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Case law for general deductions - Coggle Diagram
Case law for general deductions
Trade test:
For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person derived.
2 Requirements:
1 - a trade to be carried on
2 - income to be derived
Case Law: Burgess v CIR
Principle: A wide interpretation should be given to trade.
Case Law: Joffe & Co.
Principle: If something is not an inevitable concomitant of the business operations it is not deductible.
5 Elements of the positive test:
Expenditure and losses
Actually incurred
During the year of assessment
in the production of income
not of a capital nature
ALL REQUIREMENTS NEED TO BE MET!
During the year of assessment
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.
In the production of income
Port Elizabeth Electric Tramway Co Ltd.
The expense needs to be closely connected to the income earning activities.
Case Law: Joffe & Co.
Principle: If something is not an inevitable concomitant of the business operations it is not deductible
Mobile Telephone Networks Holdings
Audit fees are incurred in the production of income but can be apportionment for income vs exempt income
Provider
A scheme to get employees to stay longer, is in the production of income
Actually incurred
Nasionale Pers Bpk v KBI
If a payment is contigent upon the happening of an uncertain future event, the expense and corresponding liability can only be actually incurred once the conditions are met.
CIR v Edgars Stores Ltd
Unconditional legal obligation
Not of a capital nature
New State Areas Ltd
Cost of an income producing asset is capital
Rand Mines.
Cost to create a capital structure is not deductible
Expenditure and Losses
Port Elizabeth Electric Tramway Co Ltd v CIR.
The expense incurred needs to be closely connected to the production of income.
Joffe & co
The expense incurred needs to be an unavoidable consequence of the business operations
