Add Backs and Capital Allowance
How it works?
Our net profit is only 6k, how can the tax payable is 9k?
We’re supposed to pay 18% of our profit, how does all 18% of 6k became 9k?
I’m bad at maths but not thisssss bad…
So here comes in add backs. When you’re business has done calculating for its net profit, unfortunately the government doesn’t think 6k is all you earn.
For example, the government doesn’t think that entertainment expenses should affect your profit, because come on, you had fun having that few hundred dollars dinners and filled your stomach with countless lunch with client.
So if that year you had a total 44k of lunch receipts, you had to add it back to the profit. So (6k + 44k) x 0.18 = 9k. Wait, it’s not over yet, please keep on reading.
Good news is, the government knew that you having those lunches were for work reasons, so they let you have a 50% percentage off. So now, with net profit 6k, and lunch receipts 44k, its (6k + 22k) = 5.04k. You can have a 50% relief for half of the 44k.