Module 3: Deductions Flashcards
What is the general deduction formula according to Section 11a?
Expenditure/losses and;
Actually incurred and;
For trade purposes and;
During YOA and:
In the production of income and:
Not of a capital nature
Section 11a always has to be read and applied with…
Section 23g
retirement fund deductions and donation deductions should be…
deducted last.
Name some of the income streams for individuals.
1) An individual pursuing a trade in his/her own name (such as owning your own retail store);
2) An individual earning income from employment (such salary income);
3) An individual earning investment income (such as interest/dividends);
4) A mix of the 3 main income types above.
Who can deduct more expenses against their income—employees or commission-based agents?
Commission-based agents & representatives can deduct more expenses because their income is mainly from sales/turnover.
If income = mainly commission:
More deductions allowed
Expen/loss: What principle was established in the Joffe case?
Loss refers to an involuntary deprivation, while expenditure means a voluntary payment of money.
Act Incur: What principle was established in the Naspers case?
If a payment depends on something happening (whether it’s a condition to start or end something), the expense only counts once the condition is met. Until then, it’s a potential liability that hasn’t been fully recognized yet.
Act Incur: What principle was established in PE Electric Tramway case?
There needs to be a direct and casual link between the expenditure and income earnings activities of the business in order for them to be deductible.
True or false: Section 11A of the Income Tax Act allows a person to deduct expenses and losses incurred before starting a trade, as long as they were necessary for setting up the business.
True. The deduction is permitted if the expenses would have qualified under certain tax provisions (except s11(x)) if incurred after the business began. However, the expenses cannot be deducted if they have already been claimed in the same or a previous tax year.
YOA: True or false: if a taxpayer does not claim an expense/loss in the YOA, they lose the right to claim it in a following period.
True.
An expense is ‘in the production of income’ if:
. It’s incurred for the purpose of producing income
. The risk of the expense being incurred is unavoidable or par-for-the-course with the business operations
What are the 2 indicators that an asset is capital in nature?
. Asset acquired provides enduring benefit
. Asset acquired to be added to the income earning structure of the tax payer
For non-commission earners to consider claiming a home-office deduction, they must ensure that more than…
50% of their work duties are done at home
True or false: a deduction cannot be claimed if an employer provides the taxpayer with an office.
True.
According to section 23(b)(a), in order for a part of any dwelling-house/domestic premises it must be:
. Specifically equipped for the purposes of the trade, and
. Regularly and exclusively used for those purposes
What makes a taxpayer qualify as a commission-earner?
More than 50% of their total income must be from commission.
What is the starting point for determining the home-office deduction?
Determining the ratio of the apportionment of the expenditure.
What is the formula for the home-office apportionment deduction?
A/B x total costs
A = m2 of office area
B = m2 of entire residence
Section 23(m) generally…
Prohibits deductions for salaried employees
Section 23(b) generally…
Prohibits deductions for home office expenses
Section 20A of the Income Tax Act decides…
whether a loss can be deducted from income this year or must be carried forward to offset future profits from the same trade.
True or false: A ring-fenced loss can only be used to offset future income from the same business (or trade).
True. It cannot be used against other income.
True or false: ring-fencing only applies to natural persons
True.
