General Deductions

Trade

Defined in the section 1(1) of the Income Tax Act and includes

Every profession, trade, business, employment, calling, occupation or venture, including the letting of any property and the use of or the grant of permission to use any patent as defined in the Patents Act or any design as defined in the Designs Act or any trademark as defined in the Trade marks Act or any copyright as defined in the Copyright Act or any other property which is of a similar nature.

Burgess case

The definition of trade should be given a wide interpretation

The definition is not necessarily exhaustive and the term trade was intended to include every profitable activity.

Scribante Construction(Pty) Ltd

Carrying on a trade includes borrowing money and re-lending it at an increased interest rate(which results in more profit)

Requirements of section 11(a)

Expenditure and losses

Actually incurred

During the year of assessment

In the production of income

Not of a capital nature

Onus

In terms of section 102 of the Tax Administration Act, the onus of proof is on Shelly to prove that an amount is dedeuctible

No specific deductions

Consider the general deduction formula or section 11a read together with section 23g

Edgar Stores Ltd case (Actually incurred)

There must be an unconditional legal obligation on a taxpayer to pay an expenses before it will be actually incurred for the purposes of section 11(a) of the Income Tax Act

Nationals Pers Bpk case

If there is no definite and absolute liability during the year of assessment to pay an amount, expenditure has not been actually incurred

Golden Dumps (Pty) Ltd

A liability to pay a claim is not unconditional where the validity of a claim is genuinely disputed and if at the end of the relevancy tax year the dispute is unresolved.

Caltex Oil(SA) Ltd case

Expenditure actually incurred does not mean expenditure actually paid during the year of assessment to. It means all expenditure for which a liability has been incurred during the year, whether the liability has been discharged or not

Joffe and Co(Pty) Ltd

A loss is usually an involuntary deprivation suffered whereas expenditure usually means a voluntary payment of money.

Labat case(meaning)

Expenditure refers to the action of spending funds, disbursements or consumption.

Expenditure would also include the disbursement of other assets with a monetary value that is a non cash item with a monetary value

Expenditure, accordingly requires a diminution or at the very least movements of assets of the person who expends

Labat case 2011 SCA

An allotment or issuing of shares does not in any way reduce the assets of a company and therefore does not qualify as expenditure or as an expense actually incurred.

Section 24M: Unquantified amounts: Acquistion of assets

If a person acquires an asset for a consideration that cannot be quantified in that year of assessment, the part of the consideration that cannot be quantified is deemed not be incurred by that person in that year of assessment. The unquantified portion is deemed to be incurred only in the year of assessment in which it can be quantified.

Sub-Nigel Ltd case

Deductible expenditure can only be deducted in the year of assessment in which it was incurred.

Sub Nigel in the production

An expense actually incurred would meet the requirement of ‘in the production of income’, if the expense was incurred for the purpose of producing income. It is therefore irrelevant if no income was in actual fact produced, in the year incurred, or ever.

BP South Africa(Pty)Ltd

For an expense to be incurred in the production of income, the purpose of the expense must be to produce income

Port Elizabeth Electric Tramway Co Ltd

Expenditure must be closely connected to the income earning activities of an entity(or a necessary concomitant of the income earning activities) in order for it to be considered to be in the production of income. The expenditure must be so closely linked to the income earning activities as to be regarded as part of the cost of performing them.

Rand Mines case

Expenditure that is more closely related to the cost of adding to or enhancing the income-earning structure of a business than to the cost of performing its income-earning operations is capital in nature

New State Areas

Expenditure incurred to perform the income-earning operations is income in nature. Expenditure incurred to establish, improve or add to the income-earning structure is capital in nature

BP Southern Africa (Pty) Ltd case

Expenditure incurred for the purposes of acquiring a capital asset of the business (which creates an enduring benefit that endures like fixed capital) is capital expenditure whereas expenditure incurred for the use of an asset or expenditure that does NOT create an enduring benefit is revenue in nature