Statutory deductions and allowances Flashcards
The distinction between repairs and improvements
Lurcott v Wakely and Wheeler
Repair is restoration by renewal or replacement of subsidiary parts of the whole. Renewal is reconstruction of the entirety, meaning not necessarily the whole, but substantially the whole.
B v Cot Southern Rhodesia
Summary
A Medical practitioner was the owner of a building from which he conducted a medical practice in partnership with other Medical Practitioners. The Building was in need of extensive repairs. A large scheme of reconstruction was embarked upon, during which the building was converted to five suites of consulting rooms, from the original three.
Outcome
The expenditure was of a capital nature as the work done amounted to a substantial reconstruction.
Principles
The work must be viewed as a whole. If viewed as a whole, it constituted a reconstruction, then none of the individual items of expenditure can be claimed as repairs.
CIR v African Products Manufacturing Co Ltd
Summary
The company owned a factory and the roof over a part of the factory needed to be replaced. The material used to construct the original roof could not be procured and, on advice from the Architect, the new roof was made from re-enforced concrete instead.
Outcome
The work constituted a repair as the the company was restoring the roof to its original condition. The fact that different materials were used was not for the purpose of improvement, but for the purposes of restoring the roof to its original condition.
Principles
It is not necessary to use identical material to those originally used when effecting a repair as long as this is done for the purpose of restoring the structure to its original condition, and not for the purposes of improvement.
Rhodesia Railways Ltd v Collector of Income Tax
Summary
The taxpayer owned a railway line. A portion of this railway track had become badly worn and due to the dangerous state of the track, required heavy repairs which necessitated the replacement of rails, sleepers and fastenings to 33 miles of track. On a further 40 miles, old rails were re-laid but new sleepers were put it, resulting in significant expenditure.
Outcome
The expenditure was deductible as a repair. The rails had been worn out and the new track was not capable of giving more service than the old one.
Principles
The expenditure on repairs does not need to relate to the earning of income in the same year. Expenditure on repairs is deductible in full in the year in which it is incurred, irrespective of the fact that the deterioration may have occurred over a number of years.
Flemming v KBI
Summary
The taxpayer owned a farm on which was situated a borehole and dam. The Borehole had been yielding progressively less water and the amount of water provided by the borehole was inadequate for farming purposes. The taxpayer decided to sink a new borehole, erect a windmill and build a dam some distance from the old borehole.
Outcome
This was not a repair and was not deductible under section 11(d). There was nothing wrong with the old borehole that necessitated its replacement. The problem was with the underground water supply.
Principles
For expenditure to qualify as a repair, the structure/object being repaired must have become defective or faulty. Section 11(d) is not concerned with the earning capacity of a property.
