There does NOT have to be a direct relationship between the expenditure and the income; it is deductible if it is, in terms of 'common sense and business realities', for carrying on the business.
• Examples for expenditure, which is not deductible under the first limb, but deductible under the second limb
- - A news paper company makes a payment to settle a claim for damages arising from a defamatory article (Herald & Weekly Times Ltd v Federal Commissioner of Taxation)
- - Entertainment expenditure
- - Advertising
- - Deduction for stolen stock