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General deductions - Coggle Diagram

- - - - Long-term objective to generate profit?
      - Continuity of activities??
      - Meaning of "carrying on a trade"
        
        Active step in contrast to passive earning
        
        preparing to trade
        
        Joffe and Co.
        
        Earning of profits
        
        De Beers Holdings
        
        possible to carry on non-profit-making trade
        
        as long as commercial or business benefit or reward
- - - - Requirement not specified but imposed by case law
        
        Sub Nigel Ltd V CIR
        
        Expenditure incurred in a previous tax year cannot be
        deducted in the current year.
        
        CIR v Golden Dumps (Pty) Ltd
        
        Can only be deducted in year of assessment the expense was actually incurred
    - - Expenditure incurred to produce Exempt income
        
        not deductible
        
        can be apportioned
      - Port Elizabeth Electric Tramway Co Ltd v CIR
        
        Transport company
        
        company compelled to pay compensation
        
        Employee fatality in company vehicle
        
        Driver employment was income producing
        
        Deductible allowed by court
        
        Damages paid were an inevitable consequence of the income-producing activities
      - Joffe & Co (Pty) Ltd v CIR
        
        Reinforced concrete engineering
        
        Workman killed by collapsing roof
        
        Damages paid were due to company negligence
        
        Expenditure not deductible as not incurred in the
        production of income
      - Provider v COT
        
        Life assurance not deducted by SARS
        
        Judge rules that both schemes were to get employees to stay
        longer, thus incurred in production of income
        
        Benefit schemes for employees
      - CSARS v Mobile Telephone Networks Holdings (Pty) Ltd
        
        94% of time on interest income
        
        6% of time on exempt dividends
        
        Audit fees
        
        Judge rules only 94% in the production of income
        
        Dual purpose
    - - Actually vs Necessarily
      - Deductibility not determined on cash bases
        
        Not actually paid
        
        Liability incurred
        
        Not incurred if accounting provision for future expenditure
      - Nasionale Pers Bpk v KBI
        
        Attempted to deduct staff bonus provision
        
        Facts
        
        Bonuses were payable to employees
        
        provided still in taxpayer’s service at a certain time
        
        after the end of the year
        
        Court decision
        
        dependent on future event
        
        expense only incurred once condition met
        
        no definite and absolute liability
        
        Expenditure not "actually incurred", not deductable
      - CIR v Edgars Stores Ltd
        
        Unconditional legal obligation
        
        ‘actually incurred’ in year 2, thus deductible in year 2
        
        Conditional in year 1
      - Golden Dumps
        
        Expense in dispute is only "actually incurred" once the dispute has been finalized by court
    - - Capital receipts and accruals not part of gross income
      - Capital expense not part of deductions
      - New State Areas Ltd v CIR
        
        Expenditure revenue or capital? Earning income or improving plant/machine?
        
        Fixed Capital vs Floating Capital
        
        installments relating to system were floating capital. Court ruled that amounts are deductible.
      - Test: Enduring benefit = CAPITAL
      - Rand Mines (Mining and Services) Ltd v CIR
        
        Create right/opportunity to generate income
        
        Thus, created capital structure
        
        Expense incurred to manage company in same group
      - Capital expenditure examples (not deductible)
        
        Acquisition of plant or machinery or factories
        
        Purchase of trade mark/goodwill
        
        Expenditure incurred in obtaining share capital in another company
        
        BUT allowances are granted in respect of certain capital
        expenditure (special deductions and allowances)
    - - Port Elizabeth Tramway v CIR
        
        Losses refer to losses of floating capital
      - Expenditure vs Losses
        
        difference not significant
        
        Expenditure refers to cash outflows and liabilities
      - Joffe and Co v CIR
        
        Expenditure is a voluntary payment of money.
        
        Losses are possibly expenditure of an involuntary nature