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Key points on the duality of purpose for trading expenses

The tax legislation¹ explicitly provides that the 'wholly and exclusively' rule does not prohibit a deduction for a proportion of the expenditure where:

1. Ìý

   •ÌýÌýÌýÌý an expense is incurred for more than one purpose, and

2. Ìý

   •ÌýÌýÌýÌý an identifiable part or proportion of the expense is incurred wholly and exclusively for the purposes of the trade

See, for example, the Dixon² case, where it was decided that 65% of the taxpayer's mortgage interest payments were allowable as business expenditure because that was the proportion of the purchase price of the property that related to business premises.

Of course, whether such an expense is ultimately allowed also depends on whether it is covered by some other prohibition.

Similarly, no deduction is allowed for any loss which is not connected with or arising out of the trade³.

In determining whether expenditure is incurred wholly and exclusively for the purpose of the trade, it is necessary to have regard to what the taxpayer