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I would kindly like you to confirm my understanding of the following:
Development costs are deducted in full in determining the taxable profits in the year in which they are incurred. When development costs are amortized in future periods, they will not be deductible for tax purposes because they were already deducted in the period in which they were incurred. Hence, they have a tax base of nil and will give rise to a deferred tax liability.
Is this correct?
So, basically, we receive tax relief in the year we incur development costs. And when those development costs are amortized in the future, we won’t receive any more tax relief because we have already received it previously. Therefore, we will be paying tax in the future hence the deferred tax liability.
Your explanation is wonderful and crystal clear!