Learning Unit 5 - General deductions Flashcards
What principle was established in CIR v De Beers Holdings (Pty) Ltd 46 SATC 47 with regards to deductions of transactions in the absence of profit?
It was held that the absence of profit does not necessarily exclude a transactions from being part of a tax-payer’s trade.
What principle was established in ITC 1274 40 SATC 185 regarding sales where losses have been incurred (Pg 268)
The court held that there is no requirement in our Income Tax Act that the taxpayer concerned should be aiming at a net profit in their trading operations. A trader may deliberately sell articles at a loss for business purposes.
What principle was established in Burgess v Commissioner for Inland Revenue 55 SATC 185 regarding deductions under section 11.
In order to claim an amount under section 11 it is necessary for a tax payer to be carrying on a trade. The fact that there is no continuity, or there is a lack of a profit motive or risk, does not necessarily mean that a trade is not being carried on. However, the taxpayer’s burden of proof increases when one or the other element is not present.
What principle was established in Nasionale Pers Bpk v Kommissaris van Binnelandse Inkomste 48 SATC 55 (Pg 272) regarding when a deduction may be claimed?
If a payment is conditional of an event, whether suspensive (coming into effect immediately, but suspended until the condition is met) or resolutive (not effective until the condition has been met), the expense is only actually incurred once the condition has been met. Until the condition has been met it remains a contingent liability that is not tax deductible.
What principle was established in Port Elizabeth Electric Tramway Company Ltd v CIR 8 SATC 13.
This case established the “closely connected test”, namely:
- the purpose of the expenditure must be established;
- was the task necessary;
- was the expense so closely connected with the income earned that it may be regarded as part of the cost performing it.
