Expected Solutions
Question 1
General Deduction Formula (section 11(a) read with section 23)
A deduction under section 11(a) is allowed only if all five requirements are met:
, 1. Expenditure or losses – the amount must constitute either expenditure (a voluntary payment) or a loss (an
involuntary deprivation) .
2. Actually incurred – the amount must have been paid or an unconditional liability must
have arisen during the year of assessment.
3. During the year of assessment – the expenditure/loss must arise in the current year.
4. In the production of income – the expenditure/loss must be closely connected to the
income‑earning operations.
5. Not of a capital nature – the amount must be revenue in nature, not capital.
Section 23(g) prohibits a deduction for any amount that is not laid out or expended for the purposes of trade .
The two sections must be read together.
Application to Dzindu Properties (Pty)
Ltd
Requirement Discussion Amount affected
The destruction of the
properties is a loss, as it
represents an involuntary
deprivation. In accordance
1. Expenditure or losses with Joffe & Co v CIR (1946 AD R2,700,000
157), a loss is defined as an
involuntary deprivation and
will qualify as a deduction
under section 11(a) if it arises
in the course of the taxpayer’s
trade.
Question 1
General Deduction Formula (section 11(a) read with section 23)
A deduction under section 11(a) is allowed only if all five requirements are met:
, 1. Expenditure or losses – the amount must constitute either expenditure (a voluntary payment) or a loss (an
involuntary deprivation) .
2. Actually incurred – the amount must have been paid or an unconditional liability must
have arisen during the year of assessment.
3. During the year of assessment – the expenditure/loss must arise in the current year.
4. In the production of income – the expenditure/loss must be closely connected to the
income‑earning operations.
5. Not of a capital nature – the amount must be revenue in nature, not capital.
Section 23(g) prohibits a deduction for any amount that is not laid out or expended for the purposes of trade .
The two sections must be read together.
Application to Dzindu Properties (Pty)
Ltd
Requirement Discussion Amount affected
The destruction of the
properties is a loss, as it
represents an involuntary
deprivation. In accordance
1. Expenditure or losses with Joffe & Co v CIR (1946 AD R2,700,000
157), a loss is defined as an
involuntary deprivation and
will qualify as a deduction
under section 11(a) if it arises
in the course of the taxpayer’s
trade.
