Unit 5

Question 1

To whom are General Deductions applicable?

Answer 1

General Deductions are only applicable to business (not natural persons)

Question 2

Which section relates to ‘may deduct’?

Answer 2

Section 11(a)

Question 3

Which section relatest to ‘may NOT deduct’?

Answer 3

Section 11(g)

Question 4

What is the main requirement for General Deductions?

Answer 4

The TP must carry on a trade

Question 5

How is trade defined?

Answer 5

The Burgess case gave it a wide definition

SARS Interpretation Note 11

Question 6

What factors are related to ‘trade’?

Answer 6

Continuity
Profit motive
Activities as a whole (Estate G v COT)
Active steps

Question 7

Which income is excluded from General Deductions?

Answer 7

Interest (but, exceptions)
Practice Note 31
CSARS v Megs Investment
Robin Consolidated Industries

Question 8

What are the elements of the General Deduction Formula? (6)

Answer 8

Expenditure & losses 
Actually incurred 
During YOA 
In the production of the income 
Not of a capital nature 
In part/full expended for purposes of trade (s23(g))

Question 9

Which two sections must be read together for deductions?

Answer 9

Section 11(a) & 23(g)

Question 10

Which 3 cases relate to ‘expenditure & losses’?

Answer 10

Joffe
PE Tramway
Labat

Question 11

What does ‘actually incurred’ mean?

Answer 11

Necessity is irrelevant
Incurred does not mean paid (Caltex Oil)
Provisions & transfer to reserve fund excluded
An explicit unconditional legal obligation required in YOA (Edgars Stores) - if amount not quantifiable, then estimate
Intention changed
Shares

Question 12

May expenditure incurred in YOA1 be deducted in YOA2?

Answer 12

No, it must be deducted in that YOA

Question 13

Which (broad) section applies to ‘no deductions allowed’?

Answer 13

Section 23

Question 14

Name 17 types of ‘no deduction’ with their legislative provisions

Answer 14

1. Private maintenance expenses - s23(a)
2. Domestic or private expenses - s23(b)
3. Recoverable expenditure - s23(c)
4. Interest, penalties, taxes - s23(d)
5. Provisions and reserve funds - s23(e)
6. Expenditure incurred to produce exempt income - s23(f)
7. Non-trade expenses - s23(g) (read with s11(a))
8. Notional interest - s23(h)
9. Retirement fund deductions s23(i)
10. Expenses of labour brokers / personal service providers - s23(k)
11. Restraint of trade - s23(l)
12. Employment or an office expenses - s23(m)
13. Government grants - s23(n)
14. Unlawful activities - s23(o)
15. Cession of policy of insurance by employer - s23(p)
16. Expenses iro foreign dividends s23(q)
17. Premiums iro insurance policies - s23(r)

Question 15

Are double deductions allowed? (Cite legislation)

Answer 15

No - section 23B

Question 16

What factors relate to excessive expenditure?

Answer 16

SARS may refuse excessive expenditure
Grounds: Not actually incurred, or, not trade related
Remuneration from parent to child (Tobacco Father case)
Travel allowance

Question 17

Are any capital amounts allowed as a deduction?

Answer 17

No.