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GENERAL DEDUCTIONS, SPECIAL DEDUCTIONS - Coggle Diagram
GENERAL DEDUCTIONS
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JOFEE AND CO
PRINCIPLE:
=If something is not an inevitable concomitant of the business
operations it is not deductible.
=Negligence resulted in the roof collapsing and is thus not an inevitable part of trade and not incurred in the production of income
NEW STATE AREAS
PRINCIPLE:
Fixed capital v floating capital.
=Problem: should expenditure be regarded as part of the cost of performing the income-earning operations (REVENUE)
=or as part of the cost of establishing or improving or adding to the income-earning plant/machine (income producing asset) (CAPITAL).
NEMOJIM
PRINCIPLE:
• Nemojim purchased shares (trading stock) in Dormant companies.
• Dormant company declared cash as a dividend to Nemojim (dividend stripping)
•Nemojim sold shell company at a loss
•Thus received 2 types of income:
• Exempt dividend income
• Proceeds on sale of shares (taxable)
•Loss on sale of shares was limited to Proceeds
DE BEERS HOLDINGS
PRINCIPLE:
Possible to carry on non-profit making trade, as long as commercial or business benefit or reward
PORT ELIZABETH ELECTRIC TRAMWAY
PRINCIPLE:
- What is the purpose of the expense?
- How closely connected is that expense to the production of income
GOLDEN DUMPS
PRINCIPLE:
Where an obligation to pay an amount is in dispute, the expense can only be actually incurred when the dispute is settled with regards to the obligation and the amount thereof.
PROVIDER
PRINCIPLE:
Expenditure incurred to induce the employees to enter and remain in the service of the taxpayer may qualify as a deduction since the purpose is to produce current or future income.
Amounts paid in terms of a service package (employment contract) are deductible.
LABAT
PRINCIPLE:
Shares issued as consideration for trade mark acquired
Expenditure=action of spending funds
Issue of shares cannot be expenditure actually incurred
MOBILE TELEPHONE NETWORK HOLDINGS
(DUAL PURPOSE)
PRINCIPLE:
AUDIT FEES
-94% of time on interest income
-6% of time on exempt dividends
Judges rules 96% in the production of income thus deductible
BP SOUTH AFRICA
PRINCIPLE:
•Claimed 11(a) as “rental”
PAYMENT IS CAPITAL
-sales of petrol – fruit
- land/filing station- tree
•However also consider S23H later
EDGARS STORES
PRINCIPLE:
An expense can only be deducted once there is an unconditional legal obligation to pay the expense.
WARNER LAMBERT
PRINCIPLE:
Social responsibility was seen as crucial for trading success. This meant that the expenditure had been “incurred for the purposes of trade and for no other” and was therefore incurred in the production of income
RAND MINES
PRINCIPLE:
Expenditure incurred to obtain an income earning right or structure will be capital in nature.
Cost incurred to create a capital structure = capital
Cost incurred to work the capital structure = revenue
NASIONALE PERS BPK
PRINCIPLE:
If a payment is contingent upon the happening of an uncertain future event, the expense and corresponding liability can only be actually incurred once the conditions are met.
SUB NIGEL LTD
PRINCIPE:
An expense has to be claimed in the year that it is incurred. It cannot be claimed in later years.
BP SOUTHERN AFRICA
PRINCIPLE:
=Recurring payments for maintaining income earning operations are deductible.
This will naturally mean it is incurred in the production of income.
=Royalty payments are of a revenue nature and deductible if the intellectual property is used in the production of income.
Therefore, use of rights of patents, copyright and inventions are deductible
SCRIBANTE CONSTRUCTION
PRINCIPLE:
1) If dividends are declared to shareholders on interest-bearing loan accounts, the interest are incurred in the production of income by the company, if there is a close link between the availability of the funds for the company and the company’s income earning capabilities.
2) Borrowing money and re-lending it at a higher rate of interest, thereby making a profit, constitutes the carrying on of a trade.
SPECIAL DEDUCTIONS
AFRICAN PRODUCTS MANUFACTURING CO LTD
PRINCIPLE:
❖Repair = restoration by replacement of a subsidiary part of the whole
❖Replacing materials need not be the same as original
❖Repair is different from improvement/renewal
• Renewal = reconstruction of (substantially) the entirety
• Improvement = creation of better asset with an improved income earning capacity
•Repair restores the asset to its original condition
FLEMMING
PRINCIPLE:
•Old borehole and windmill caused problems and produced less water than in the past
•Farmer drilled new borehole and installed a new windmill
•IMPROVEMENT OR REPAIR??
• Was not repair to existing borehole
• New borehole and windmill
• Thus, improvement and not deductible