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Taxation 200 > General deductions, Special deductions > Flashcards

General deductions, Special deductions Flashcards

1
Q

What are the 4 components of the general deduction formula?

A 
1- Preamble to section 11 (trade test)
2- Section 11(a) 
(positive test)
3- Section 23(g)
(negative test)
4- Section 23H
(Prepaid expenditure)
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2
Q

What does the preamble to section 11 say, trade test?

A

“for the purpose of determining TI derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person derived..”

  • trade
  • income derived form this trade
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3
Q

What is the definition of trade?

A
  • every profession
  • trade
  • business
  • employment
  • calling
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4
Q

What does the carrying of a trade mean?

A
  • there needs to be a continuity of act
  • is their long-term objective to make a profit?
  • active steps of earning an income
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5
Q

What activities fall outside the definition of trade?

A

Passive income = investments made in dividend and interest bearing stock.

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6
Q

What does practice note 31 say?

A
  • it is the Practice of SARS to allow expenditure incurred in production of interest to the extent that it does not exceed such income.
  • interest expense deduction is allowed but limited to interest income.
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7
Q

What does S11(a) say ?

A 
expenditure and losses 
actually incurred
in the production of income
that is not capital in nature
during the year of assessment
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8
Q

What are the cases that refer to expenditure and losses?

And what do they mean?

A 
- Joffe & Co (Pty) Ltd
losses =  involuntary nature
expenditure = voluntary payments
- PE electrical tramway
losses = floating capital
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9
Q

What does “actually incurred” mean?

A
  • does not necessary mean actually paid

- needs to be a liability that has incurred

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10
Q

What 2 cases deal with “during the year of assessment”?

What do they mean?

A
  • Sub Nigel Ltd
    expenditure from prev tax year = not deducted in current
  • Golden Dumps
    matching does not apply
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11
Q

What does Section 23(g) prohibit ?

negative test

A

Prohibits the deduction of

  • any money claimed as deduction
  • to extent to which
  • money are not laid out for purposes of trade
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12
Q

What did the old Section 23(g) require?

A

That an expenses should be wholly and exclusively (100%) for purposes of trade

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13
Q

What does the new Section 23(g) require?

A

Provides an apportionment of expenditure incurred for both trade and non-trade purposes

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14
Q

What does S23H do/limit?

A

Section 23H limits the deduction of prepaid expenditure.

Can only claim deduction if you receive the benefit in that year/

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15
Q

What are the exemptions for S23H?

A

It does not apply if:

  • benefit is received within 6m from year end
  • imposed by legislation
  • where aggregate of all remaining prepayments < 100 000
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16
Q

If the taxpayer is a VAT vendor, what amount must be deducted ?
S23C

A

The VAT exclusive amount.

17
Q

S11A deals with pre-trade expenses, explain the special deduction and the limitation.

A

S11A says that all pre-trade expenses are accumulated and then deducted as a total amount.
It is limited to the income earned form the trade

18
Q

What are the requirements for legal expenses to be deducted as a special deduction, S11(c)?

A
  • actually incurred
  • i.r.o. any claim, dispute or action at law
  • in course of ordinary operations in carrying of trade
  • NOT of capital nature.
19
Q

What are the requirements for restraint of trade to be deducted as a special deduction, S11(cA)?

A
  • actually incurred
  • in course of carrying on trade
  • on a natural person, labour broker, personal service provider
  • extent that restraint serves as income for recipient.
20
Q

What is the limitation ito restraint of trade special deduction?

A 
Lesser of
- amount / no years 
OR
- a third of amount 
= amount/3
21
Q

What are the requirements for bad debts to be deducted as a special deduction, S11(i)?

A
  • needs to be due to TP
  • needs to be bad @ the year end
  • needs to be included in income at some point.
22
Q

Explain what the special deduction of doubtful debts are dependent on.

A

Dependent on Accounting treatment:

  • IFRS 9 applied
  • not applied
23
Q

How is the allowance/special deduction for doubtful debts determined if IFRS 9 is applied?

A

allowance/deduction =

  • 40% of lifetime
    +
  • 25% of 12 month
24
Q

How is the allowance/deduction for doubtful debts determined if IFRS 9 is NOT applied?

A

allowance/deduction =

  • 40% of debt >= 120 days
  • 25% of debt >= 60 days
25
Q

What is the special deduction ito an employer’s contribution to retirement funds?

A

The full contribution will be deducted from the employer’s income.

26
Q

When will a repayment of an employee benefit be deducted?

A

If it is

  • initially paid by TP
  • repaid/refunded
27
Q

Explain when, how much and the limitation of a special deduction ito donations.

A

When the TP receives a S18A certificate from a PBO, will it be deductible.
The deduction is limited to 10% of the TP’s taxable income.

28
Q

When will annuities paid to former employees be deductible for the employer?

A

When the annuity is paid to

  • former employee
  • dependents of former employee
  • former partners
29
Q

What are the requirements under S11(d) regarding the deductibility of repairs?

A
  • actually incurred
  • during year of assessment
  • repair on property/machinery that is used for purposes of trade/receive income
  • brings it back to its original state
30
Q

How is the deduction of a lease premium determined?

A

deduction of premium =
tot premium/no years

  • years = limited to 25
  • apportioned for months used
31
Q

How is the deduction of a lease improvement determined?

A

*only if obliged by contract/agreement

deduction = value/no years

  • value = amount in contract
  • years = limited to 25
32
Q

How is the deduction for the special relief of a lease determined?

A

by deducting the amount with the discounted value

Taxation 200 (9 decks)

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