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Case Law for General Deductions, Engineering ngligence, bus accident,…
Case Law for General Deductions
Trade
Two requirements:
A trade to be carried on
Income to b derived from such trade
Case Law: Burgess v CIR
Principle
: A wide interpretation should be given to trade
Trade excludes:
Passive income made in dividends and interest bearing stock
Positive Test
(Certain requirements)
Expenditures and losses actually incurred in the production of income, provided such expenditures and losses are not of a capital nature
1. Expenditure and losses
Case law: Joffe and co
Principle:
If something is not an inevitable concomitant of the business operations it is not deductible.
Case law: Port Elizabeth Electric Tramway
Principle:
Link between expense and production of income:
What is the purpose of the expense?
How closely connected is that expense to the production of income?
2. Actually incurred
Case law: Nasionale Pers Bpk
Principle:
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
Case law: Edgars Store Ltd
Principle
: An expense can only be deducted once there is an unconditional legal obligation to pay the expense.
Case law: Golden Dumps
Principle:
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.
3. During the year of assessment
Case law: Sub-Nigel Ltd
Principle:
An expense must be deducted in the year of assessment that it is incurred, even if it will only produce income in future years.
Case law: Golden Dumps
Principle:
Expenses of dispute is only actually incurred once the dispute has been finalized
4. In the production of income
Case law: Port Elizabeth Electric Tramway**
Principle:
Link between expense and production of income
What is the purpose of the expense?
How closely connected is that expense to the production of income?
Case law: Joffe and co**
Principle:
If something is not an inevitable concomitant of the business operations it is not deductible.
Case law: BP Southern Africa
Principle:
Recurring payments for maintaining income earning operations are deductible.
Case law: Provider
Principle:
Expenditure incurred to induce the employees to enter and remain in the service of the taxpayer may qualify as a deduction since the purpose is to produce current or future income.
Case law: Mobile Telephone Network Holdings
Principle:
Incurring audit fees is necessarily attached to the performance of the taxpayer’s income earning operations i.e. audit fees are incurred in the production of income.
5. Not of a capital nature
Case law: New State Areas Ltd
Principle
: Cost of establishing/ improving/adding income earning plant (fixed capital) is capital in nature and therefore not deductible vs.
Cost of performing income-earning operations (floating capital) which is revenue in nature and therefore deductible
Case law: Rand mine
Principle:
Expenditure incurred to obtain an income earning right or structure will be capital in nature
Case law: BP Southern Africa
Principle:
Recurring payments for maintaining income earning operations are deductible.
