Expenditure

Who can claim R&D tax benefits

Taxpayers must assess whether they are eligible for the R&D tax benefits.

In general, only taxpayers who are the beneficiaries of the R&D activities can claim R&D deductions on the R&D expenditure incurred.

A beneficiary of R&D activities:

  1. bears the financial burden of carrying out the R&D activities; and
  2. effectively owns and can commercially exploit the know-how, intellectual property or other results of the R&D activities.

Taxpayers in the trade or business of providing R&D services will generally not be able to claim the R&D tax benefits, unless the R&D is performed on its own account such that it is the beneficiary of the R&D activities. Please refer to the e-Tax Guide Research and Development Tax Measures (1.59MB) for more details.

For an overview of the R&D claim process, please refer to How to claim R&D tax benefits.

How to determine if a project qualifies for R&D tax benefits

A project qualifies for R&D tax benefits if it:

  1. meets the three requirements set out in Section 2 of the Income Tax Act; and
  2. does not fall within the list of specified excluded activities.

The three requirements are as follows:

  • The objective of the project is to -
    • Acquire new knowledge;
    • Create new products or processes; or
    • Improve existing products or processes;
  • It involves novelty or technical risk; and
  • It involves a systematic, investigative and experimental ("SIE") study in a field of science or technology.

Please refer to the table below for a description of each requirement:

R&D requirementsDescription

Objective

The objective refers to the primary purpose of the project (i.e. why the project is undertaken). It has to be clearly set out before the project commences. The objective should be to overcome existing scientific or technological challenges to achieve one or more of the following outcomes:

  • to acquire new knowledge;
  • to create new products or processes; or
  • to improve existing products or processes.

The desired outcome should be something that is not known or readily deducible before the project starts.

Novelty

Novelty exists when there is something new (first of its kind in Singapore) in relation to the creation or improvement of products, processes or knowledge. The creation or improvement must involve more than minor or routine upgrading.

Technical Risk

A project involves technical risk if there is scientific or technological uncertainty that cannot be readily resolved by a competent professional in the relevant field of science or technology at the start of the R&D project.


Scientific or technological uncertainty exists when there is a gap between the current state of scientific or technological knowledge and the intended outcome of the project.

A competent professional broadly refers to someone with the necessary knowledge, qualifications, experience and skills to participate in the relevant field of science or technology with a reasonable level of skill. He need not be an employee of the business.

SIE Study

An SIE Study refers to a series of planned activities to test or find out something that is not known or readily deducible in the field of science or technology, as set out in the R&D objective. The following elements are indicative of an SIE study:

  • a planned and orderly approach to conducting the study, set out before commencing the study;
  • activities undertaken to find out how to close the gap between the desired outcome and the state of scientific or technological knowledge prior to the commencement of the study; and
  • a series of structured steps to test out the potential solution for solving a technical problem or creating a new thing. An iterative process is often needed.

Non-Qualifying R&D Activities

An activity will not qualify as R&D if it falls within the list of activities stated below.

  1. quality control or routine testing of materials, devices or products
  2. research in the social sciences or the humanities
  3. routine data collection
  4. efficiency surveys or management studies
  5. market research or sales promotion
  6. routine modifications or changes to materials, devices, products, processes or production methods
  7. cosmetic modifications or stylistic changes to materials, devices, products, processes or production methods

For more detailed explanation of the R&D requirements, please refer to the e-Tax Guide Research and Development Tax Measures (1.59MB)

Examples of qualifying R&D 

Please refer to Examples of qualifying R&D (59KB). These examples show how the R&D principles are applied, specifically the application of novelty, and the type of information and documentation provided by the taxpayers. Please note that the examples are of general nature and there may exist variations to these examples that could lead to a different conclusion.  

What is qualifying R&D expenditure

A taxpayer may:

  • undertake R&D work directly ("in-house R&D"),
  • outsource it to a R&D service provider ("outsourced R&D"), or
  • participate in a R&D cost-sharing agreement ("R&D CSA").

In-house R&D and Outsourced R&D

The tax deductions for qualifying R&D expenditure are subject to specific restriction rules for certain categories of expenses disallowed under Section 15 of the Income Tax Act. 

Generally, the R&D benefits granted would depend on the place that the R&D work is conducted and whether the R&D is related to the existing trade of the taxpayer. R&D works may be conducted wholly in Singapore or outside Singapore, or partly in Singapore and partly outside Singapore.

The tables below provide an overview of the R&D tax benefits available on qualifying in-house and outsourced R&D projects.

These tables only apply where the R&D project is conducted wholly in Singapore or wholly overseas. Where it is a mixed R&D project i.e. the project is undertaken partly in Singapore and partly overseas, please refer to the e-Tax Guide Research and Development Tax Measures (1.59MB) for more information on the tax deduction rules. 

Year of Assessment 2018 and before

R&D is conducted wholly in Singapore (regardless of whether it is related to trade or not)

R&D is conducted wholly Overseas
In-HouseOutsourced 
  1. 100% tax deduction [Note(a)]; and
  2. Additional 50% deduction [Note(b)] on:
  • Staff costs (excluding directors' fees)
  • Consumables
  1. 100% tax deduction [Note(a)]; and
  2. Additional 50% deduction [Note(b)] on:
    • 60% of fee paid; or
    • Actual staff costs (excluding directors' fees) and consumables incurred if the amount is more than 60% of fee paid

100% deduction for R&D related to trade [Notes (a) and (d)]

 

No deduction if R&D conducted is not related to trade

Year of Assessment 2019 onwards

R&D is conducted wholly in Singapore (regardless of whether it is related to trade or not)

R&D is conducted wholly Overseas
In-HouseOutsourced 
  1. 100% tax deduction [Note(a)]; and
  2. Additional 150% deduction [Note(c)] on:
  • Staff costs (excluding directors' fees)
  • Consumables
  1. 100% tax deduction [Note(a)]; and
  2. Additional 150% deduction [Note(c)] on:
  • 60% of fee paid; or
  • Actual staff costs (excluding directors' fees) and consumables incurred if the amount is more than 60% of fee paid

100% deduction for R&D related to trade [Notes (a) and (d)]

 

No deduction if R&D conducted is not related to trade

Note (a): Subject to specific restriction rules under Section 15 of the Income Tax Act.

Note (b): Up to and including YA 2018. From YA 2011 to YA 2018, an additional 250% of qualifying R&D expenditure on staff costs (excluding directors' fees) and consumables can be claimed under the PIC scheme, subject to a certain expenditure cap. Alternatively, eligible businesses can apply to convert up to $100,000 of their total qualifying expenditure for each YA in all the six qualifying activities into a non-taxable cash payout. The cash payout rate is 60% of the qualifying expenditure if this was incurred before 1 Aug 2016, and 40% for qualifying expenditure incurred on or after 1 Aug 2016 to YA 2018. For more information, please refer to the Productivity and Innovation Credit scheme.

Note (c): To support businesses to build their own innovations, the Minister for Finance announced in Budget 2018 that the R&D additional deduction of 50% will be increased to 150% for qualifying R&D expenditure (i.e. staff costs and consumables) incurred during the basis periods for YAs 2019 to 2025 on qualifying R&D projects performed in Singapore.

Note (d): From YA 2011 to YA 2018, an additional 300% on qualifying R&D expenditure on staff costs (excluding directors' fees) and consumables can be claimed under the PIC scheme. The cash payout option in Note (b) also applies to qualifying R&D projects conducted wholly overseas.

R&D Cost-sharing agreement (CSA)

Prior to YA 2018, the specific restriction rules for certain categories of expenses disallowed under Section 15 of the Income Tax Act also apply to payments made under a R&D CSA for qualifying R&D projects. Hence, taxpayers are required to examine the cost breakdown of the CSA payments to exclude any disallowable expenditure, when claiming R&D tax benefits.

However, with effect from YA 2018, the tax treatment for CSA payment in respect of Section 14D claim has been enhanced to:

  1. provide 100% deduction on CSA payment and specific restriction rules under Section 15 of the ITA will not apply to CSA payment, and
  2. remove the “related to trade” condition for CSA payment.

Please refer to the e-Tax Guide Research and Development Tax Measures (1.59MB) for more information.

The tables below provide an overview of the R&D tax benefits available on qualifying R&D CSA:

Year of Assessment 2017 and before

 R&D is conducted in Singapore
(regardless of whether it is related to trade or not)
 R&D is conducted Overseas 
  1. 100% tax deduction [Note (a)]; and
  2. Additional 50% deduction [Note (b)] on:
  •  60% of fee paid; or
  • Actual staff costs (excluding directors' fees) and consumables incurred if the amount is more than 60% of fee paid
  • 100% deduction for R&D related to trade [Notes (a) and (d)]
  • No deduction if R&D conducted is not related to trade

 Year of Assessment 2018 onwards

 R&D is conducted in Singapore
(regardless of whether it is related to trade or not)
 R&D is conducted Overseas 
  1. 100% tax deduction; and
  2. Additional 50% deduction [Note (b)] or 150% deduction [Note (c)] on:
  •  60% of fee paid; or
  • Actual staff costs (excluding directors' fees) and consumables incurred if the amount is more than 60% of fee paid
  • 100% deduction [Note(d)]
  • No additional deductions under PIC if R&D is not related to trade

 

Note (a): Subject to specific restriction rules under Section 15 of the Income Tax Act.

Note (b): Up to and including YA 2018. From YA 2011 to YA 2018, an additional 250% of qualifying R&D expenditure on staff costs (excluding directors' fees) and consumables can be claimed under the PIC scheme, subject to a certain expenditure cap. Alternatively, eligible businesses can apply to convert up to $100,000 of their total qualifying expenditure for each YA in all the six qualifying activities into a non-taxable cash payout. The cash payout rate is 60% of the qualifying expenditure if this was incurred before 1 Aug 2016, and 40% for qualifying expenditure incurred on or after 1 Aug 2016 to YA 2018. For more information, please refer to the Productivity and Innovation Credit scheme.

Note (c): To support businesses to build their own innovations, the Minister for Finance announced in Budget 2018 that the R&D additional deduction of 50% will be increased to 150% for qualifying R&D expenditure (i.e. staff costs and consumables) incurred during the basis periods for YAs 2019 to 2025 on qualifying R&D projects performed in Singapore.

Note (d): From YA 2011 to YA 2018, an additional 300% on qualifying R&D expenditure on staff costs (excluding directors' fees) and consumables can be claimed under the PIC scheme. The cash payout option in Note (b) would also apply to qualifying R&D projects conducted overseas. 

Retrenchment Payments and Outplacement Support Costs

Contractual Retrenchment Payments

Contractual retrenchment payments refer to those provided for in employment contracts or collective agreements with trade unions.

Such contractual retrenchment payments are tax-deductible, regardless of whether there is a complete cessation of business. This is because they are incurred as part of the pre-existing obligation of the employer has to the staff.

Even if the payment was made due to the termination of employment by reason of redundancy because the company's trade had ceased, the payment is tax-deductible. This is because the entitlement to these payments had accrued over the years of employment on a contingent basis, i.e. the expenses expended for the purpose of producing past profits.

Ex-Gratia Retrenchment Payments

Ex-gratia retrenchment payments refer to payments other than contractual retrenchment payments.

Such ex-gratia payments are tax-deductible where there is a continuation of the existing business. This is because the payments are incurred for the continuing profitability of the company and thus for the production of income.

However, ex-gratia retrenchment payments will not be deductible where the business completely ceases. This is because such forms of non-contractual retrenchment payments are made gratuitously at the discretion of businesses, and invariably involve some element of goodwill. Thus, they are not considered to be "wholly and exclusively incurred" in the production of income since the payments are made due to the cessation of business.

Outplacement Support

Outplacement support expenses are incurred when employers provide outplacement support to affected employees, e.g., they may appoint corporate outplacement agents to provide counselling and moral support to affected employees and to assist them in their search for jobs.

Generally, such payments are tax-deductible where there is a continuation of the existing business as they are incurred by the employer for the welfare of the employees and are considered as "wholly and exclusively incurred" in the production of income.

However, the expense will not be deductible if there is complete cessation of business. This is because they are not "wholly and exclusively incurred" in the production of income.

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