This document presents a series of intricate questions and suggested solutions focused on the topic of income and expenses within the context of business taxation, as covered in TAX 3761. Each question is designed to deepen understanding and application of tax laws in real-world scenarios, covering...
Income And Expense discussion Questions:
Question 1:
Bop Pop (Pty) Ltd sells second-hand music equipment.
Bop Pop’s financial year ends on the last day of March and
is a registered VAT vendor making only taxable supplies.
On the last day of February 20X20, the company paid an
amount of R103 040 in advance to Rythmn Ltd for
electricity to be supplied during the six-month period from
1 March 2020 to 31 August 2020 relating to the property it
occupies for the purposes of its trade in selling second-
hand furniture.
Required:
Discuss, supported with calculations and relevant legislation and case law principles, whether the
amount of R103 040 paid by Bop Pop (Pty) Ltd will qualify as a deduction from the company’s taxable
income for the 20X20 year of assessment. In addition, consider any other specific deduction in which the
amount can be deductible. – 15 Marks
, Question 1 Suggested Solotions
Carry on a trade Bop Pop (Pty) Ltd sells second- (1)
hand furniture, therefore carries
on a trade.
Expenditure or losses Bop Pop (Pty) Ltd paid an amount (1)
of R103 040 to Rythmn
(Joffe & Co).
Actually incurred The taxpayer paid R103 040 on 28 (1)
February 20X20 and therefore the
expense was paid by
Bop Pop (Pty) Ltd
(Caltex Oil).
During the year of The amount was paid on 28 (4)
assessment February 20X20, which is within
the 2020 year of assessment.
The payment is for the 6-month
period from 1 March 2020 to 31
August 2020.
Therefore, only R103 040 x 1/6 =
R17 173 (1-month) relates to the
20X20 year of assessment.
And R103 040 x 5/6 = R85 867 (5-
months) relates to the 2021 year
of assessment (subject to sec on
23H as discussed below).
In the produc on of The expense is closely linked to (2)
income the opera ng income of the
business. The payment is in
the produc on of income (PE
Electric Tramway).
Not of a capital nature No enduring benefit for the (2)
company and therefore not of a
capital nature
(Sub-Nigel)
Sec on 23 Sec on 23H may delay the (6)
deduc on in the determina on of
taxable income or prepaid
expenses un l the following year
of assessment.
There are two situa ons where
sec on 23H will be applicable:
When the services are
rendered to the taxpayer within
six months of the end of
the year of assessment of incurral
(in this case the prepayment is
only for five months).
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