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⚖️ Case Law For General Deductions - Coggle Diagram
⚖️ Case Law For General Deductions
🧾 2. Actually incured
📃 1. Nasionale Pers Bpk
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.
🛍️ 2. Edgars Stores
An expense can only be deducted once there is an
unconditional legal obligation (not contingent) to pay the
expense.
🥇 3. Golden Dumps
(Pty) Ltd
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.
💰1. Expenditure and Losses
🧑⚕️ Joffe & Co (Pty) Ltd
Compensation was paid for negligent acts is not incurred in the production of income
🏭 4. In the Production of Income
🚋 1. Port Elizabeth
Electric
Tramway
What is the purpose of the expense?
How closely connected is that expense to the
production of income?
👥 3. Provider
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.
Amounts paid in terms of a service package (employment
contract) are deductible.
⛽ 2. BP Southern
Africa
Royalty payments are of a revenue nature and deductible if
the intellectual property is used in the production of income.
Therefore, use of rights of patents, copyright and inventions are
deductible.
📱 4. Mobile Telephone Networks Holdings (Pty) Ltd
Audit Fees:
Incurring audit fees is necessarily attached to the performance
of the taxpayer’s income earning operations
Training Fees:
If an expense is necessary in order to trade effectively, it will not be capital in nature and will be
allowed as a deduction.
💎 5. Not of a Capital Nature
🏗️ 1. New State
Areas Ltd
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
⛏️ 2. Rand Mines
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
⛽ 3. BP South
Africa
The legal categorisation of a payment does not determine
whether it is capital or revenue, but rather the purpose of the
expenditure. The shorter the period of endurance to which the
payment relates, the easier it is to argue that it is revenue in
nature.
📅 3. During the year of assessment
⛏️ Sub-Nigel Ltd
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.
🏪 Trade
🎩 1. Burgess
A wide interpretation should be given to trade
🏗️ 2. Scribante Constructions
Interest paid on loans, which loans assist a taxpayer to commercially operate more advantageous, will be expended for purposes of trade. Borrowing money and re-lending constitutes the carrying on of a trade.