Week 7 - s23g Deductions

Question 1

s23g rules for deductions?

Answer 1

no deductions are allowed from income (derived from trade) for expenses which were not laid out for purposes of trade

Question 2

apportionment in s23(g)?

Answer 2

• for trade purpose = deductible
• non-trade purpose = non-deductible

Question 3

case law principles on trade expenditure?

Answer 3

• link between a comp’s trade and the exp incurred must not be too remote to = deductible
• the expense did not have to produce profit in itself

Question 4

borrowing money and re-lending at a higher rate of interest?

Answer 4

= trade = deductible

Question 5

pre-trade expenditure?

Answer 5

spent before business is begun – usually capital in nature as it is spent setting up the income earning structure

Question 6

s11A?

Answer 6

• taxpayer can claim a deduction in year that trade commences for expenses/losses actually incurred prior to the commencement of / in prep for carrying on that trade

Question 7

when is s11A allowed?

Answer 7

only allowed if the amount would have been deductible in terms of s11, D or s24J but were not allowed when incurred

Question 8

insured losses?

Answer 8

must be a direct link between loss and amt recoverable. only leftover portion not covered by insurance deductible and don’t include payout in gross income.

Question 9

prohibited deductions section?

Answer 9

s23

Question 10

expenses incurred for the purpose of earning exempt income?

Answer 10

apportion = if earns both exempt and non, apportion based on the total

Question 11

expenditure relating to employment / holding of office?

Answer 11

no deduction allowed for individuals who earn remuneration (not agents earning commission), unless specifically permitted

Question 12

the cost of domestic / private expenses?

Answer 12

(groceries, school fees) = no deduction
- except in respect of property occupied for the purpose of trade – where it is specifically equipped and occupied exclusively & regularly for trade
- the taxpayer will not be entitled to a deduction if their trade constitutes employment, unless income = mainly comm and duties are performed mostly outside employer-provided office OR employees duties performed mainly in such part

Question 13

s23B?

Answer 13

• contains a prohibition against double deductions under more than 1 inc tax act section
• no deduction allowed under s11(a) if a deduction is granted under any other section that may impose limitations and may be granted in a different YOA

Question 14

general principle of specific deductions?

Answer 14

• requirements must be met = deduction
• consider if there is a limitation to the deductible amount

Question 15

specific interest deduction?

Answer 15

any int exp actually incurred by the taxpayer during the YOA from carrying on trade if in production of income

Question 16

specific legal exp deduction?

Answer 16

• actually incurred in respect of any claim, dispute
• must not be capital
• incurred in respect of claim amount which would not have been deductible under s11a (we get sued)
• incurred in respect of claim made by taxpayer which does not constitute income (we sue)

Question 17

specific bad debts deduction?

Answer 17

must be:
- due to taxpayer
- become bad during year
- in resp of amts included in taxpayer’s income this yr (accured amount)

Question 18

req for restraint of trade pmt deduction?

Answer 18

amount must be:
- actually incurred in course of trade
- imposed on natural person
- will be included in GI of person who receives it

Question 19

restraint of trade payments amount specs?

Answer 19

cannot exceed the lesser of:
- pmt amount / no of years
- amount incurred / 3

Question 20

specific doubtful debts deductions?

Answer 20

• debts must qualify for s11(i) (BD) if they go bad
• every year the allowance must be reversed before we can claim the current year allowance

Question 21

requirements for an IFRS comp (doubtful debts)?

Answer 21

• 40% of the sum of the allowance measured in terms of lifetime exp credit losses and any debs written off for FR
• 25% for other allowances

Question 22

how to calc for an non-IFRS (doubtful debts)?

Answer 22

• 25% for debts 60+ days in arrears
• 40% for debts 120+ days in arrears

Question 23

method for doubtful debts deduction?

Answer 23

add back previous year deduction
less 40% and 25%
= negative amount is the deduction

Question 24

employer contributions to funds deductions?

Answer 24

full deduction for contributions to:
- pension
- provident
- retirement annuity fund
allowed as per s11F

Question 25

annuities paid to former partners on retirement for employees?

Answer 25

for those who:
- retired bc old age, infirmity, ill health
- were partners for >5 years
- annuity reasonable ito service as a partner and profit earned
- not in lieu of partnership

Question 26

repayment of employee benefits deductions?

Answer 26

if we (the employee) receive a payment for services rendered that was included in our taxable income, and it is refunded, a deduction is allowed for the amt/portion

Question 27

registration of intellectual property?

Answer 27

• used in production of income (designs, trademarks)
• NOT copyrights
• full cost deductible

Question 28

acquisition of intellectual property?

Answer 28

• asset brought into tho use for the first time, used in production of income
• NOT trademarks
• full cost deductible

Question 29

specs for acq of IP?

Answer 29

• if >5000: 10% for design/similar, 5% for copyright/patent/similar
• if <5000: 100%

Question 30

s11x?

Answer 30

• brings other deductions into s11
• if allowed as a deduction by any other section within this part of the act then = deduction

Question 31

donations to PBOs?

Answer 31

allows for deductions of donations to:
- approved PBOs
- s18A deduction receipt must be provided
- limited to 10% of taxable income before this deduction

Question 32

trading stock donation?

Answer 32

amount that is taken into account for 22(8) recoupment (value of the TS during that YOA)

Question 33

asset (used by taxpayer for trade, not TS) donation?

Answer 33

lower of:
- cost of property less allowance allowed to be deducted
- fair MV

Question 34

asset purchased/constructed for purpose of donation?

Answer 34

lower of cost and fair MV

Question 35

immovable property donation?

Answer 35

(where lower of MV and muni value > cost)
- B + (C x D)
B = cost
C = capital gain that would have been determined had it been disposed of for an amt lower of MV and mv
D = 60% for natural person/trust, 20% elsewhere

Question 36

any other asset donation?

Answer 36

lower of MV and cost

Question 37

no donations deduction if?

Answer 37

• property is subject to any fiduciary right, usufruct
• intangible asset
• financial instrument (unless share in listed company / elligible financial institution)