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General Deductions - S11(a), Shares issued for acquiring an asset =…

- - - - issue
        
        Are the widow's compensation and the legal costs deductible?
      - judgement
        
        Negligent actions were not deemed necessary part of an engineering business
        
        Therefore they were in not incurred in the production of income
      - facts
        
        TP is a concrete engineering business
        
        The collapse of a concrete hood on site resulted in the death of a workman
        
        The company was charged with negligence and was forced to pay compensation to the widow
  - - - facts
        
        A driver died from an accident while performing work duties
        
        TP was obligated to pay employee's widow compensation
        
        As well as legal fees involved in settling the dispute
      - judgement
        
        TP business is to employ drivers therefore it is expected that such liabilities would arise in the course of business
        
        Compensation liability = deductible since it is natural to the TPs production of income
        
        legal fees = not invloved in the normal course of business and CANNOT be deducted
      - issue
        
        Are these amounts incurred in the production of income
        
        compensation paid to widow
        
        legal costs paid to resist a claim of compensation
  - - - facts
        
        BP SA paid BP International worldwide for a trade mark license
        
        The license was paid on a per litre sold basis
      - judgement
        
        The trademarkis naturally occurring as an expense in the production of income
        
        The payments were revenue in nature and therefore deductible
      - issue
        
        Are royalty payments incurred in the production of income
  - - - facts
        
        TP established a benefit scheme for staff in the form of a life insurance scheme and service bonus
        
        The benefit amount varied with length of employee's service to the company
      - judgement
        
        Both schemes were established to encourage their staff to enter and remain in the companies' service
        
        Therefore BOTH are deductible since they have been incurred for the production of future or current income
      - issue
        
        Have they been incurred in the production of income?
        
        TP wished to deduct both amounts however commissioner only allow for the bonus to be deducted
  - - - Audit fees & Training fees which relate to the production of income are deductible
        
        judgement
        
        94% of the audit fees [relating to interest income] were incurred in the production of income
        
        Full training fees amount was deductible as a result of these skills helping to improve the effectiveness of the trade
        
        facts
        
        TP incurred expenditure as a result of an audit conducted
        
        The audit comprised of 94% of the work related to interest income and 6% of the work related to exempt dividend income
        
        Furthermore expenditure was incurred for training fees of staff working on interest income
        
        issue
        
        Are the full training fees amount necessary for income earning operations ?
        
        Can the whole amount be deducted since a portion related to exempt dividend income
    - - Upon assessment of closeness between taxable and exempt income - a Deductible amount can be derived
        
        judgement
        
        S23(f) prevents exempt income in the form of dividends from being deducted
        
        Therefore apportionment will take place
        
        issue
        
        Is the companies' expenditure on shares deductible?
        
        facts
        
        TP was a share dealing company that earned profit through dividend stripping
        
        Expenditure would be incurred upon buying shares in dormant companies with excess cash and reserves
        
        The company would be able to claim company dividends as exempt income
        
        NOTE: shares are considered TS due to the nature of TP Trade = S11(a) deduction applies
- - - - TP paid an insurance premium which would pay out if TP experienced a loss of profits
      - Issue regarding if premium is deductible
      - Judge determined that this premium was an expense incurred towards the objective of income
      - An expense must be deducted in the year of assessment in which it is incurred regardless of income being received in the future
  - - - Deduction can only take place in in the year of Assessment
      - judgement, issues and facts under 'actually incurred'
- - - - Fixed Capital is non-deductible
        Floating Capital is deductible [Visser Case]
        
        judgement
        
        non-deductible due to being capital in nature
        
        The payments relating to the system within the premises are capital in nature = the asset will remain on the TP's property
        
        The payment is for the right of use and is therefore deductable
        
        The payments relating to the system outside the premises are REVENUE in nature = the asset is outside the TP's property and therefore not permanent nature
        
        facts
        
        TP pays monthly instalments to pay local authority for the installation of a sewerage system inside and outside the premises
        
        issue
        
        Are these monthly instalments capital in nature
    - - Cost incurred to create a capital structure = capital [non-deductible]
        
        issue
        
        Is the expenditure to acquire the contract capital or revenue in nature?
        
        judgement
        
        The expenditure for the contract was capital in nature = the contract did not generate income itself but rather created the OPPORTUNITY to generate income
        
        facts
        
        Mine management company incurred an expense IN ORDER to enter into a contract to manage a mine within their group
      - Cost incurred to work the capital structure = revenue [deductible]
    - - The legal categorisation of a payment does not determine nature rather the purpose
        note --> the length of the period will be considered
        
        judgement
        
        The lease lump is capital in nature since an enduring benefit was created
        
        Therefore non-deductible
        
        facts
        
        TP made an upfront lease payment for 20 years
        
        issue
        
        Is a lump sum lease payment deductible ito S11(a)?
- - - - facts
        
        TP leases premises for trade purposes
        
        the rental was had a base monthly payment as well as an annual payment derived from the TP's turnover
        
        TP estimated the annual rent and considered it a deduction
      - judgement
        
        the obligation to pay rental is dependant on the companies' turnover which can only be determined at a future date
        
        an expense is incurred when an unconditional legal obligation can be established
      - issue
        
        Can the estimated rental be deducted for tax purposes?
    - - jugdement
        
        provision cannot be considered a deduction
        
        an expense with an uncertain outcome is considered to be "actually incurred"
        
        if an expense is conditional it is "actually incurred" once a condition is met
      - facts
        
        The TP deducted a provision for employee bonuses
        
        the bonus would only be relevant to staff employed for more than a year
        
        the amount was payable at a future date
      - issue
        
        The court was to determine if this is an expense for the current year of assessment
    - - a liability as a result of a dispute will be "incurred" upon its determination
        
        facts
        
        TP was involved in an ongoing legal suit with a previous employee for several years
        
        TP was disputing the owing of shares
        
        TP claimed the cost of the shares as a deduction
        
        issue
        
        when will the expenditure be "actually incurred"
        
        judgement
        
        the liability will arise when it has been deemed by the courts
    - - Shares issued for services rendered = NO Expenditure incurred
        
        facts
        
        Labat issued shares as payment for a trademark
        
        TP wished to claim the share issue as expenditure incurred
        
        judgement
        
        The issue of shares has no net effect on assets and therefore cannot be considered to have been incurred
        
        issue
        
        can the payment of shares be considered expenditure?
        
        "expenditure" is not defined in the Income Tax Act and therefore it is unknown if the issue of shares can be considered as actually incurred
- - - - Losses can be an an expenditure of involuntary nature
      - judgement, issue and facts are under 'the production of income section'
  - - - judgement, issue and facts are under 'the production of income section'
      - Expenditure is not only cash outflows but can be liabilities which can be settled with an ascertainable amount