GENERAL DEDUCTIONS Flashcards
(24 cards)
DEDUCTION
IN ORDER FOR AN EXPENDITURE TO BE DEDUCTIBLE IT HAS TO BE
1. A TRADE HAS TO BE CARRIED ON
2. INCOME HAS TO BE DERIVED FROM THAT TRADE
TRADE TEST
- Is there a continuity of activities
- is the long-term purpose of the trade to generate profit?
BURGESS
A WIDE INTERPRETATION SHOULD BE GIVEN TO TRADE
SCRIBANTE CONSTRUCTIONS
INTEREST PAID ON LOANS, WHICH LOANS ASSIST A TAXPAYER TO COMMERCIALLY OPERATE MORE ADVANTAGEOUSLY, WILL BE EXPENDED FOR PURPOSES OF TRADE. BORROWING MONEY AND RE-LENDING CONSTITUTES THE CARRYING ON OF A TRADE
PRACTIC NOTE 31
you are allowed to deduct expenditures incurred in the production of income only to the extent that those expenditures do not exceed the income from that trade.
POSITIVE TEST
(1) EXPENDITURE AND LOSSES
(2) ACTUALLY INCURRED
(3) DURING THE YEAR OF ASSESSMENT
(4) IN THE PRODUCTION OF INCOME
(5) NOT OF A CAPITAL NATURE
EXPENDITURE AND LOSSES
(1) JOFFE AND CO
(2) PORT ELIZABETH ELECTRIC TRAMWAY
JOFFE AND CO
IF SOMETHING IS NOT OF INEVITABLE CONCOMITANT OF THE BUSINESS OPERATIONS, IT IS NOT DEDUCTIBLE
PORT ELIZABETH’S ELECTRIC TRAMWAY
WHAT IS THE PURPOSE OF THE EXPENSE AND HOW CLOSELY CONNECTED IS THAT EXPENSE TO THE PRODUCTION OF INCOME
ACTUALLY INCURRED
(1) NASIONALE PERS BPK
(2) EDGARS STORES
(3) GOLDEN DUMPS
NASIONALE PERS BPK
IF A PAYMENT IS CONTINGENT UPON THE HAPPENING OF AN UNCERTAIN FUTURE EVENT, THE EXPENSE AND CORRESPONDING LIABILITY CAN ONLY BE ACTUALLY INCURRED ONCE THE CONDITIONS ARE MET.
EDGARDS STORES
AN EXPENSE CAN ONLY BE DEDUCTED ONCE THERE IS AN UNCONDITIONAL LEGAL OBLIGATION TO PAY THAT EXPENSE
GOLDEN DUMPS
WHERE AN OBLIGATION TO PAY AN AMOUNT IS IN DISPUTE, THE EXPENSE CAN ONLY BE ACTUALLY INCURRED WHEN THE DISPUTE IS SETTLED WITH REGARDS TO THE OBLIGATION AND THE AMOUNT THEREOF.
DURING THE YEAR OF ASSESSMENT
(1) SUB-NIGEL - AN EXPENSE MUST BE DEDUCTED IN THE YEAR OF ASSESSMENT THAT IT IS INCURRED, EVEN IF IT WILL ONLY PRODUCE INCOME IN FUTURE YEARS. AN EXPENSE HAS TO BE CLAIMED IN THE YEAR THAT IT IS INCURRED, IT CANNOT BE CLAIMED IN LATER YEARS.
IN THE PRODUCTION OF INCOME
EXPENDITURE INCURRED TO PRODUCE EXEMPT INCOME IS NOT DEDUCTIBLE
(1) PORT ELIZABETH ELECTRIC TRAMWAY
(2) JOFFE AND CO
(3) MTN HOLDINGS
(4) BP SOUTHERN AFRICA
(5) PROVIDER
BP SOUTHERN AFRICA
RECURRING PAYMENTS FOR MAINTAINING INCOME EARNING OPERATIONS ARE DEDUCTIBLE. THIS WILL NATURALLY MEAN IT IS INCURRED IN THE PRODUCTION OF INCOME. ROYALTY PAYMENTS ARE OF A REVENUE NATURE AND DEDUCTIBLE IF THE TAXPAYER IS USED IN THE PRODUCTION OF INCOME. THEREFORE, THE USE OF RIGHTS OF PATENTS, COPYRIGHT AND INVENTORIES IS DEDUCTIBLE.
PROVIDER
EXPENDITURE INCURRED TO INDUCE THE EMPLOYEE TO ENTER AND REMAIN IN THE SERVICES OF THE TAXPAYER MAY QUALIFY AS A DEDUCTION SINE THE PURPOSE IS TO PRODUCE CURRENT OR FUTURE INCOME
NOT OF A CAPITAL NATURE
(1) NEW STATE AREAS
(2) RAND MINES
(3) BP SOUTH AFRICA
NEW STATE AREAS
THE COST OF ESTABLISHING/IMPROVING/ADDING INCOME EARNING PLANT IS CAPITAL IN NATURE AND THEREFORE NOT DEDUCTIBLE. COST OF PERFORMING INCOME EARNING OPERATIONS IS REVENUE IN NATURE AND THEREFORE DEDUCTIBLE.
RAND MINES
COST INCURRED TO CREATE S CAPITAL STRUCTURE = CAPITAL
COSTS INCURRED TO WORK THE CAPITAL STRUCTURE = REVENUE
BP SOUTH AFRICA
THE LEGAL CATEGORISATION OF A PAYMENT DOESN’T DETERMINE WHETHER IT IS CAPITAL OR REVENUE, BUT RATHER THE PURPOSE OF THE EXPENDITURE. THE SHORTER THE PERIOD OF ENDURANCE TO WHICH THE PAYMENT RELATES, THE EASIER IT IS TO ARGUE THAT IT IS REVENUE IN NATURE. WAS AN ENDURING BENEFIT CREATED?
NEGATIVE TEST
PROHIBITS THE DEDUCTION OF:
Any money claimed as a deduction to the extent where it is not for the purposes of trade
WARNER LAMBART
EXPENDITURE INCURRED IN ENSURING INCOME IS NOT LOST IS INCURRED IN THE PRODUCTION OF INCOME. IF THERE IS A LINK BETWEEN THE COMPANY’S ABILITY TO TRADE AND THE EXPENDITURE, IT WILL BE INCURRED FOR THE PURPOSES OF TRADE. SOCIAL RESPONSIBILITY WAS SEEN AS A TRADING SUCCESS
PREPAID EXPENDITURE
YOU CAN CLAIM THE EXPENDITURES IF THEY GO BEYONG THE YEAR OF ASSESSMENT IF THEY ARE:
1. within 6 months from year-end
2. liability imposed by legislation
3. the aggregate of all remaining repayments < 100000
