Deductible items

What it means

Deductible items are the amounts by which the tax return reduces the accounting result to arrive at the tax base. They mirror the add-back items and, like them, live only in the return and never in the ledger.

They are not the tax-free allowances an individual claims, nor the deduction of a tax loss. A deductible item simply gives back what the accounts taxed earlier, or otherwise than the Income Tax Act wants.

Deductible items come in two kinds. Some are permanent, such as income outside the scope of tax, and never reverse; others are timing items that simply close a gap opened by an add-back in an earlier year. Only the timing differences enter the calculation of deferred tax.

How it works in practice

The usual entries are income outside the scope of tax or already taxed, the excess of tax depreciation over the accounting charge, and costs recognised only on payment that the company added back in an earlier year.

The record of these amounts is kept with the closing and carried from year to year, since without it nothing proves the item was once taxed. Loss relief and its carry-forward are handled separately in the form, after the adjusted base is set.

A typical case in an s. r. o. is a dividend from another Slovak company: it is income in the accounts but outside the scope of tax, so it is deducted in the return. For holdings in foreign companies we first check whether the same holds for the country the dividend comes from.

What to watch out for

A company adds back unpaid advisory and agency invoices because the Act recognises them only once settled, and then forgets to deduct them in the year it pays. Overpaid tax does not come back on its own: it has to be claimed in an amended return, and only while the statutory period still runs.

The opposite mistake is deducting an amount that was never added back, such as the use of a provision whose creation was deductible in that year. The tax base then falls twice for the same thing and a tax audit assesses the difference with a penalty, which is why every deduction is matched to a specific earlier add-back.