Special Deductions

Question 1

Section 11(d)

Answer 1

Allows deductions of expenditures actually incurred during the current year of assessment of repairs of:
1. immovable property:
- occupied for the purpose of trade OR
- for which income is receivable
including the treatment of timber beetles.

2. machinery, implements, and utensils for the purpose of trade (movable property).

The building should be a lettable property, it does not need to be leased out.

Question 1

Case: A section 11(d) deduction will only be available if the original structure was in need of repair.

Answer 1

Flemming

Question 2

Case: A repair constitutes the restoration or renewal or replacement of subsidiary parts of the whole.

Answer 2

African products Manufacturing Co Ltd

Question 3

Case: For repairs it is not necessary that the materials used be identical to the original materials replaced, even if the new materials are more expensive.

Answer 3

African Products Manufacturing Co Ltd

Question 4

Repair vs Improvement:

Answer 4

Repair:
A part that was damaged and replaced/repaired to its ORIGINAL condition.
It is allowed to be deducted in full in terms of section 11(d).

Improvement:
It creates a better asset. It improves it from its original condition.
Improvements are added to the base cost and can be subject to capital allowances. For improvements, it must first be disproved to be classified as a repair.

Question 5

Section 11(i)

Answer 5

bad debts:
Allows a deduction:
- to the extent to which the debt had become bad during the current year of assessment.
- The amount which became bad debts, had to be included in gross income previously.
- the debt has to be due to the taxpayer.

Question 6

bad debts written off by moneylenders:

Answer 6

This is deductible under section 11(a) and not in term of section 11(i), as these amounts are incurred during the production of income and are not capital in nature.

Question 7

Section 11(nA):

Answer 7

Repayment of employee benefits:
If a person (must be an employee):
- received an amount
- in respect of services rendered or to be rendered, Or in respect of any employment or the holding of any office, which was included in his taxable income and
- such an amount is refunded by the employee, the repayment will be allowed as a deduction against his income.
the amounts only relate to cash not to assets.

Question 8

S11(nB):

Answer 8

Restraint of trade repayments refunded.
The amount levied for skills development and UIF should not be changed for any amounts recovered from employees.

Question 9

Section :23(m)

Answer 9

This allows for the section 11(nA) and section 11(nB) calculations to be deducted. If these amounts were incurred as a personal service provider, it is deductible under section 23(k).

Look at slide 65!!!

Question 10

section 11(x):

Answer 10

Other deductions. For example section 12H creates the deduction but section 11(x) brings it into the taxable income calculation.

Question 11

Which two case laws are addressed with in special deductions:

Answer 11

Flemming v Kommissaris van Bennelandse inkomste

CIR v African Products Manufacturing Co Ltd

Question 12

Section 11(cA):

Answer 12

Restraint of trade:

This allows for a deductions when:
A person …. FINISH

Question 13

Section 11(l):

Answer 13

Fund contributions by employers, this excludes medical aid funds…CONTINUE

Question 14

Section 11(m);

Answer 14

Annuities to former employees or partners and their dependents…CONTINUE

Question 15

Section 11(c):

Answer 15

Legal Fees …. CONTINUE

Question 16

paragraph (cB) of the gross income definition

Answer 16

Any amount received or accrued to a natural person as a consideration of a restraint of trade imposed on that person in respect or by virtue of employment or the holding of office must be included in the taxpayer’s gross income.

Question 17

Section 11(cA):

Answer 17

Deduction for restraint of trade.

The deduction will not exceed in any one year, the lessor of:

1. The amount incurred divided by the number of years during which the restraint of trade is active.

OR

2. One-third of the amount incurred.

Question 18

Section 11(c):

Answer 18

This special deduction can be claimed if:
- legal expenses were actually incurred by the taxpayer during the current year of assessment
- in respect of any claims, disputes or action at law
- arising in the course of the ordinary operations
- not capital in nature

Mention the Edgars Store Case

Question 19

Edgars Store Case

Answer 19

Taxpayer must incur an unconditional legal obligation before an amount is actually incurred.

Question 20

Section 10(1)(u)

Answer 20

Exemption for alimony

Question 21

Section 12E(1):

Answer 21

Allows for a 100% write-off of the cost of plant and machinery brought into use by a “small corporation” in certain circumstances.

• Plant and machinery
• owned or acquired in terms of installment sale agreement by tax payer
• which is brought into use by the taxpayer on or after 01 April 2001
• for the purpose of the taxpayer’s trade (other than mining or farming) and
• used directly in the process of manufacture or similar process

NB!!! This allowance is not apportioned for time.

Question 22

Section 12E(2):

Answer 22

The allowance which can be claimed in respect of the Section 12E(1) will be the lesser of:
1. the actual cost to the taxpayer to acquire the asset
OR
2. the market value of the asset
Input tax must be excluded from the cost of the asset in terms of section 23C(1)