First limb - DA(1)..including an amount to the extent to which the expenditure or loss is incurred by them in deriving their assessable income. This is allowed a deduction for expenditure or loss to the extent it is incurred by them in deriving assessable income Expenditure is outgoing of money, and loss is bad debts which is not a deduction not an expenditure required quite a close c connection between expenditure and income earning process. Look for a relatively close connection . Not to say the expenditure has to be shown to generate income. Not saying that. But saying there should be a close connection between expenditure and that income earning process