General Deductions Flashcards
Must income be earned in the same year - SUB-NIGEL LTD v CIR
Deductible expenditure can only be deducted in the year of assessment in which it was incurred.
Carrying on a trade - BURGESS v CIR
Trade should be given a wide interpretation. A taxpayer carrying on what, standing on its own, amounts to the carrying on of a trade does not cease to carry on a trade simply because one of his purposes or even his main purpose is to enjoy a tax advantage. If he carries on a trade, his motive for doing so is irrelevant.
In the production of income - PORT ELIZABETH ELECTRIC TRAMWAY COMPANY LTD v CIR
To determine whether expenditure was in the production of income, two questions must be asked:
(1) What action gave rise to the expenditure?
(2) Is this action (or chance or risk of the action) so closely connected with (or a necessary concomitant of) the
income-earning activities from which the expenditure arose as to form part of the cost of performing it?
In the production of income - JOFFE & CO (PTY) LTD v CIR
A ‘loss’ in relation to trading operations is sometimes used to signify a deprivation suffered by the loser, usually an involuntary deprivation, whereas ‘expenditure’ usually means a voluntary payment of money (Joffe & Co (Pty) Ltd v CIR, 1945, p. 4).
Such expenditure or loss must be a necessary concomitant of the income-earning operations of the taxpayer in order to be in the production of income (Stiglingh, et al., 2019, p. 137).
Payment for damages or compensation resulting from negligence will only be deductible if the negligence constitutes an ‘inevitable concomitant’ of the taxpayer’s income-earning operations (Stiglingh, et al., 2019, p. 137).
In the production of income - CSARS v BP SOUTH AFRICA (PTY) LTD
Factually, there was no need for the taxpayer to borrow money to pay the dividends. Since the loan was obtained for the purpose of carrying on of the taxpayer’s income-earning activities, the interest paid was in the production of income. The principle that was confirmed is that for an expense to be incurred in the production of income, the purpose of the expense must be to produce income.
In the production of income - PROVIDER v COMMISSIONER OF TAXES, SOUTHERN RHODESIA
If expenditure is incurred to induce employees to enter and remain in the service of the taxpayer, the expenditure may qualify as a deduction since the purpose is to produce current or future income.
Dual purpose - CIR v NEMOJIN (PTY) LTD
Where expenditure is incurred for a dual purpose (i.e. to produce exempt income and income), such expenditure must be apportioned to only allow the expenditure that gives rise to income as a deduction
Expenditure actually incurred - EDGARS STORES LTD v CIR
There must be an unconditional legal obligation on a taxpayer to pay an expense before it will be actually incurred for the purposes of section 11(a) of the Income Tax Act
Expenditure actually incurred - NASIONALE PERS BPK V KOMMISSARIS VAN BINNELANDSE INKOMSTE
If there is no definite and absolute liability during the year of assessment to pay an amount, expenditure has not been actually incurred
Expenditure actually incurred - CIR V GOLDEN DUMPS (PTY) LTD
A liability to pay a claim is not unconditional where the validity of a claim is genuinely disputed and, if at the end of the relevant tax year the dispute is unresolved. The liability will be conditional and any such claim will, therefore, not be actually incurred for the purposes of section 11(a) of the Income Tax Act in that year of assessment
Expenditure actually incurred - CSARS v LABAT AFRICA LTD
The ordinary meaning of ‘expenditure’ refers to the action of spending funds; disbursements or consumption; and hence the amount of money spent.
An allotment or issuing of shares does not in any way reduce the assets of a company, and therefore does not qualify as an expenditure
Not of a capital nature - NEW STATE AREAS LTD v CIR
Expenditure incurred to perform the income-earning operations is income in nature. Expenditure incurred to
establish, improve or add to the income-earning structure is capital in nature.
Not of a capital nature - RAND MINES (MINING & SERVICES) LTD v CIR
Expenditure that is more closely related to the cost of adding to or enhancing the income-earning structure of a business than to the cost of performing its income-earning operations is capital in nature
Not of a capital nature - BP SOUTHERN AFRICA (PTY) LTD v CSARS
Expenditure incurred for the purposes of acquiring a capital asset of the business (which creates an enduring benefit that endures like fixed capital) is capital expenditure whereas expenditure incurred for the use of an asset or expenditure that does NOT create an enduring benefit is revenue in nature.
Deduction of expenditure – other CALTEX OIL (SA) LIMITED v SECRETARY FOR INLAND REVENUE
The expression “expenditure actually incurred” does not mean expenditure actually paid during the year of assessment, but means all expenditure for which a liability has been incurred during the year, whether the liability has been discharged during that year or not. It is in the tax year in which the liability for the expenditure is incurred, and not in the tax year in which it is actually paid (if paid in a subsequent year), that the expenditure is actually incurred.
