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Tax deduction secret: How to get free advertising for your business!

by , 24 March 2015
Of course, as you already know, you need to advertise your business to attract customers and make money. You also know that advertising is expensive.

That's why today we're sharing a tip on tax deductions and free advertising!

When is advertising tax free?

As long as it's incurred in the production of income and isn't of a capital nature, (for examplethe actual screening costs of TV and radio ads) your advertising is tax deductible!

But what about production costs?

The bad news is these are generally not tax deductible. This because, according to the taxman, these costs usually have a capital nature.

Nevertheless, in case you're producing an ad that will only be screened briefly, and it's designed to impact your revenues (and not your product or brand), then you can deduct these costs!

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Here are the steps you need to take for to make your advertising a deductible tax

First of all, clearly write the expenses associated with the production into your financial statements and reference it directly to your revenues. This way, it will be clear that the expense was related to revenues (and not capital).

Moreover, you need to ensure that you don't classify items incorrectly as revenue and not capital. Capital is taxed at a lower effective rate, because you're only taxed on a percentage of the total gain (companies are taxed on 66% of the gain). Revenue is basically taxed at 100% of the amount. So, if it's capital, make sure you tax it as capital, otherwise you'll pay too much tax.

Keep in mind that the court won't look at any single criteria. It weighs up all the relevant facts of a particular case to reach its conclusion.

Here's a short example to help you determine capital vs revenue:

Intention: In Barnato Holdings Ltd v SIR 1978 it was said that the distinctive mark of a capital asset is that it's to be held with an element of permanency i.e. "for better or worse or, relatively speaking, for keeps". This test was confirmed in CIR v Stott as the dominant test to determine whether a receipt is of capital or revenue nature.

Unless other factors indicate the asset was sold in pursuance of a "profit-making scheme", the intention will be conclusive as to whether the proceeds are capital or revenue of nature.

Follow these steps, and you too can advertise for free.

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