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Trade Elements of the positive test, image, image, image, image, image,…
Trade
Elements of the positive test
Positive Test-Expenditure and losses
Joffe & Co (Pty) Ltd
losses are possibly expenditure of an involuntary nature
Expenditure is a voluntary payment of money
If not inevitable concomitant of bus ops it is not deductible
Port Elizabeth Electric tramway Co Ltd
Losses refer to losses of floating capital
What is the purpose of the expense
How closely connected is the expense to the production of income
Legal costs not part of income earning and denied
Positive Test- Actually incurred
Nasionale Pers Bpk v KBI
Attempted to deduct a provision for staff bonuses
Bonuses were payable to employees provided they were still in the taxpayers service at a certain time after end of year
Dependent on future event- expense only incurred once condition met
No definite and absolute liability during YoA
Deducting of acc provisions for future expenditure is not allowed
Edgars Stores Ltd
Actually incurred- unconditional legal obligation
If conditional during year 1, but the condition is fulfilled in year 2?
Only actually occurred in year 2, thus deductible in year 2
Golden Dumps
When was expenditure actually incurred
Expense in dispute is only actually incurred once the dispute has been finalised (when court decides)
Positive Test- During the year of assessment
Sub Nigel Ltd
Expenditure incurred in a previous tax year cannot be deducted in the current year
Golden Dumps (Pty) Ltd
Can only be deducted in year of assessment the expense was actually incurred
Only when claim is upheld by court will a liability arise
Positive Test- In the production of income
Port Elizabeth Electric tramway Co Ltd
What act/ action gave rise to the expenditure
Was the action performed to producing income
Is the expenditure to be deducted closely connected to the performance of the act
If so then deductible
The damages paid were an inevitable consequence of the income producing activites, thus incurred in the production of income
Joffe & Co
Damages paid- due to negligence and it was not indicated that negligence was an inevitable consequence of the comps operations
Exp not deductible as not incurred in the production of income
Provider
Benefict scheme for employees
Life assurance not deducted by SARS
Judge ruled both schemes were to get employees to stay longer, thus incurred in production of income
Mobile Telephone Network Holdings
Audit fees 94% of time interest income, 6% of time on exempt dividends
Judge ruled 94% in the production of income
Dual purpose
Positive Test- Not of a capital nature
New State Areas Ltd
Fixed capital vs floating capital
Are any monthly instalments capital in nature
Cost of set/ improve/ add income earning plant is capital in nature and not deductible
Cost of performing income earning ops which is revenue in nature is deductible
Rand Mines
Expense incurred to manage company in same group
Expense to acquire contract revenue/ capital
Cost to create capital structure= capital
Cost to work capital structure= revenue
Trade
every profession
trade
business
employment
calling
occupation or venture
incl the letting of any property and the use of any patent/ design/ trademark/ copyright
