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General Deductions - Coggle Diagram

- - - - Losses are possibly expenditure of an involuntary nature
        
        Expenditure is a voluntary payment of money.
        
        If something is not an inevitable concomitant of the business operations it is not deductible.
        
        Negligence resulted in the roof collapsing and is thus not an inevitable part of trade and not incurred in the production of income
    - - Losses refer to losses of floating capital
        
        What is the purpose of the expense?
        
        How closely connected is that expense to the production of income?
  - - - Depended on a future event.
        
        If a condition is, expense is only incurred once the condition has been met.
        
        If no definite and absolute liability during the YoA, expenditure has not been ‘actually incurred’
        
        Thus, the deduction of accounting provisions for future expenditure will not be allowed.
        
        If a payment is contingent upon the happening of an uncertain future event, the expense and corresponding liability can only be actually incurred once the conditions are met.
    - - An expense can only be deducted once there is an unconditional legal obligation to pay the expense.
    - - Where an obligation to pay an amount is in dispute, the expense can only be actually incurred when the dispute is settled with regards to the obligation and the amount thereof
  - - - An expense must be deducted in the year of assessment that it is incurred, even if it will only produce income in future years. I.e. the matching principle is irrelevant.
        
        An expense has to be claimed in the year that it is incurred. It cannot be claimed in later years.
    - - Where an obligation to pay an amount is in dispute, the expense can only be actually incurred when the dispute is settled with regards to the obligation and the amount thereof
  - - - The damages paid were an inevitable consequence of the income-producing activities, thus incurred in the production of income.
        
        What is the purpose of the expense?
        
        How closely connected is that expense to the production of income?
    - - Damages paid were due to negligence and it was not indicated that negligence was an inevitable consequence of the company’s operations. Expenditure not deductible as not incurred in the production of income.
        
        Negligence resulted in the roof collapsing and is thus not an inevitable part of trade and not incurred in the production of income
        
        If something is not an inevitable concomitant of the business operations it is not deductible.
  - - - Should expenditure be regarded as part of the cost of performing the income-earning operations (REVENUE) or as part of the cost of establishing or improving or adding to the income-earning plant/machine (income producing asset) (CAPITAL).
        
        Cost of establishing/ improving/adding income earning plant (fixed capital) is capital in nature and therefore not deductible
        
        Cost of performing income-earning operations (floating capital) which is revenue in nature and therefore deductible
    - - Expense incurred to manage company in same group
        
        Create right/opportunity to generate income
        
        Thus, created capital structure
        
        Expenditure incurred to obtain an income earning right or structure will be capital in nature
        
        Cost incurred to create a capital structure = capital
        Cost incurred to work the capital structure = revenue
- - - - Trade’ must be given a wide interpretation
    - - If something is not an inevitable concomitant of the business operations it is not deductible.
        
        Negligence resulted in the roof collapsing and is thus not an inevitable part of trade and not incurred in the production of income
    - - possible to carry on non-profitmaking trade, as long as commercial or business
        benefit or reward
  - - - What is the purpose of the expense?
        
        How closely connected is that expense to the production of income?