Summary
Summary Taxation 298 notes: General Deductions & Natural Persons
- Course
- Institution
Tax298: chapters 6&7 for A1S2 explanations & examples
[Show more]
1 review
By: biancamoxley • 3 year ago
Seller
Follow
lexishtein
Reviews received
Content preview
Taxation 2 nd2020
semester
298
by: Alexandra Shtein
,Table of Contents
CHAPTER 6: GENERAL DEDUCTIONS ............................................................................................................ 3
CHAPTER 7: NATURAL PERSONS ................................................................................................................ 30
,
,CHAPTER 6: GENERAL DEDUCTIONS
Overview:
Subsequent to determining ‘income’ (gross income – exempt income) the next step in the calculation of taxable income
is to deduct all amounts allowed as tax deductions under s11(a).
Unless specifically provided for elsewhere in the Income Tax Act, expenditure and losses are only deductible if the
requirements laid down in the general deduction formula are met.
S11(a) contains the positive test (what may be deducted), and s23 contains the negative test (prohibitions on certain
deductions). The prohibitions in s23 must always be considered in conjunction with the general deduction formula.
The fact that accounting principles (IFRS) or business practice would treat an amount as deductible is irrelevant.
◦ ‘[T]he court is not concerned with deductions that may be considered proper from an accountant’s point of
view or from the view of the prudent trader, but is merely concerned with the deductions which are permissible
according to the language of the Act’ [Joffe & Co Ltd v CIR 1946 AD 457 at 165]
S11(a): General deduction formula
MUST meet ALL 6 requirements
before deducting
Deduction of expenses:
1. Expenditure and losses (voluntary & involuntary);
2. During the YoA (s11(a) silent – courts);
3. Actually incurred (paid or unconditional liability to pay);
4. In the production of income (act that gave rise to expenditure is closely connected to income-producing
activities);
5. Not of a capital nature (must be closely related to the income generating operations not the income producing
structure, floating not fixed capital, does not create enduring benefit); and
6. Laid out for trade purposes (opening words of s11(a)- deduction from the taxable income derived from the
carrying on of a trade)
, 1) Expenditure & losses:
expenditure
• voluntary payment of money (Joffe & Co) (there doesn’t have to be an obligation or liability)
• Action of spending funds/ disbursement/ consumption (Labat)
• Diminution (even if temporary) or at very least movement of assets of person who expends
(Labat)
loss:
• involuntary deprivation i.e loss of inventory (Joffe & Co)
• Within the context of s11(a) means losses of floating capital employed in trade which produces
income (PE Electric Tramway)
2) During the year of assessment:
• Expenditure is only deductible during the YoA in which it was incurred. It cannot be carried forward to claim
in a subsequent year or carried backward to claim in a previous year (Sub-Nigel).
• To be deductible, it is not necessary that expenditure produce income in the year that it was incurred – the
income may only be earned in future years (Sub-Nigel).
• Remember: ‘during YoA’ requirement laid down by the courts and not listed as a requirement in s11(a) itself.
Centlivres CJ in Sub-Nigel Ltd v CIR:
‘[T]he whole scheme of the Act shows that, as the taxpayer is assessed for income tax for a period
of one year, no expenditure incurred in a year previous to the particular tax year can be deducted’.
• Exceptions: s24M and s23H
* if an amount is not claimed as a deduction in the correct year of assessment, the deduction may not be claimed
in a later year.
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 lexishtein. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.56. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67096 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now