Deductions - S23(g) - No deduction to the extend not expended for purposes of trade.

Question 1

Facts:
An American parent company with operations in SA was obliged to ensure that SA subsidiary companies (the TP) complied with the Sullivan Code i.e. social responsibility expenses were incurred by the TP in terms of this code. The TP incurred this social responsibility expenditure and claimed it as a deduction under s11(a).

Answer 1

Warner Lambert SA (Pty) Ltd

Issue:
1) Are these expenses incurred in the production of income, and
2) Are they incurred for the purposes of trade?

Principle:
Expenditure incurred in ensuring that 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 crucial for trading success.
This meant that the expenditure had been “incurred for the purposes of trade and for no other” and was therefore incurred in the production of income.