Income Tax Amendment Act 1982

This commentary item was published in Public Information Bulletin Volume 120, March 1983

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Section 1 - Short Title

This provides for the Amendment Act to be read with and form part of the Income Tax Act 1976.

Section 2 - Application

The provisions of this Amendment Act apply to tax on income derived in the income year which commenced on 1 April 1982, unless otherwise stated in the amendment act.

It is important to check the commencement date when applying any of the amending sections. The commentary which follows will also bring this out.

Section 3 - Back Pay Rebate

This section amends section 44 of the principal Act by abolishing the back pay rebate with effect from l October 1982.

Any retrospective pay, as defined by section 44(1), received up to and including 30 September 1982 will still qualify for the rebate of 6 cents in the dollar.

Employers should record in the employee's 1983 tax deduction certificate only qualifying back pay paid out during the period 1 April 1982 to 30 September 1982.

Section 4 - Overtime and Shiftwork Rebate

This section amends section 45 of the principal Act by abolishing the overtime and shiftwork rebate with effect from 1 October 1982. Employers should record in the employee's 1983 tax deduction certificate only overtime hours and qualifying shifts worked during the period 1 April 1982 to 30 September 1982.

Any period of shiftwork which started prior to midnight on 30 September and finished after midnight of the same night will qualify for the rebate.

Where a determination has been made by the Commissioner in terms of subsections (3) or   (5) of section 45, for the full year, the employer should enter half the number of overtime hours and shifts so determined, on the employee's tax deduction certificate.

Section 5 - First Home Mortgage Interest Rebate

This section gives effect to the Budget announcement that from 1 October 1982 the first home mortgage interest rebate will be calculated at the rate of 31 cents instead of 50 cents for each dollar of qualifying interest.

Because the change applies from 1 October 1982, ie, half way through the 1983 income year, the rate of rebate for the 1983 year will be equal to the aggregate of one-half of each of the old and new rates as the following table shows:

Note: The only change in this rebate is to the rate of rebate. The maximum allowable rebate per year remains at $1,000, but the effect of the reduced rate of rebate is to increase the maximum amount of qualifying interest for the 1983 and subsequent years, as shown above.

Section 6 - Rebate For Interest On Home Vendor Mortgage

This section amends section 49A of the principal Act by abolishing the home vendor mortgage interest rebate as from Budget night, 5 August 1982. Taxpayers holding approvals issued by the Housing Corporation on or before 5 August 1982 will continue to be able to claim the rebate.

Section 7 - Child Rebate

This section amends section 50A of the principal Act to give effect to the Budget announcement that the rebate of $78 pa available for school children is to be increased to $156 with effect from 1 October 1982.

In the 1983/84 income year (the first full year of application) the rebate will effectively exclude from income tax the first $796 of a qualifying child's income.

Example

Because the change applies from 1 October 1982 the effective rebate for the 1983 income year will be $117.

In the year a child leaves school and the family benefit ceases to be payable he will have the choice of claiming either the Child Rebate or the Principal Income Earner Rebate (PIER). For the 1983 income year it will be to the advantage of the child to claim the PIER where his income exceeds $4,306.

Example (1982/83 Income Year)

All other qualifying criteria for the Child Rebate remain unchanged.

Section 8 - Principal Income Earner Rebate

This section inserts a new section 50B in the principal Act implementing the new Principal Income Earner Rebate. This is one of the "transitional measures" announced in the Budget.

Who May Claim The Rebate

The rebate will be available to single adults without children and the Principal Income Earner in a married or de facto household without children. A single adult (or a principal income earner in a married or de facto household) with children will also be eligible for the rebate in cases where it exceeds the amount of the family rebate he would otherwise be eligible for under the Family Rebate, provided in the new section 53C of the Act (inserted by section 13 of the Amendment Act).

Those who will not qualify for the PIER are those who for the full year, have been:

• Children for whom the family benefit has been payable.
• Spouses of Principal Income Earners.
• National Superannuitants.
• Principal income Earners who have claimed a greater amount by way of "Family Rebate".

This means:

• If a child leaves school during the year and commences work he will have a choice of claiming either the PIER or Child Rebate, whichever gives the greater advantage.
  See commentary on section 7.
• A person who marries or enters a permanent de facto relationship, or is separated during the income year will qualify for the rebate for that year even if he is the secondary earner.
• A Person who becomes a National Superannuitant during the year will qualify for the rebate.
• Where a National Superannuitant dies during the income year a PIER will be allowed in the return filed to date of death.

Where a permanent de facto relationship exists, it is to be treated in the same way as a conventional family unit. This means that a de facto spouse will not qualify for the PIER if his or her income is less than that of the other spouse.

Choice of PIER in Families with Children

Principal income earners in a family with children have the choice of claiming the PIER if it is to their advantage.

This choice is to be available on a limited pay period basis on the new IR12. Taxpayers are permitted to select tax Code A if their total income is less than $14,600 and the "family income" for the year is expected to exceed $19,160.

In other cases it may be to the advantage of the taxpayer to claim the PIER in preference to the "Family Rebate" (under section 53C) where the family income exceeds $17,080 pa and the principal income earner earns less than $14,600. This choice will be made at the end of the year in the annual tax return.

Amount of the Rebate

From the 1983/84 income year, the amount of the rebate for qualifying taxpayers will be:

• Where taxpayer's income is up to (and including) $5,672, the rebate will be 5.5 cents for each $1 of income;
• Where taxpayer's income is between $5,672 and $12,001, the maximum rebate will apply, ie, $312;
• Where taxpayer's income is over $12,000 and up to $14,600, the maximum rebate of $312 will abate at 12 cents for each $1 of income in excess of $12,000.

As the rebate will apply only from 1 October 1982, for the 1982/83 income year one-half of this principal income earner rebate will be available, ie:

• Where taxpayer's income is up to (and including) $5,672, the rebate will be 2.75 cents for each $1 of income;
• Where taxpayer's income is between $5,672 and $12,001, the rebate will be $156;
• Where taxpayer's income is over $12,000 and up to $14,600, the maximum rebate of $156 will abate at 6 cents for each $1 of income in excess of $12,000.

This rebate was incorporated into the PAYE tables effective from 1 October 1982 under an "A" tax code.

Grossing up of Rebate

Subsection (3) of the section provides for the grossing up of the principal income earner's income where the taxpayer enters or leaves New Zealand during the income year.

This provision removes an anomaly which affected the former Low Income Family and Young Family Rebates and which would, if not removed, also affect the new Principal Income Earner rebate.

Until now, where a taxpayer has entered or left New Zealand permanently during an income year the family rebates were determined by reference to the income for that part of the year the taxpayer resided in New Zealand. Under this new provision, the taxpayer's income will be grossed up to its annual equivalent for the purposes of calculating the entitlement to the two new rebates. Thus, the underlying intent of the rebate, that the annual rebate be calculated by reference to the annual income, will be met.

Example

Taxpayer leaves New Zealand permanently on 31 December. During the period 1 April to 31 December he derives income of $11,250 equivalent to an annual income of $15,000. The following shows his taxation position with and without the grossing up of his income.

Under the proviso to subsection (3) where a taxpayer has or will derive income from New Zealand either before his arrival in or after his departure from New Zealand (for example - self-employment or investment income) the Commissioner has a discretion in determining the income derived in the year by the taxpayer.

Sections 9 - Rebate for married man

Section 10 - rebate for married woman

Section11 - young family rebate

Section12 - low income family rebate

These sections give effect to the Budget announcement that from 1 October 1982 the Spouse, Young Family and Low Income Family rebates are to be replaced in favour of the new Family rebate.

Family Assistance 1982/83 Year

The existing spouse, young family and low income family rebates will still apply for the period 1 April 1982 to 30 September 1982. For the 1983 income year, therefore, the annual rebate entitlement will be halved:

All other qualifying criteria remain unchanged. Subject to the above criteria taxpayers will be entitled to these rebates for the 1982/83 year even if marriage occurs or a child is born between 1 October 1982 and 31 March 1983. The 1983 tax return will have provision to claim half the old rebates and half of the new rebates.

The grossing up provisions in respect of the income of taxpayers arriving in or leaving New Zealand apply only to the new PIER and Family Rebate, not the existing rebates.

Section 13 - Family Rebate

This section inserts a new section 53C in the principal Act implementing the new Family Rebate. This rebate, announced in the Budget, replaces the existing spouse, young family and low income family rebates.

The qualifying criteria for this rebate are identical to those applying to the present low income family rebate and they are therefore not repeated here.

POINTS TO NOTE:

Amount of Rebate

From the 1983/84 income year, the amount of the rebate for qualifying taxpayers will be:

• Where the "family income" is up to $9,800, the rebate will be $1,404.
• Where the "family income" is over $9,800 and up to $19,160, the rebate will abate at 15 cents for each $1 of income in excess of $9,800.

As the rebate will apply from 1 October 1982, for the 1982/83 income year one half of this family rebate will be available, ie:

• Where the "family income" is up to $9,800, the rebate will be $702.
• Where the "family income" is over $9,800 and up to $19,160, the maximum rebate of $702 will abate at 7.5 cents for each $1 of income in excess of $9,800.

PAYE

To incorporate the new rebate into the PAYE system, the existing 7 tax codes were replaced from 1 October 1982 by 7 new tax codes including one to cover the PIER. The full range is described in detail in the commentary to section 19.

The new family rebate is allowable (from 1 October 1982) on a pay period basis to:

• Principal income earners in a married or de facto household with a qualifying child.
• Solo parents.

The rebate is included in the new tax codes "B" to "F". The appropriate one of these tax codes is selected by totalling the income of the spouse (if any) and personal income from other sources and fitting that total into one of 5 income bands.

Grossing up of Rebate

The definition of "family income" contained in subsection   1 of the new section provides that both spouses' incomes are to be grossed up to full year equivalents where they enter or leave New Zealand permanently during the income year.

This grossing up removes an anomaly which affected the former LIFR and YFR and which would, if not removed, also affect the new Family rebates.

Until now, where a taxpayer entered or left New Zealand permanently during an income year the family rebates were determined by reference to the income for that part of the year the taxpayer resided in New Zealand. Under this provision, the taxpayer's income will be grossed up to its annual equivalent for the purposes of calculating his entitlement to the new Family Rebate. Thus, the underlying intent of the rebate, that the annual rebate be calculated by reference to the annual income, will be met.

EXAMPLE:

A two income family with one child leaves New Zealand permanently on 30 June. During the period 1 April to 30 June the principal income earner derives income of $8,000 and the spouse derives income of $1,000 - equivalent, on a time basis, to a combined annual income of $36,000. The following shows their respective tax positions, with and without the grossing up of their incomes.

Choice of PIER in Certain Cases

As stated in the commentary on section 8, principal income earners in a family with children have the choice of claiming the PIER if it is to their advantage.

This choice is to be available on a limited pay period basis on the new IR12. Taxpayers are permitted to select tax code A if their total income is less than $14,600 and the "family income" for the year is expected to exceed $19,160.

In other cases it may be to the advantage of the taxpayer to claim the PIER in preference to the "Family Rebate" where the family income exceeds $17,080 pa but is less than $19,160, and the principal income earner earns less than $14,600. This choice will be made at the end of the year in the annual tax return.

Section 14 - Housekeeper Rebate

This section gives effect to the Budget announcement that from 1 October 1982 the housekeeper rebate will be calculated at the rate of 31 cents per dollar of qualifying expenditure up to a new maximum of $310 on expenditure of $1,000 (the current rebate is 40 cents per dollar up to a maximum of $156 on expenditure of $390).

As the change applies from 1 October 1982 the following table shows the position from 1982 onwards.

The rebate will now be available on an end-of-year basis only, (although taxpayers may obtain a special tax code if they wish to continue to receive the rebate on a pay period basis). Apart from this, all other criteria remain the same as at present.

Section 15 - Dependent Relative Rebate

This section gives effect to the Budget announcement that, from 1 October 1982, the dependent relative rebate will be calculated at the new rate of 31 cents per dollar of qualifying expenditure. The maximum level of the rebate will remain at $60 per dependent relative. However, the legislation provides that from the 1983 income year, the maximum number of dependent relatives in respect of whom 8 claim may be made is limited to two. Under no circumstances, therefore, can the total rebate claimed by a taxpayer exceed $120 in respect of any one income year.

The rate change applies from 1 October 1982. The following table illustrates the combined effect of the two changes to this rebate from 1982 onwards:

Apart from the above, all other criteria remain the same.

Section 16 - Donations And School Fees Rebate

This section gives effect to the Budget announcement that from 1 October 1982 the donations and school fees rebate will be calculated at the rate of 31 cents instead of 50 cents for each dollar of the amount paid and that the maximum rebate will be increased to $200 pa.

Because the change applies from 1 October 1982, ie, half way through the 1983 income year, the rate and maximum rebate for the 1983 year will be composed of one-half of each of the old and new figures as the following table shows:

Note that the only changes in this rebate are to the maximum rebate and the rate at which the rebate is calculated. All other criteria remain the same.

Section 17 - Superannuation Contributions By Salary And Wage Earners

This section replaces the existing section 341 of the principal Act with a new section. It restricts the maximum amount of superannuation that may be deducted each pay period, before the calculation of the employee's PAYE tax deductions for the period, to the pay period equivalent of the maximum annual subsidised superannuation level.

Application Date

The pay period restriction applies in respect of all pay periods after 1 October 1982. As the maximum special exemption for contributions to subsidised superannuation schemes has been increased from 1 April 1983 the maximum pay period deduction for contributions made in pay periods ending in the period from 1 October 1982 to 31 March 1983 will be based on the present annual exemption level of $800 and from 1 April 1983 on the new annual exemption level of $1,200.

The pay period limitations are therefore:

Section 18 - Completion Of Withholding Payments Deduction Certificates - IR 13

Section 18 inserts a new section, 343A, which requires that from 1 October any person deriving withholding payments (the payee) must submit a completed Withholding Payments Declaration Certificate (IR13) to the person making the payments (the payer) before any payment is made. If the certificate is given to the payer not fully completed, the new section provides that a penalty rate of deduction of 15 cents in the dollar over and above the rate of withholding tax normally applicable to the payment be made. It should be noted that this penalty deduction, like the existing "no declaration" deduction for salary and wages, does not constitute a final tax liability, but is merely an increased rate of PAYE deduction which will be credited against any end-of-year tax liability.

The format of the new IR13 certificates now in use is significantly different from the format of previous IR13's. The old certificates were to be completed solely by the person making the withholding payment whereas the new certificates, reflecting the change in legislation, contain two panels; one to be completed by the payer after payment is made, the other to be completed by the payee before he receives payment. The person deriving the withholding payment (payee) must enter details of name, address, occupation, IRD number, and spouses name (if applicable) in the panel provided on the new IR13. Failure to provide any of the above details, or failure to hand the completed and signed form to the payer of the withholding payment before any payment is made will result in withholding tax being deducted at the normal rate applicable plus 15 cents in the dollar.

Section 19 - Application of Tax Codes

Section 19 makes the necessary amendments to section 344 to incorporate the new principal income earner and family rebates into the PAYE system from 1 October 1982.

Subsection (1) sets out the qualifying criteria for each of the new tax codes as follows:

Tax Code A: Signifies entitlement to the Principal Income Earner Rebate

Tax codes "B" to "F" signify entitlement to the new family rebate. In order to give taxpayers the maximum benefit of the rebate through the PAYE system, it has been necessary, because of the large size of the rebate and the abatement criteria to "band" the tax codes in order to account for family income other than that derived by the principal income earner from his/her primary employment. For the purposes of a primary tax code, the "other" family income, defined as "extra income of the employee" in the new section 344(1)(a), is the total of:

• The annual incomes of each other person comprising the "family"; and
• The income of the employee other than that to which the primary tax code applies.

The choice of one of the tax codes "B" to "F" by the employee not only signifies entitlement to the new family rebate but also signifies a particular level of "other" family income. The amount of this "other" family income is as follows:

• Tax Code B: "Other" family income not exceeding $500.
• Tax Code C: "Other" family income exceeding $500 but not exceeding $2,500.
• Tax Code D: "Other" family income exceeding $2,500 but not exceeding $4,500.
• Tax Code E: "Other" family income exceeding $4,500 but not exceeding $6,500.
• Tax Code F: "Other" family income exceeding $6,500 but not exceeding $8,500.
• Tax Code G: Signifies either:
  • entitlement to the new family rebate and "other" family income exceeding $8,500; or
  • entitlement to neither the principal income earner rebate nor the new family rebate.

Subsection (2) substitutes a new subsection 344(1A), authorising lower abatement ranges for the family rebate on a pay period basis in cases of tax codes B to G.

Section 20 - Cessation Of Tax Codes

Section 20 amends section 346 of the principal Act to provide that a taxpayer using one of the codes "B" to "F" shall cease to be entitled to the use of that code if that taxpayer knows or anticipates that he will not be entitled, for whatever reason, to the family rebate.

Similarly, the section also provides that a taxpayer using an "A" code shall cease to be entitled to the use of that code on becoming aware that he will not be entitled, for whatever reason, to the principal income earner rebate.

Section 21 - Pay Period Taxpayers

Section 21 amends section 356 of the Act to further restrict the "pay-period taxpayer" concept.

From the income year that commenced on 1 April 1982, only where a taxpayer's annual income does not exceed $11,500 and comprises only income from employment (ie, any combination of salary or wages, national superannuation, or pensions for past services) and neither that taxpayer, nor any other member comprising the family of which that taxpayer is a member, is entitled to claim a family rebate, will the taxpayer not be required to furnish a return of income. In the case of a person who, under these rules, is not obliged to furnish a return, the annual tax liability is determined by the amount of PAYE deducted from that income, the PAYE deductions effectively being a final tax.

However, where a pay period taxpayer considers he is entitled to a refund because of an end-of-year adjustment (such as a life insurance exemption, dependent relative rebate, or housekeeper rebate) he is entitled to furnish a return and claim that refund.

Note: The pay-period provisions do not apply to any of the following taxpayers:

• absentees,
• those who derive any income as a shearer,
• those to whom a special tax code applies,
• those who have operated an incorrect tax code.

In all of the above cases, those taxpayers will be required to furnish returns.

Withholding Payments

Although not covered by this Amendment Act, the "pay period taxpayer" concept with respect to taxpayers in receipt of withholding payments has been amended by way of regulation. Briefly, the existing Withholding Payment Regulations provide that pay-period taxpayers include persons whose only income for the year is from withholding payments, or a combination of income from employment and withholding payments, not exceeding $4,900. The amendment made to the Regulations will mean that the above provision will not apply from the 1982/83 income year, ie, any taxpayer who derives any income from withholding payments after 31 March 1982 will not be a pay period taxpayer and will be required to furnish a return of income.

Section 22 - Tax Deductions To Be Credited Against Tax Assessed

Section 22 adds to section 362(2) a proviso which removes the possibility of a shareholder employee of a private company, that has failed to account for PAYE tax deductions, being given a credit for those unpaid tax deductions in his annual income tax assessment.

As the detection of the fact that tax deductions shown in an IR12 have not been accounted for may not occur until after an assessment has been issued, a provision has been included, to give the Commissioner the power to recover any unpaid tax deductions which have been credited in the assessment. Accordingly, subsection (2) of section 22 substitutes the existing subsection (5) of section 362 with a new subsection (5). This provides that when a credit of tax deductions has been wrongly given to a shareholder employee, the shortfall in the pay deductions is jointly payable by the employee and the employer, and is to be paid to the department by the 31st day of May in the year after the year to which the tax deduction certificate relates.

Sections 23 to 25 - Basic Rates of Income Tax

Section 23 inserts into the first Schedule of the principal Act the following composite tax rate scale which applies for the 1983 income year:

This composite rate scale is a combination of the tax rates applying for the half-year from 1 April 1982 to 30 September 1982 and the new rates (including surtax - see note on s 25) applying from l October 1982 to 31 March 1983. This composite scale applies only for the 1982/83 income year.

As the Income Tax Amendment Act 1982 and the Income Tax (Annual) Act 1982 received the Governor-General's assent on 28 September 1982, the composite rate scale must be used for all early 1985 assessments made after that date (including "urgent" refunds for persons departing from New Zealand). Taxpayers who received early 1983 assessments based on the "old" rates who wish to be reassessed on the basis of the new tax structure may have this adjustment made by the Department. Note, however, that any such reassessments must be at the taxpayer's request.

Comments on the provisions of the Income Tax (Annual) Act 1982 are contained in

1983 Provisional Tax Re-estimation

To take into account the new tax rate scale provisional taxpayers may wish to re-estimate the second instalment of their 1983 provisional tax.

The form IR3P has been reintroduced for this purpose.

The form includes a simplified table of tax adjustments for those who wish to approximate the provisional tax adjustment. It also allows those who wish to use the actual tax rates to make the adjustment taking into account the changes to the family assistance rebates.

The form is to be used by provisional taxpayers and their agents in each case where there is a change to the provisional tax assessed. The form is self-explanatory but the following points should be noted:

• It is not to be used where the taxpayer has recalculated the first instalment, and
• It is not to be used where a taxpayer is re-estimating income on which provisional tax is payable. Form IR3E is to be used in this case.

Sections 24 and   25 insert into the First Schedule of the principal Act the following two tax rate scales, either of which, subject to confirmation by the Income Tax (Annual) Act 1983, will apply for the 1984 and subsequent income years. The two rate scales result from the imposition of a temporary surtax of 10 percent of the marginal rates applying to income over $24,000, announced in the 1982 Budget.

Basic Tax Scale (no surtax) (Section 24)

Basic Tax Scale (including surtax) (Section 25)

Although both the above rate scales have been inserted in the principal Act, neither can be used for any assessments until one has been confirmed by an Income Tax (Annual) Act.

Section 26 - Basic Tax Deductions

This section makes the amendments necessary to incorporate the new tax rate scale (with surtax) into the PAYE tables for use from 1 October 1982 and also changes the rates of tax in respect of secondary employment income and extra emolument payments.

Subsection (1) substitutes new clauses 2 and   3 of the Second Schedule.

Clause 2, which provides that deductions made from weekly payments shall be made in accordance with the PAYE tables (see note on subsection (5)), has been amended so that payments to shearers are no longer excluded from its provisions.

Clause 3, which sets the "no declaration" rate of tax deduction, has been amended to provide that the income at which the "no declaration" rate transfers to the new "G" tax code is $672 per week. Note that the "no declaration" rate of deduction has not changed, ie, it is 35 cents in the dollar on weekly income not exceeding $672. On incomes over $672 per week the "C" code deduction is to apply. Clause 3 has also been amended so that payments to shearers are no longer excluded from its provisions.

Subsection (2) amends clause 6 of the Second Schedule to change the rate of tax deduction for payment of secondary employment income from 35 cents in the dollar to 31 cents in the dollar.

Subsection (3) completely alters the basis of calculation of tax deductions to be made from daily payments to shearers. The new clause 7 of the Second Schedule provides that the shearers' daily payment is to be multiplied by five, the tax deduction worked out from the weekly PAYE tables at the appropriate tax code, and that amount of deduction then divided by five to arrive at the amount of tax deduction to be made from the shearer's daily payment. In calculating the daily payment to be taxed, a 10 percent comb and cutter allowance should be deducted, and the value of any board and/or meals provided should be added.

A "daily earnings" table for shearers has been provided in the "Three Weekly, Four Weekly, Monthly" tables applying to pay periods ending on or after 1 October 1982.

Subsection (4) amends clause 9 of the Second Schedules to change the rate of tax deduction for payments of extra emoluments from 35 cents in the dollar to 31 cents in the dollar.

Subsection (5) inserts the new weekly PAYE tables into Appendix A of the Second Schedule to the principal Act.

Subsection (6), together with the amendments made by subsection (1), is consequential to the changes in the method of calculation of tax deductions made from daily payments to shearers. The removal of all references to "clause 7" in clauses 2,   3,   4 and   5 of the Second Schedule allows tax deductions from daily payments made to shearers to be calculated using the provisions of those four clauses. Such daily payments were previously excluded from the provisions of those clauses. The removal of all references to "clause 8" in clauses 2,   3,   4 and   5 follows the repeal of clause 8 which occurred in 1980.

Section 27 - Home Study Expenses

This section amends the Fourth Schedule to the principal Act to provide that where an employee uses a portion of his home in connection with the carrying on of his employment, only those costs directly incurred and related to the use of the room or other defined area for that purpose will be regarded as having been incurred in the production of income from employment, and therefore deductible pursuant to sections 104 and   105 of the Act. The only items of expenditure that will qualify as a deduction from 1 April 1982 will be expenditure incurred on:

• The repair or maintenance of the interior of that room or other defined area.
• Electricity, gas, or other fuel consumed in heating and lighting that room or defined area.
• Insurance on such of the contents of the room as are used wholly, or principally for the purpose of the employee's employment.

Costs, or any portion of the costs, incurred by way of interest, depreciation, rates, insurance, repairs to the structure as a whole, or rent of the property will no longer be deductible.