326 SECRETARIAL PRACTICE
of trade debts, are frequently challenged, and where they are
actually incurred for the purpose of acquiring assets they are
not allowed. The expense of issuing debentures is not
allowable [Texas Land and Mortgage Co. v. Holtham (1894),
10, T.L.R. 337], and a bonus payable on a repayment of
borrowed money is also not allowed [Arizona Copper Co. v.
Smiles (1891), 29 Sc. L.R. 134]. Legal expenses incurred
in defence of existing rights are admitted.

5. Losses on Closing Factories and removal expenses are
not allowable according to High Court decisions, but as a
matter of practice, where removal expenses are compulsory,
no objection is usually raised to the cost of removal. In
any case the expenses of removing trading stock are allowed.

6. Bad Debts in respect of cash advances which have not
been made for trade purposes, are not allowed. It is obvious
that the question of what are ‘trade purposes’ must be
decided in each case.

v7. Exhaustion of Nitrate Grounds. The exhaustion of
natural assets like nitrate deposits. mineral seams and so on,
is not recognised.

8. Foreign taxation is allowable as a deduction. In view,
however, of the provisions for allowance of relief in respect of
Dominion Income Tax, such taxes must be added back wholly
or in part according as the law of the Dominion provides for
reciprocal relief, see Finance Act, 1920, s. 27 (4).

9. Sums allocated to reserve funds generally are not allowed,
whatever the object may be, for they are considered simply
as an appropriation of profits. Generally speaking, the
contingency provided against will be allowed as and when
it arises if it comes within the provisions of the Acts. For
example, amounts set to a bad debt reserve would not be
allowed, but the actual sums charged to that account during
the year would be allowed instead. There is a provision
for allowing an estimate for specific doubtful debts, but in
practice this is frequently not claimed. In the long run
it makes no difference, as debts are fully allowed to the
extent to which they become bad.
Relief in 10. Relief from United Kingdom income tax can be claimed

Respens of in respect of Dominion income tax. This relief was first

Income Tax. granted under the provisions of s. 43 of the Finance Act, 1916.
The whole position was, however, reviewed by the Royal
Commission on the Income Tax; and, following a recom-
mendation in the Commission’s Report, the Finance Act of
1920 [s. 27] made new and more complete provisions.