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Section 11a - Positive test - Coggle Diagram
Section 11a - Positive test
Step 1: Expenditure and Loses
Joffe & Co (Pty) Ltd v CIR
Expenditure is a voluntary payment of money
Losses are possibly expenditure of an involuntary nature
Port Elizabeth Electric tramway Co Ltd v CIR
Losses refer to losses of floating capital
Step 2: Actually incurred
(not actually incurred if only an accounting provision for future expenditure
Golden Dumps
Expense in dispute is only actually incurred once the dispute has been finalised ( i.e when the court decides)
Labat
shares issued for acquiring an asset cannot be expenditure actually incurred
Edgars Stored Ltd
An expense can only be deducted once there is an unconditional legal obligation to pay that expense
Nasionale Pers Bpk v KBI
If its a condition, the expense will only be incurred once the condition has been met
If no definite and obsolute liability during the YOA then the expenditure has not yet been actually incurred
Thus, deductions of Accounting provisions for future expenditure will not be allowed
Step 3: During the year of assessment
Sub Nigel Ltd v CIR
expenditure incurred in the previous YOA can not be deducted in the current year
CIR v Golden Dumps (Pty) Ltd
expenditure can only be deducted in the YOA it is actually incurred
Step 4: In the production of income
to be deductible expenditure must be in the production of income
expenditure on exempt income is not deductible
Court Cases
Joffe and Co (Pty) Ltd v CIR
expenditure is not deductible if not incurred in the production of
BP South Africa vs SARS
royalty payments are of a revenue nature and are deductible if the intellectual property is used in the production of income
Port Elizabeth electric tramway Co Ltd v CIR
Taxpayer's business is to employ drivers, therefore the damages paid were an inevitable part of income-producing activities. This incurred in the production of income thus it was deductible
Mobile Telephone Network Holdings
Audit fees were 94% on interest income and 6% on exempt dividend. Judge rule 94% in the
production of income
Nemojim
Received two types of income,
exempt dividend income
and
proceeds on sale of shares
. In terms of section 11(a) only
proceeds on sale of shares
will be deducted
Step 5: Not of a capital nature
Test
Capital receipts and accruals do not form part of gross income
Capital expenses are not allowed as deductions from income
Court cases
SARS vs BP South Africa
The expense is not rental expense due to the fact that an enduring benefit was created
The legal categorization of a payment does not determine whether it is capital or revenue
Rand Mines
Expenditure incurred to obtain an income earning right or structure will be capital in nature
cost incurred to work the capital structure is revenue in nature
New State area Ltd v CIR
Cost of establishing, improving and adding income earning plant is capital in nature and therefore not deductible
Cost of performing income-earning operations which is revenue in nature and therefore duductible