Deductions
General deduction formula
Section 11(a)
Components
Preamble
Positive test
Negative test s23(g)
Prepaid expenses rule s23(H)
Preamble
“For the purposes of finding taxable income derived from a trade, there shall be
deductions allowed from income”
1. A trade must occur
2. Income must be derived or intention to derive it must exist
Trade Test
Trade has a wide definition including all professions, business enterprises,
goods and services, etc
There must be an ongoing activity or activities with a long-term profit making
intention
Positive Test
(a) Expenditure and Losses
Actually incurred
During the year of Assessment
In the production of income
Not of a capital nature may be deducted under s11(a)
1. Expenditure and losses
Expenditure can be voluntary or involuntary
Losses would be involuntary expenditure if related to income
generation
The difference between a loss and expense aren’t relevant for tax
purposes only whether they closely relate to generation of income in a
trade
2. Actually incurred
General deduction formula
Section 11(a)
Components
Preamble
Positive test
Negative test s23(g)
Prepaid expenses rule s23(H)
Preamble
“For the purposes of finding taxable income derived from a trade, there shall be
deductions allowed from income”
1. A trade must occur
2. Income must be derived or intention to derive it must exist
Trade Test
Trade has a wide definition including all professions, business enterprises,
goods and services, etc
There must be an ongoing activity or activities with a long-term profit making
intention
Positive Test
(a) Expenditure and Losses
Actually incurred
During the year of Assessment
In the production of income
Not of a capital nature may be deducted under s11(a)
1. Expenditure and losses
Expenditure can be voluntary or involuntary
Losses would be involuntary expenditure if related to income
generation
The difference between a loss and expense aren’t relevant for tax
purposes only whether they closely relate to generation of income in a
trade
2. Actually incurred
