LML4804
ASSIGNMENT 1 2026
DUE: 19 AUGUST 2026
SEMESTER 2 2026
,LML4804 ASSIGNMENT 1 2026
DUE: 19 AUG 2026
QUESTION 1 (DEDUCTIONS)
1 Indicate whether the following is True or False. (5 Marks)
1.1 Expenditure can only be deducted under section 11(a) if the taxpayer carries
on trade.
FALSE
Employment is specifically included in the definition of "trade" in section 1(1). Therefore,
employees are considered to be carrying on a trade.
Silke Ch 6, par 6.2
1.2 Because employment is not a trade, no expenditure relating to employment
may be deducted under section 11(a).
FALSE
Employment IS a trade. While section 23(m) limits deductions for employees, certain
deductions are still permissible (e.g., section 11F retirement contributions, section 11(e)
wear and tear, home office expenses).
Silke Ch 6, par 6.5.12; Ch 7, par 7.4
,1.3 A taxpayer whose only income is derived from employment can claim all
expenses incurred as a section 11(a) deduction.
FALSE
Section 23(m) prohibits the deduction of expenditure relating to employment except for
specified deductions (retirement fund contributions, legal expenses, wear and tear, bad
debts, certain home office expenses). Domestic and private expenses are also prohibited
under section 23(b).
Silke Ch 6, par 6.5.12
1.4 Interest paid on a loan used to buy shares in a company in order to earn
dividend income may never be deducted under section 11(a) or section 24J.
FALSE
Exceptions exist where such interest may be deductible:
Section 24O allows deduction where a controlling interest in an operating company is
acquired
The purpose test from CIR v Drakensberg Garden Hotel allows deduction if the purpose
is to obtain control of the business generating income, not just to receive dividends
Silke Ch 16, par 16.2.3.3 and 16.2.3.4
, 1.5 In order to be actually incurred, an expense must be paid.
FALSE
"Actually incurred" means a liability has been incurred during the year, regardless of
whether payment has been made (Caltex Oil (SA) Ltd v SIR). An unconditional legal
obligation to pay is sufficient.
Silke Ch 6, par 6.3.2
QUESTION 2: S'Celo's Deductions (10 Marks)
Expenditure Amount Deductible? Basis
Purchase of old R650,000 No Capital expenditure - acquisition of
house capital asset
Transformation to R500,000 No Capital expenditure - improvements to
office capital asset (creates enduring benefit)
Office furniture R30,500 Yes (R2,542) Section 11(e) wear-and-tear allowance
(6-year write-off, apportioned for 6
months)
Section 11A Pre-trade Expenditure:
The company commenced business on 1 September 2025
Office furniture qualifies under section 11(e) and therefore under section 11A
Building and renovation costs are capital in nature and do not qualify under section 11A
Case Law Support:
ASSIGNMENT 1 2026
DUE: 19 AUGUST 2026
SEMESTER 2 2026
,LML4804 ASSIGNMENT 1 2026
DUE: 19 AUG 2026
QUESTION 1 (DEDUCTIONS)
1 Indicate whether the following is True or False. (5 Marks)
1.1 Expenditure can only be deducted under section 11(a) if the taxpayer carries
on trade.
FALSE
Employment is specifically included in the definition of "trade" in section 1(1). Therefore,
employees are considered to be carrying on a trade.
Silke Ch 6, par 6.2
1.2 Because employment is not a trade, no expenditure relating to employment
may be deducted under section 11(a).
FALSE
Employment IS a trade. While section 23(m) limits deductions for employees, certain
deductions are still permissible (e.g., section 11F retirement contributions, section 11(e)
wear and tear, home office expenses).
Silke Ch 6, par 6.5.12; Ch 7, par 7.4
,1.3 A taxpayer whose only income is derived from employment can claim all
expenses incurred as a section 11(a) deduction.
FALSE
Section 23(m) prohibits the deduction of expenditure relating to employment except for
specified deductions (retirement fund contributions, legal expenses, wear and tear, bad
debts, certain home office expenses). Domestic and private expenses are also prohibited
under section 23(b).
Silke Ch 6, par 6.5.12
1.4 Interest paid on a loan used to buy shares in a company in order to earn
dividend income may never be deducted under section 11(a) or section 24J.
FALSE
Exceptions exist where such interest may be deductible:
Section 24O allows deduction where a controlling interest in an operating company is
acquired
The purpose test from CIR v Drakensberg Garden Hotel allows deduction if the purpose
is to obtain control of the business generating income, not just to receive dividends
Silke Ch 16, par 16.2.3.3 and 16.2.3.4
, 1.5 In order to be actually incurred, an expense must be paid.
FALSE
"Actually incurred" means a liability has been incurred during the year, regardless of
whether payment has been made (Caltex Oil (SA) Ltd v SIR). An unconditional legal
obligation to pay is sufficient.
Silke Ch 6, par 6.3.2
QUESTION 2: S'Celo's Deductions (10 Marks)
Expenditure Amount Deductible? Basis
Purchase of old R650,000 No Capital expenditure - acquisition of
house capital asset
Transformation to R500,000 No Capital expenditure - improvements to
office capital asset (creates enduring benefit)
Office furniture R30,500 Yes (R2,542) Section 11(e) wear-and-tear allowance
(6-year write-off, apportioned for 6
months)
Section 11A Pre-trade Expenditure:
The company commenced business on 1 September 2025
Office furniture qualifies under section 11(e) and therefore under section 11A
Building and renovation costs are capital in nature and do not qualify under section 11A
Case Law Support:
