Lecture 1 - Deductions

Question 0

General expenses are related to what?

Answer 0

They are trade related

Mainly applies to taxpayers who run their own business

Question 1

When in the framework are general deductions deducted?

Answer 1

Before specific deductions

After exempt income

Question 2

What if allowable deductions exceed income?

Answer 2

Assessed loss

Question 3

Can expense still be prohibited as seduction if meets all general requirements?

Answer 3

Yes
Section 23 (negative test)

Question 4

Brief definition of carrying on trade?

Answer 4

All professions, business etc.

Also letting if property, including use of designs, trademarks etc.

Question 5

What does definition of carrying on a trade exclude?

Answer 5

Passive income activities

1. Interest
2. Dividends
3. Annuities
4. Pensions

Question 6

What if there are multiple trades?

Answer 6

Income and expenses can be calculated separately and then added all together.

Question 7

When can one trade loss not be offset against another trade?

Answer 7

If the one trade is a ‘suspect trade’

Question 8

Is a salary a trade?

Answer 8

No

Question 9

Is annuity a trade?

Answer 9

No

Question 10

Is a pension a trade?

Answer 10

No

Question 11

Rental trade?

Answer 11

Yes, if main source income

Question 12

Manufacturing business a trade?

Answer 12

Yes

Question 13

Lending business a trade?

Answer 13

Yes

Question 14

Giving an isolated loan by non-money lender a trade?

Answer 14

No

Question 15

Shares owned by share dealer a trade?

Answer 15

Yes

Question 16

Shares owned who is not dealer and own dividend a trade?

Answer 16

No

Question 17

s11(a)?

Answer 17

1. Expenditure and loss
2. Actually incurred
3. In the production of income
4. Not of capital nature

Question 18

s23(f)?

Answer 18

Expenses cannot be deducted if relate to exempt income

Question 19

S23(g)?

Answer 19

Deductions cannot be made on expenses related to income from non-trade

Question 20

If the person is SA resident, which expenses are incurred?

Answer 20

Residents are taxed on worldwide basis.

All income is taxes

Question 21

Court case where lack of profit doesn’t mean not carrying on trade?

Answer 21

Burgess

Question 22

Difference between loss and expense?

Answer 22

Loss is involuntary

Question 23

Court case where loss and expenditure difference not clear?

Answer 23

Joffre

Also held that loss can be involuntary

Question 24

What does actually incurred mean?

Answer 24

Unconditional legal liability to pay

Question 25

What if there’s a condition for expense?

Answer 25

It won’t be deductible until condition is met

Question 26

When will an expense become deductible if there is a condition?

Answer 26

The condition must occur

Question 27

Is date if payment a condition?

Answer 27

NO

Expenses can incur before they are actually paid

Question 28

What if an expense cannot be quantified before year end?

Answer 28

A provision can be made for estimated expenditure

Question 29

What if provision for expense exceeds actual amount?

Answer 29

The excess is included in income

Question 30

What if estimated amount less than actual expense?

Answer 30

Difference will NOT be deductible

But SARS may reopen applicable year and adjust expenditure

Question 31

When is year if assessment?

Answer 31

End of February

Question 32

When must the deduction be claimed?

Answer 32

In the year of assessment the expense was incurred

If too late, deduction is forfeit

Question 33

Expenditure that has intent to earn income?

Answer 33

Is deductible
Doesn’t have to actually earn income

Also there is no definition saying the expense has to be NECESSARY, e.g. Gold embossed business cards.
It’s still deductible

Question 34

Expenditure incurred to reduce taxable income?

Answer 34

Not deductible

Question 35

Court case Port Elizabeth Electric Tramway?

Answer 35

Tram driver crashed and died,
Spouse claimed compensation
Eventually they could claim compensation as deductible because of inevitable concomitant

Legal costs weren’t allowed as deduction, because not part of production

Question 36

What is inevitable concomitant ?

Answer 36

There may be inherent expenditure that does not look like production of income but is still assassinated with it.
Such as risks.

Question 37

Court case Joffe?

Answer 37

Negligence is not deductible
Negligence not always conclusive
Ask whether expense incited for production income (not if produced income)

Question 38

Court case BP?

Answer 38

Allowed to display license marks of parent companies and paid royalties on it.
Allowed as deduction because so closely related to income earning operations and was reccurent in nature

Question 39

Expense to produce exempt income be deducted?

Answer 39

No

Question 40

Sub-Nigel court case?

Answer 40

Not a requirement for income to actually be produced

Intention must be there

Question 41

Nemojim court case?

Answer 41

Expense is dual purpose an apportionment can be made