TAX2601 ASSIGNMENT 1 2026
DUE 8 APRIL 2026
QUESTION 1
Dzindu Properties (Pty) Ltd (Dzindu) is a South African resident company that
builds and sells residentialhouses in and around Vhembe (Limpopo Province).
The company’s financial year ends on 30 March.
Deductibility of loss of trading stock under section 11(a) read with section 23
The general deduction formula requires that expenditure or losses must satisfy all the
following criteria to be deductible:
(Learning Units 5 & 6)
Carrying on a trade - Dzindu builds and sells houses, which constitutes a trade
(Burgess v CIR).
Expenditure or loss actually incurred - The houses were destroyed in November
2025. The loss (cost of R2 700 000) was incurred at that time, even though payment
of the development cost may have occurred earlier.
During the year of assessment - The loss occurred in the year ended 30 March
2026.
In the production of income - The houses were held as trading stock for sale. The
loss is closely connected to the income-earning operations (Port Elizabeth Electric
Tramway Co Ltd v CIR).
Not of a capital nature - Trading stock is revenue in nature; its destruction does not
create an enduring benefit (New State Areas Ltd v CIR).
DUE 8 APRIL 2026
QUESTION 1
Dzindu Properties (Pty) Ltd (Dzindu) is a South African resident company that
builds and sells residentialhouses in and around Vhembe (Limpopo Province).
The company’s financial year ends on 30 March.
Deductibility of loss of trading stock under section 11(a) read with section 23
The general deduction formula requires that expenditure or losses must satisfy all the
following criteria to be deductible:
(Learning Units 5 & 6)
Carrying on a trade - Dzindu builds and sells houses, which constitutes a trade
(Burgess v CIR).
Expenditure or loss actually incurred - The houses were destroyed in November
2025. The loss (cost of R2 700 000) was incurred at that time, even though payment
of the development cost may have occurred earlier.
During the year of assessment - The loss occurred in the year ended 30 March
2026.
In the production of income - The houses were held as trading stock for sale. The
loss is closely connected to the income-earning operations (Port Elizabeth Electric
Tramway Co Ltd v CIR).
Not of a capital nature - Trading stock is revenue in nature; its destruction does not
create an enduring benefit (New State Areas Ltd v CIR).
