Terminal Depreciation is essentially the final depreciation deduction that a taxpayer can claim on a fixed asset in the year it is disposed of or written off. It helps ensure that the entire cost of the asset is eventually written off for tax purposes.

How It Works:

• Final Year Adjustment:
  When an asset is sold or otherwise disposed of before the end of its useful life, the usual depreciation calculation may leave a remaining balance (the written down value). Terminal depreciation is the pro-rata depreciation claimed in the year of disposal based on the number of days the asset was in use.

• Pro-Rata Calculation:
  In the disposal year, depreciation is calculated on a pro-rata basis. This means if the asset was used for part of the year, you claim a proportionate deduction for that period. This final adjustment is what we call terminal depreciation.

• Purpose:
  The idea is to fully account for the cost of the asset in your tax computations. Without terminal depreciation, there might be an unabsorbed cost remaining in the books when the asset is disposed of.

Key Point:

• Section 32 of the Income Tax Act, 1961 governs the depreciation of assets, including the pro-rata (or terminal) depreciation in the year of disposal. While “terminal depreciation” isn’t mentioned by name in the Act, the concept is inherent in the depreciation calculations applied when an asset is retired.

When it comes to claiming deductions for scientific research expenses, the answer really depends on how those expenses relate to your income-earning activities.

Here’s the lowdown:

• If it’s Business-Related:
  When you’re running a business or are engaged in a profession and you spend money on scientific research to help improve or innovate your business, then—provided you can show that the expense was incurred “wholly and exclusively” for business—the expense may be deductible as a business expense. This is in line with general business expenditure provisions in the Income Tax Act.

• If it’s Personal:
  If you’re doing scientific research out of personal interest or for non-business reasons, unfortunately, that cost isn’t deductible. The tax law only allows deductions for expenses directly related to earning taxable income.

• Alternatively, Support Research Through Donations:
  Even if your own research isn’t deductible because it’s not tied to your business, you can still support scientific research by donating to approved research institutions. In that case, the donation itself may qualify for a deduction under the provisions for charitable contributions.

Bottom Line:
An individual can claim a deduction for scientific research expenses only if those expenses are directly linked to their business or professional activities. Personal research expenses are not deductible. However, if you donate to an approved research institution, you might enjoy a tax benefit for that contribution.