Please enable JavaScript.

Coggle requires JavaScript to display documents.

Week 4: Activity 6 - Coggle Diagram

- - - - Losses are expenditure of involuntary nature.
    - - Losses refer to losses of floating capital.
  - - - 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.
    - - An expense can only be deducted once there is an unconditional legal obligation to pay the expense.
    - - 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.
    - - If shares are issued in exchange for services, the issue of shares will not be deductible by the issuing company.
  - - - An expense must be deducted
        in the year of assessment it is incurred.
    - - Can only be deducted in year of
        assessment the expense was actually incurred.
  - - - 1) Was the act performed for producing income, and; 2) is the expenditure
        closely connected to the performance of the act?
    - - Expenditure due to negligence is not incurred in the production of income.
    - - Recurring payments for maintaining income earning operations are deductible.
        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.
    - - Where a there is a split between producing income versus exempt income (thus where audit fees are incurred for a dual purpose), apportionment has to take place.
    - - If a dividend stripping scheme is evident, then the portion of the cost of the shares will be disallowed as a deduction that so relates to the earning of exempt dividend income. The remaining part is deductible in terms of S11(a) that so relates to the proceeds on the sale that is included in gross income.
    - - A scheme to get employees to stay longer, is in the production of income, thus deductible.
  - - - Cost of an income producing asset is capital – not deductible
        Cost of an income-earning operation is revenue – deductible
    - - The legal categorisation of a payment does not determine whether it is capital or revenue, but rather the purpose of the expenditure
        Was an enduring benefit created?
    - - Cost incurred to create a capital structure = capital
        Cost incurred to work the capital structure = revenue