Carrying on
of a trade
Manufac is carrying on a trade of manufacturing products. (2)
Expenditure
or loss
The settlement of R352 000 that must be paid (or is due) is an expense. (2)
Actually
incurred
An expense is
...
Carrying on
of a trade
Manufac is carrying on a trade of manufacturing products. (2)
Expenditure
or loss
The settlement of R352 000 that must be paid (or is due) is an expense. (2)
Actually
incurred
An expense is actually incurred if there is an unconditional legal liability to pay.
(Unconditional liability arises when the parties conclude the agreement even though
not yet actually paid / There is a legal liability to pay )
Case law: Edgars Stores LTD v CIR (1988 AD) (or Nasionale Pers Bpk v KBI)
The amount does not actually have to be paid for it to be incurred.
Case law: Caltex Oil (SA) Ltd v SIR
The settlement amount is actually incurred , because it has been agreed between the
parties that the R352 000 is owing by Manufac to ABC.
(5)
During the
year of
assessment
Manufac incurred an unconditional legal liability to pay the compensation amount to
ABC during the 2021 year of assessment when the agreement was concluded (and not
when it is paid). (2)
In the
production
of income
The risk of Manufac infringing on a design of another manufacturing company may be
regarded as sufficiently closely connected to the income earning operations of Manufac
/ an inevitable concomitant of Manufac’s business activities to be incurred in the
production of income.
Case law: Port Elizabeth Electric Tramway Co Ltd v CIR (1936 CPD) (Joffe and Co
(Pty) Ltd v CIR and COT v Rendle)
(Only to take note: Does not actually have produced income in the year that it was
incurred – Sub-Nigel)
(3)
Not of a
capital
nature
The compensation paid for the loss of sales is closely connected to the income
earning operations (and not the structure) of Manufac (No enduring benefit created
filling a hole in the profits/assets ) and therefore not an expense of a capital nature.
Case law: New State Areas Ltd v CIR (1946 AD) / BP Southern Africa (Pty) Ltd v
CSARS / Burmah Steamship)
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