General Deduction Formula

General Deduction Formula
Expenditure and Losses
Joffe & Co vs. CIR:
Expenditure tends to be voluntary
wheras losses tend to be involuntary.
Actually incurred
Caltex Oil Ltd vs SIR:
Amounts that have been paid and liabilities
incurred are included in allowable deductions
Nasionale Pers BPK vs KBI:
An expense is only deductible when any
conditions attached to it have been
met.
Edgars Stores Ltd vs CIR:
An amount is not deductible if it is
conditional or subject to a clause or
event.
Port Elizabeth Electric Tramway
Co. vs CIR:
As long as the liability to pay an amount has been actually
incurred the amount will be deductible. Though it does not necessarily have to be paid.
Ackermans Ltd vs CIR:
Contingent liabilities are not deductible.
In the year of assessment
An expense can only be deducted in the
year in which it was incurred.
Exception: Prepaid expenditure must be
deducted over the period to which the expense
relates.
In the production of income
PE Electric Tramway Co vs CIR:
The expense must be closely connected with the
income earned in order for it to be a deductible
expense.
Joffe & Co:
Compensation paid is disallowed as a deduction if the
negligent action is not a necessary concomitant of
trade.
Sub Nigel Ltd vs CIR:
Expenditure is deductible irrespective
of the year in which it produces income.
CSARS vs BP SA:
The purpose of the expense must be assessed in order to
determine whether it was incurred in order to produce
income.
WF Johnstone & Co vs CIR:
Expenditure paid in the current year of assessment for
services rendered in prior years of assessment is not
deductible.
CIR VS Nemojim:
Expenditure can be apportioned if it is
incurred for two different purposes.
Not of a capital nature
Capital expenditure is not deductible.
Tests have been formulated to check
whether it is Capital or Revenue in
nature:
Operations vs Structure:
Expense is deductible if it adds to the income earning
operations and is capital if it adds to the income earning
structure.
Fixed vs Floating capital:
An expense is capital if it creates an
enduring benefit.
What is the true nature of the transaction?
How closely connected is the expense to
the income?
Money spent in creating a source of
profit is capital CIR vs George Timber
Co
Does the expense relate to fixed capital
or floating capital?
Floating capital is revenue in nature and
therefore deductible New State Areas
case.
Was the expense "once and for all"?
Recurring expenses are deductible.
Specific Expenses and Losses
Fines or Bribes:
These are prohibited deductions.
Theft or Embezzlement:
Only deductible if closely connected to
operations.
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