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🧠 GENERAL DEDUCTIONS – SECTION 11(a) - Coggle Diagram
🧠 GENERAL DEDUCTIONS – SECTION 11(a)
💼 The Trade Test (Section 23(g))
🏢Case Law: Burgess v CIR
Core Principle: Trade is interpreted very broadly. Trade is interpreted very broadly and includes every profitable activity, profession, business, employment or venture undertaken with the intention of earning income.
📉 Expenditure and Losses (Section 11(a))
💸 Case Law: Joffe & Co (Pty) Ltd v CIR
Core Principle: Compensation and legal costs arising from negligent business operations were not incurred in the production of income because negligence is not an inevitable concomitant of carrying on the trade. An "expenditure" requires a voluntary, proactive disbursement of money or a clear assumption of a legal liability. A "loss" is an involuntary, forced detraction of money from the taxpayer's business.
⚙️In the Production of Income (Section 11(a))
🚃 Case Law 1: Port Elizabeth Electric Tramway Co Ltd v CIR
Core Principle: Establishes the "dual test" and the inevitable concomitant rule. Ask: What operational act caused the expense? Was that act part of normal business operations? The expense must be a closely linked, natural consequence of running that trade.
🌍 Case Law 3: Warner Lambert SA (Pty) Ltd v CSARS
Core Principle:Expenditure incurred to preserve or protect the taxpayer's income-producing operations is deductible because it is incurred in the production of income. Expenses incurred to protect a company’s trade status, market access, or commercial privilege (such as social compliance codes) are deductible under section 23(g) because they directly protect the daily volume of trade.
⚠️Case Law 2: Joffe & Co (Pty) Ltd v CIR
Core Principle: Damages, legal payouts, or settlement fees arising directly from gross negligence are not an inevitable consequence of trade and are completely non-deductible.
📱 Case Law 4: Mobile Telephone Networks Holdings (Pty) Ltd v CSARS
Core Principle: Dual-purpose overhead expenses (like general audit fees that cover both taxable interest income and exempt dividend income) cannot be fully deducted. The expense must be apportioned using a fair, mathematical ratio. Audit fees are fully deductible because the audit is a necessary concomitant of carrying on business. Only where an expense genuinely relates to both taxable and exempt income may apportionment be required. Training costs were also deductible because they were revenue in nature.
⚖️ Actually Incurred (Section 11(a))
🧾 Case Law 1: CIR v Edgars Stores Ltd
Core Principle: An expense is only "actually incurred" when the taxpayer becomes under an unconditional, absolute legal obligation to pay. It does not matter if the cash has not left the bank account yet.
⏳ Case Law 2: Nasionale Pers Bpk v KBI
Core Principle: If a liability is contingent upon a future, uncertain event, it is not actually incurred. Accounting provisions for anticipated future costs are strictly non-deductible.
⚖️ Case Law 3: CIR v Golden Dumps (Pty) Ltd
Core Principle:Expenditure is actually incurred once there is an unconditional legal obligation, even though payment will only be made later. If an obligation or liability is being actively fought in a lawsuit, the expense is not actually incurred until the legal dispute is definitively settled or a final court order is handed down.
📅 During the Year of Assessment (Section 11(a))
📅 Case Law: Sub-Nigel Ltd v CIR
Core Principle: You can only claim a deduction in the exact tax year the expenditure was actually incurred. Insurance premiums are deductible when incurred, even though the insured event giving rise to income may occur in a later year.
🧱 Not of a Capital Nature (Section 11(a))
🌳 Case Law: New State Areas Ltd v CIR
Core Principle: Establishes the structural test to separate capital from revenue. Costs incurred to establish, improve, expand, or acquire the income-earning structure (the tree) are capital and blocked. Costs incurred to run the daily income-earning operations (the fruit) are revenue and deductible.