Income Tax and deductibility of expenses

In the first of the two cases[1], the Tax Authority had challenged expenses incurred to purchase clothing that had been used by the taxpayer to render the services from which the taxable income had derived, food expenses in restaurants and expenses incurred to buy gifts that had been given to clients. The Tax Court ruled that the expenses had no relation with the personal needs of the taxpayer, but that they were strictly related to the activity which gave rise to the taxable income.

With respect to the expenses incurred to purchase work clothing, the Court argued, among other things, that to assume that the informal and ordinary clothing of an individual “can be the same that such individual must use in situations (such as work) that under no circumstances can be regarded as informal or ordinary” as the Tax Authority did, was wrong and could not lead to a successful challenge of the expense.

In the second of the two cases[2] the Tax Court allowed the deduction of expenses from the income tax base of an individual whose taxable income derived from the performance of music shows.

The Tax Authority had challenged the deduction of expenses that had been incurred in order to purchase, lease, repair technical equipment devoted to the performance of those shows and expenses related to hotels, catering and transportation of the cast crew of those music shows.

The Tax Court ruled in favor of the taxpayer arguing that the necessity of the expense, condition that must be met in order to deduct any expense, should not be verified in every case with absolute certainty.