Summary
Summary General Deductions
- Course
- Institution
These notes cover the whole of Chapter 6: General Deductions.
[Show more]
Seller
Follow
Notes1234
Content preview
CHAPTER 6: GENERAL DEDUCTIONSCHAPTER OVERVIEW
• Subsequent to determining ‘income’ [gross income - exempt income] the
next step in calculation of taxable income = deduct all
amounts allowed as tax deductions under S11(a)
• Expenditure & losses are deductible if ALL requirements in the
general deduction formula are met, unless specifically
provided for elsewhere in ITA
• S11(a) contains positive terms [what may be deducted] & S23 contains
negative terms [prohibitions on certain deductions]
- Prohibitions in S23 must be considered in conjunction with
S11(a) general deduction formula
• Note: fact that IFRS or business practice would treat an amount as deductible is irrelevant
PRE-REQUISIT: TRADE
DEFINITION
PRE-TRADE EXPENDITURE
GENERAL DEDUCTION
FORMULA
POSITIVE TERMS NEGATIVE TERMS
[SECTION 11(a)] [SECTION 23(b) & (g)]
6 ALWAYS CONSIDER
REQUIREMENTS S23(a)-(r)
S23B
S23C
S23H
GENERAL DEDUCTIONS FORMULA: [S 11(a)]
• The general deduction formula can be broken down into the following elements: [requirements]
1) Expenditure & losses [voluntary & involuntary]
2) Actually incurred [paid or unconditional legal obligation to pay]
3) During the YoA [not in S11(a) but laid down by courts = logical requirement]
4) In the production of income [action that gave rise to expenditure is closely connected to income-earning B activities]
5) Not of a capital nature [must be closely related to income-earning operations not the income-earning structure, floating not
fixed capital, not create enduring benefit]
6) To the extent that it is laid out for trade purposes [opening words of s 11(a): allowed as deduction from the
income derived from carrying on of trade]
All the above requirements must be met before an amount can be deducted ito the general deduction formula
Page 1 of 13
, 1) Expenditure & Losses:
• Following terms have been defined through case law:
Expenditure Losses
- Voluntary payment of money/movement of assets - Involuntary deprivation
- Action of spending funds/disbursement/ - Within context of S11(a) means
consumption & ∴ the amount of money spent losses of floating capital employed
- Diminution [even if temporary] or, at very least, a in the trade which produces income
movement of assets of the person who expends
2) Actually Incurred: [actually incurred ≠ actually paid ≠ necessarily incurred]
• Actually incurred doesn’t mean necessarily incurred
• Only expenditure which taxpayer has incurred an unconditional legal obligation/liability can
be deducted
• If liability is contingent upon some condition = it’s NOT ‘actually incurred’
- It only becomes ‘actually incurred’ once the condition has been met
- ∴ if no definite & absolute liability to pay amount = expenditure NOT ‘actually incurred’
• Expenditure is ‘actually incurred’ in tax year in which the liability to pay it arises & NOT in tax
year in which it’s actually paid
• Estimates of contingent [uncertain] liabilities = NOT expenditure actually incurred
• If unconditional legal liability was incurred but can’t be quantified = S24M says unquantified
portion of expenditure only deemed to be incurred in YoA when can be quantified
• Deduction in respect of a disputed claim can’t be claimed if outcome of dispute is
undetermined at end of the YoA
3) During the Year of Assessment: [logical requirement]
• Expenditure is only deductible during the YoA in which it was ‘actually incurred’
- ∴ it can’t be carried forward to claim in a subsequent year or carried backward to claim in a
previous year
Exceptions: S 24M & S 23H
• To be deductible it’s not necessary that expenditure produce income in year that it was
incurred & ∴ it’s deductible even if income will only be earned in future years
4) In the Production of Income: [hardest requirement to understand]
‘Income’ = Gross Income – Exempt Income
• To determine whether expenditure was ‘in the production of income’ = 2 aspects must be
determined:
(1) The action that gave rise to the expenditure & the purpose of that action
(2) If the action [expenditure] is so closely connected with [or a necessary concomitant of] the income-
earning business activities of taxpayer
Page 2 of 13
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Notes1234. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $2.76. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
52355 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now