Allowable Deductions

Question 1

What are the two categories of deductions?

Answer 1

1. Those allowed by the general deduction formula
2. Special deductions

Question 2

What deductions are covered by the general deduction formula?

Answer 2

Expenses and losses incurred in generating trade income.

Question 3

What are the 8 requirements for an expense to qualify for deduction?

Answer 3

1. Taxpayer must be carrying on a trade
2. Taxpayer must derive income in carrying on their trade
3. The amount must constitute an expense or a loss
4. The expense must be actually incurred during the year of assessment in question
5. The expense must be incurred in production of the income
6. The expense must not be of capital nature
7. The expense must have been expended to some extent for the purpose of trade
8. Must not be prohibited under s23

Question 4

When is an expense actually incurred?

Answer 4

When it becomes unconditionally due and payable

Question 5

Are expenses incurred to generate exempt income allowable as deductions?

Answer 5

Nope.

Question 6

What are the implications of legal expenses?

Answer 6

They are deductible if the taxpayer loses and taxable if the taxpayer wins

Question 7

What are the implications of legal expenses?

Answer 7

They are deductible if the taxpayer loses and taxable if the taxpayer wins

Question 8

How long are restraint of trade payments allowable as deductions?

Answer 8

The longer of the period of restraint or 3 years

Question 9

What are the factors of a cost of an asset?

Answer 9

Includes:

Moving costs
Installation costs
Erection costs
Foundation costs
Supporting structure costs

Excludes:

VAT claimed as input tax
Finance charges

Question 10

What are the factors of a cost of an asset?

Answer 10

Includes:

Moving costs
Installation costs
Erection costs
Foundation costs
Supporting structure costs

Excludes:

VAT claimed as input tax
Finance charges

Question 11

What does the opening stock deduction include?

Answer 11

Closing stock at end of previous year of assessment
Assets on hand that only became trading stock during the year of assessment

Question 12

What is the value of WIP for a construction taxpayer?

Answer 12

Materials used
+
Indirect costs
+
Direct costs
-
(Relevant income accrued)
-
(Retention wittheld under the contract up to 15% of total)
-
(Any costs that exceed the price of the contract)