SIIa

Question 1

The deduction must be considered in terms of the general deduction formula as
set out in section 11(a), read together with section 23(g) of the Income Tax Act.

Answer 1

In terms of section 102 of the Tax Administration Act, the onus of proof is on Constak to
prove that the amount is deductible.
No mark if reference to Income Tax Act

Question 2

Did Constak pay the compensation as part of carrying on a trade?
As ‘trade’ should be given a wide interpretation (Burgess), the retail sales of the
Moroccan branch constitute the carrying on of a trade and

Answer 2

The income generated by the Moroccan branch is included in Constak’s gross income as
Constak is a resident and is therefore taxed on world-wide income, regardless of the
source (Moroccan sales are not exempt in terms of section 10).

Question 3

The case of Port Elizabeth Electric Tramway Co Ltd v CIR established the principle that
this requirement will be met if the action that gave rise to expenditure are closely
connected to the trade.

Answer 3

The action that gave rise to the expenditure was the employment of Dipuo by Constak
as a necessary element of the income producing operation.

Question 3

The payment clearly constitutes expenditure that has been actually incurred (i.e. paid)
that is not of a capital nature as it does not add to the income earning structure as it
relates to staff costs (New State Areas). OR the expenditure does add to the income
earning structure (New State Areas) as this might damage the reputation of Constak, and
therefore is of a capital nature

Answer 3

The crux of the issue is whether the compensation expenditure incurred in the
production of income.

Question 4

In the case of Joffe & Co (Pty) Ltd v CIR it was held that negligence in construction was
not a necessary (inevitable) concomitant of income-producing activities (trading
operations)

Answer 4

The question is if it is reasonable to expect that injuries and accidents may occur in the
workplace in the course of retail of building products or is it negligence?

Question 5

There is nothing in the question to indicate that the accident was caused by gross
negligence of Constak that is not a necessary or inevitable concomitant of trade, thus it
is submitted that the Joffe principle does not apply as there is an inherent risk

Answer 5

Conclusion: The amount is therefore deductible in the 2023 year of assessment.
(take into account all arguments before the conclusion).
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ALTERNATIVE B – decision made by candidate
5.5 The accident may have been caused by gross negligence such as insufficient safety
measures by the driver or that Dipuo did not observe protocol in entering the workspace
and was herself negligent, thus it is submitted that the Joffe principle does apply.
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6 Conclusion: The amount is therefore not deductible.
(take into account all arguments before the conclusion)