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Deductions Not Allowed - Coggle Diagram
Deductions Not Allowed
Non-Trade Expenditure
The key factor in determining deductibility is whether the expense is incurred in the production of income in the furtherance of the company's trade.
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Insured Losses
Section 23(c) disallows the deduction of any loss or expenditure recoverable under any contract of insurance, guarantee, security, or indemnity, except for certain cases outlined in section 23L(3).
The loss is deductible only if it is not recoverable under an insurance policy or other form of indemnity.
Insured losses are not deductible, and the amount recovered is not taxable if there is a direct link between the two.
Provisions
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The deduction of a reserve is only allowed if the Income Tax Act specifically provides for it, such as in section 24C (for future expenditure) or section 11(j) (for doubtful debts).
Failure to comply with the provisions of the Income Tax Act related to the deduction of reserves or provisions may result in penalties or fines.
Section 23(e) of the Income Tax Act prohibits deduction of income transferred to a reserve fund or capitalized.
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Notional Interest
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If someone invests money in a business venture, they cannot deduct an amount representing the interest they could have earned by investing the money in a bank.
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Prepaid Expenditure
Exceptions (aa), (cc), and (dd) must first be considered because they are measured separately. Only amounts NOT subject to any of these three exceptions will then be considered for R100K in proviso (bb).
Section 23H provides exceptions to the general rule that expenditure is only deductible in the year of assessment in which it is actually incurred. The exceptions are
Proviso (bb): If the aggregate of all amounts of expenditure incurred by the taxpayer, which would otherwise be limited by section 23H (except for the 6-month rule), does not exceed R100,000.
Proviso (cc): If the expenditure is subject to the provisions of section 24K (interest-rate agreements) or section 24L (option contracts).
Proviso (aa): If all the goods or services to which the expenditure relates are supplied or enjoyed within six months after the end of the year of assessment in which the expenditure was incurred.
Proviso (dd): If the expenditure is actually paid in respect of any liability imposed by legislation.
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When none of the exceptions listed in the previous lesson apply, the allowable deductions for prepaid expenditure are limited in the year in which the expenditure is incurred and subsequent years
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Expenditure incurred in terms of goods supplied - only goods actually supplied in particular year deductible