Section 97 — Income Tax Act 2007: Meaning of “qualifying payment”

Meaning of “qualifying payment” 97 1 For the purposes of section 96 a person makes a “qualifying payment” after permanently ceasing to carry on a trade if the person makes a payment wholly and exclusively for any of purposes A to D.

2 A payment is made for purpose A if it is made—

a in remedying defective work done, goods supplied or services provided in the course of the trade, or b by way of damages (whether awarded or agreed) in respect of defective work done, goods supplied or services provided in the course of the trade.

3 A payment is made for purpose B if it is made in meeting the expenses of legal or other professional services in connection with a claim (a “claim about defects”) that—

a work done in the course of the trade was defective, b goods supplied in the course of the trade were defective, or c services provided in the course of the trade were defective.

4 A payment is made for purpose C if it is made in insuring—

a against liabilities arising out of any claim about defects, or b against the liability to meet the expenses of legal or other professional services in connection with any claim about defects.

5 A payment is made for purpose D if it is made for the purpose of collecting a debt which was brought into account in calculating the profits of the trade.