TRADE
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
REQUIREMENTS
1. Expenditure and Losses
2. Actually Incurred
3. During the Year of Assessment
4. in the Production of Income
5. Not of a Capital Nature
Edgars Stores:
The obligation to pay turnover rental is contingent until the turnover is determined and cannot be deducted until it is determined.
Golden Dumps(Pty) LTD:
Only when the claim is upheld by the court will a liability arise.
If the outcome of a dispute is undetermined, it cannot be said that a liability has been actually incurred.
Nasionale Pers BPK: Bonusses payable on a future date (other year of assessment) provided the employee were still in the employ of the company.
- an uncertain future event,
- and the expense can only be actually incurred on this future date.
Port Elizabeth Tramway:
Taxpayer’s business to employ drivers. Therefore, it is expected that liabilities will be incurred to compensate employees. Thus the compensation paid is deductible and naturally in the production of income. Legal costs were not part of the income-earning operations and that deduction was
Joffe and Co: Negligent actions were not deemed a necessary part of an engineering trade and were not incurred, amongst other things, for the purpose of producing income
Provider: Both schemes were clearly designed by the taxpayer to induce its employees to enter and remain in its service and to secure contented staff. Thus, both amounts could validly be deducted as constituting expenditure actually incurred in the production of income
Mobile Telephone Networks Holdings (Pty) LTD: For audit fees, it was ruled that only 94% of the audit fees was incurred in the production of income For the training fees, all the expenditure was deemed to be a necessary concomitant of the taxpayers trade as a whole, due to it allowing him to trade more effectively
New State Areas LTD:
instalments relating to the system on the premises were capital as they related to the acquisition of an asset which remained the property of the company. The instalments relating to the system outside the premises were not a permanent asset of the company. They were incurred due to the right of use of the system belonging to the local authority. Therefore these costs were deductible
Rand Mines
The management contract did not generate income in itself, yet created the opportunity to generate income. This cost was therefore related to the income earning structure and capital in nature. The cost was incurred to create a capital structure, not to work the capital structure
George Forest Timber
Joffe and CO
Concerta
Caltex Oils