Deductions - Carrying on of a trade

Question 1

Facts:
The TP borrowed money from the bank and invested in a short term investment company as part of a scheme. He wanted to deduct the losses from the scheme.

Answer 1

Burgess

Issue:
Is the scheme regarded as the carrying on of a trade?

Principle:
A wide interpretation should be given to trade.

Question 2

Facts:
Company allocates declared dividends of shareholders in their loan accounts instead of paying it cash to them even though they had it. The reason was for the company to enhance their cash reserve in the financial statements and remain attractive. The loans earned interest.

Answer 2

Scribante Constructions

Issue:
The issue was whether the interest was laid out or expended by the company for the purposes of trade within the meaning of s23(g)?

Principle:
Interest paid on loans, which loans assist a TP to commercially operate more advantageous, will be expended for purposes of trade.
Borrowing money and re-lending constitutes the carrying on of a trade.