, LML4801
ASSIGNMENT 1 SEMESTER 2
2026
DUE 19 AUGUST 2026
QUESTION 1 (DEDUCTIONS)
1.1 Expenditure can only be deducted under section 11(a) if the taxpayer carries on trade.
True.
According to the general deduction formula contained in section 11(a) of the Income Tax Act,
expenditure will only be deductible if it is actually incurred in the production of income and is not
of a capital nature. A fundamental prerequisite for this deduction is that the taxpayer must be
carrying on a trade. The term "trade" is defined very broadly in the Act and includes every
profession, trade, business, employment, calling, occupation, or venture, including the letting of
property. Therefore, if a taxpayer is not carrying on a trade, the deduction under section 11(a) is
simply not available.
1.2 Because employment is not a trade, no expenditure relating to employment may be deducted
under section 11(a).
False.
This statement is incorrect because the statutory definition of "trade" in the Income Tax Act is
specifically drafted to include "employment". The Act does not exclude employment from the
definition of trade; rather, it expressly includes it. Consequently, an employee is indeed carrying on
a trade for income tax purposes. However, the reason employees face difficulties in claiming
deductions is not because they fail the trade test, but rather because of other provisions such as
section 23(m), which disallows certain expenses, and the requirement that expenses must not be of
a capital or private nature.
1.3 A taxpayer whose only income is derived from employment can claim all expenses incurred
as a section 11(a) deduction.
False.
While employment is considered a trade, the deductibility of expenses for employees is severely
restricted. Section 23(m) of the Income Tax Act specifically disallows deductions under section 11(a)
for most expenses incurred by employees whose remuneration does not consist mainly of
commission or variable payments based on work performance. This means that a salaried
employee earning a fixed salary cannot claim most ordinary business expenses. The law permits a
salaried employee to claim only a very narrow range of expenses, such as qualifying home office
expenses (e.g., rent, electricity, and cleaning) and wear-and-tear on certain assets, but only if
ASSIGNMENT 1 SEMESTER 2
2026
DUE 19 AUGUST 2026
QUESTION 1 (DEDUCTIONS)
1.1 Expenditure can only be deducted under section 11(a) if the taxpayer carries on trade.
True.
According to the general deduction formula contained in section 11(a) of the Income Tax Act,
expenditure will only be deductible if it is actually incurred in the production of income and is not
of a capital nature. A fundamental prerequisite for this deduction is that the taxpayer must be
carrying on a trade. The term "trade" is defined very broadly in the Act and includes every
profession, trade, business, employment, calling, occupation, or venture, including the letting of
property. Therefore, if a taxpayer is not carrying on a trade, the deduction under section 11(a) is
simply not available.
1.2 Because employment is not a trade, no expenditure relating to employment may be deducted
under section 11(a).
False.
This statement is incorrect because the statutory definition of "trade" in the Income Tax Act is
specifically drafted to include "employment". The Act does not exclude employment from the
definition of trade; rather, it expressly includes it. Consequently, an employee is indeed carrying on
a trade for income tax purposes. However, the reason employees face difficulties in claiming
deductions is not because they fail the trade test, but rather because of other provisions such as
section 23(m), which disallows certain expenses, and the requirement that expenses must not be of
a capital or private nature.
1.3 A taxpayer whose only income is derived from employment can claim all expenses incurred
as a section 11(a) deduction.
False.
While employment is considered a trade, the deductibility of expenses for employees is severely
restricted. Section 23(m) of the Income Tax Act specifically disallows deductions under section 11(a)
for most expenses incurred by employees whose remuneration does not consist mainly of
commission or variable payments based on work performance. This means that a salaried
employee earning a fixed salary cannot claim most ordinary business expenses. The law permits a
salaried employee to claim only a very narrow range of expenses, such as qualifying home office
expenses (e.g., rent, electricity, and cleaning) and wear-and-tear on certain assets, but only if
