General Deduction Formula

Question 0

PE electric tramway

Answer 0

In production of income

Expense has to be closely connected to the income earned.
Is expense a necessary concomitant of the trade

Question 1

General deduction formula

Answer 1

• carrying a trade
• expenditure and losses
• actually incurred
• during the year of assessment
• in the production of income
• no of a capital nature
• laid out/expensed for trade purpose

Question 2

Joffe & Co

Answer 2

Expenses and losses

= “Voluntary” vs “involuntary” payment

In the production of income

=Compensation paid for negligence = Deductible
Negligence is a part of business/trade

Question 3

BP SA

Answer 3

In the production of income

• loan acquired for income producing activity incurs finance cost which is Deductible.
• Recurring annual royalties are expensed for the production of income
  So as long as they don’t provide an enduring benefit = deductible

Question 4

Rand Mines

Answer 4

Not of a capital nature

Contract to produce service is capital in nature

• not deductible
  ie: legal fees to initiate contract.

Question 5

Burgess

Answer 5

Carrying a trade

If no trade is being carried - no expenses deducted
Very wide interpretation.
PN 31

Question 6

Golden dumps

Answer 6

Actually incurred

Only when court makes its decision- expense is actually incurred
Assuming no appeal
Take note of sec 24M

Question 7

Edgars stores

Answer 7

Actually incurred

Before expense can be deducted it must be unconditional and not contingent
Expense can only be deducted once event has taken place

Question 8

Nasionale Pers

Answer 8

Actually incurred

If payment is conditional on event, expenses will only be deducted once condition is met - until then, no deduction

Suspensive condition postpones accrual.

Question 9

News state area

Answer 9

Not of a capital nature

Determine if cost is part of income earning operation
OR
income earning structure - creating enduring benefit

Question 10

Caltex oil

Answer 10

Actually incurred

Include amounts paid but also liabilities

Question 11

Sub-Nigel

Answer 11

Income earned in YOA
Prepaid expenses= sec 23H
expense is only deductible in year incurred

Accrual principle is irrelevant

Question 12

Labat (2011) SCA

Answer 12

Expenditure and losses

Shares issued as consideration are NOT expenditure!
- no shift of asset
Take note of sec 24BA & 24CA

Question 13

Drakensburg Garden Hotel

Answer 13

In the production of income

Shares were not acquired for the purpose of acquiring exempt dividend income …. Interest on loan was deductible

Question 14

COT vs Provider

Answer 14

In the production of income

Simple act of gratitude for pasts service
Vs
Benefit offered in advance as an inducement

(Golden handshake for long service)

Question 15

Nemojim

Answer 15

In the production of income

Dividends tripping
Closeness of the connection between the expenditure incurred & the exempt income must determined.

Question 16

MTN holdings

Answer 16

In the production of income

Audit fees were deductible -
Look at what the expense is connected to
Audit of div and int income …
50/50 ruling

Question 17

George Forrest Timber

Answer 17

Not of a capital nature

Creating/acquiring a source of profit
(once off expenditure from which income will flow) = capital nature
Vs
Money spent on working it ( land with trees on it )