ALLOWABLE DEDUCTIONS

In a case where a person earns ‘income

from trade and investments’ and
‘income from employment’ any amount
allowed to be deducted in terms of this
section shall only be claimed in respect
of the income to which it relates.
 General Deduction Formula
The deductions allowable shall be:
 expenditure and losses,
to the extent to which,
they are incurred
for the purposes of trade
or in the production of income
except to the extent to which they are
expenditure or losses of a capital nature.
 General Deduction Formula
Losses – not limited to cash outlays
but may include losses arising due
to mishaps
Extent to which – brings in
apportionment and ensures that
only the business portion is allowed
Incurred – legally liable to pay
 General Deduction Formula
 Purposes of trade – means to enable
a person to carry on and earn profits
in the business.

It is divided into two categories viz:

a) Designed expenditure

b) Fortuitous expenditure
 General Deduction Formula
capital nature - "Money spent in creating
or acquiring an income-producing concern
must be capital expenditure. It was invested
to yield future profit and while the outlay
did not recur, the income did. There was a
great difference between money spent in
creating or acquiring a source of profit, and
money spent in working it. The one was
capital expenditure, the other was not …."
Examples of Non-Allowable expenses
 Cost of Fixed assets
 Goodwill
 Professional advice on tax matters
 Transport costs on acquisition of movable assets
 Machinery installation costs
 Charitable donations
 Fines
 Alterations to title deeds
 Rates paid on vacant stand
 Legal expenses incurred in drawing
initial lease agreement for business
premises
 Electricity and telephone installation
costs
 Entrance fees to business associations
 Excessive director’s fees
 Pilferage by a manager who has
proprietary rights
 Improvements to fixed assets
 Painting rented property
 Drawings
 Cost of acquiring intangible assets
 Company formation and preliminary
expenses
 Estimated expenditure
 Architect’s fees
 Loss on sale of fixed assets
 Underpinning the foundation of a business
property
 Replacement of hedge with durawall
 Cost of neon sign, billboards etc.
Erecting a model house at the Trade Fair
grounds
Removal of tree threatening business
property
Restraint of trade
Cost of partition walls
Re-erection of business premises
Installation of drainage works on rented
property at the insistence of the
Municipality
Examples of Allowable expenses
Cost of tradesman’s tools
Legal costs for debt collection
purposes
Cost of protective clothing
Cost of distributing dividends
Protection of trading rights and
elimination of competition
Fee paid for assistance in the
completion of an income tax return
 Accounting fees
 Employee’s life policy where the employee is the
beneficiary
 Advertising the business
 Valuation of assets for fire insurance purposes
 Employees’ salaries and wages
 Contractual payments on employee’s termination of
employment
 Connection fees for water, telephone or electricity
 Business motive donations
Loan raising fees for loan used to
purchase trading stock
Minor removals of plant in the same
premises
Expenses incurred in the removal of
trading stock
Pilferage by an employee
Repainting rented property
Irrecoverable advances to employees
Subscriptions to business associations
Contributions towards a private
railway siding where ownership
remains with the NRZ
Bond interest payable on property
used for business
Irrecoverable contributions to ZESA
towards the cost of a power line
Action to compel customer to take
delivery of goods purchased
 Special Deductions
b) Repairs to movable assets used and immovable assets
occupied for the purposes of trade. Repairs resulting
from the letting of property
g) Bad debts and allowance for Doubtful debts
h) Pension contributions (includes NSSA which is upto
$5400 max p.a and retirement annuity fund
contributions)
i) Arrear pension contributions for past service
j) Medical aid contributions paid by the employer
m) Experiments and research
n) Experiments and research
o) Scientific Research &Experimental work
p) Educational grant, Bursary or Scholarship
 Special Deductions Cont’d
p) Cost of grants, bursaries and scholarship
q) Ex-gratia payments to former employee or
dependant (s) of former employee
r) Donations
s) Subscriptions for continued membership
t) Expenditure incurred prior to
commencement of business
u) Opening stock
v) Trading stock acquired without payment
w) Attendance at a trade mission or convention
 Special Deductions Cont’d
aa) Legal costs on income tax appeals
ab) Legal costs on income tax appeals.
ac) Allowance on expenditure not yet incurred – income
already taxed
ag) 200% on the cost incurred on ‘export market
development’
ah) Tobacco levy
aj) Payment to an ‘Approved employee ownership scheme
ak) Maintenance costs incurred on behalf of local authorities -
$100 million maximum
3) Assessed loss( section15(3)
NB* Students to refer to the given handout for the actual
amounts allowed, restrictions and conditions to be met
for a particular deduction to be allowed.