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General deductions - Coggle Diagram
General deductions
Positive test
Expenditure and losses
Joffe and Co - expenditure incurred is voluntary, whereas losses are involuntary.
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Actually incurred
Nasionale Pers Bpk - if a payment is contingent or dependent on an uncertain future event, the expense/liability can only be actually incurred once these conditions are met - only deducted in the year of assessment when these conditions are met.
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Golden Dumps - if the amount of an obligation is in dispute, the expense is only actually incurred once the dispute is settled.
Labat - shares issued as consideration for an asset is expenditure incurred, whereas for services rendered its not expenditure incurred.
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Not of a capital nature
New State Areas Ltd - the cost of establishing/adding/improving the income-earning plant (the fixed capital) is capital in nature and therefore not deductible. The cost of performing income-earning operations (the floating capital) is revenue in nature and therefore deductible.
BP South Africa - the purpose of an expense determines whether it is capital or revenue in nature, not the legal categorization. Was an enduring benefit created?
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Applicable to gross income, receipts/accruals of a capital nature do not form part of gross income, capital expenses also do not qualify for deductions but special allowances can be applied.
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Trade test
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Practice note 33 - interest expense is deductible, but is limited to the interest accrued to or received by the taxpayer - on-lending of a loan.
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In order for expenses to be deductible there must be a continuity of trade, and there must be income derived from such trade.
Passive income or investments fall outside the definition of trade.
Prepaid expenditure
Section 23H limits deductions - deductions can only be claimed if the subsequent benefit is received in the same year of assessment.
Certain limitations to section 23H - expenditure incurred is within 6 months from year-end. Liability imposed through legislation is also deductible. If the aggregate amount of prepayments are <R100 000.
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