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Don't let SARS reject your claim on first year expenditure with this one tip

by , 10 May 2013
Want to know how to claim all your first year expenditure if SARS has rejected it outright? One of our accountingandtaxclub.co.za members, Elbé, asked a similar question about pre-trade expenditure.
Let's have a look at Elbé's question.

A Trust didn't make income in the first year, but SARS rejected their expenditure. What now?

Elbé asked:  A Trust bought a property in one financial year and only received rental income from the next financial year. SARS disallowed all expenditure for the first year - levies, municipal charges, interest on bond and accounting fees. The Trust couldn't find a tenant in the first year, and rental income was only received from year two.

How can we claim the first year's expenditure, as it was pre-trading income?

Read on for one of our accounting experts, David's response…


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One of our Accounting expert at the accountingandtaxclub.co.za David van Niekerk, responds that the expenses in the prior period weren't pre-trading expenses.

 This is because the trust was already looking for a tenant in the first year. SARS isn't interested if your first income only begins in year three! SARS is interested in your intent as a trader.

You'll be able to show the  prior year expenses as a deduction (because you were trading). Interpretation Note 33, point 4.2.2 and Point 5 will be a good weapon in your arsenal.




Accounting TIP for the day

If Elbé' had this knowledge and prepared in advance, this issue wouldn't have arisen. She would've declared the expenses because the Trust was trading, and SARS would've had to honour those claims.

 If the Trust in question is to lay an objection and pass a future audit, they best align their book-keeping records to correctly reflect the first year as a year of trade. If they don't, this could be a red-flag for a SARS audit!

Want an accounting expert like David van Niekerk inside your inbox? If you're a subscriber to the Practical Accountancy Loose Leaf service, simply email the accounting Helpdesk and receive your answer within 72-hours, at no cost to you! Not a subscriber yet? Click here to get all the benefits!


+++ Surviving the SARS audit mine-field…+++
 
Your audit could be around the corner! And SARS is hungry for money! If you're not careful, an audit could burn an irreparable hole in your wallet.
 
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Comments
1 comments


Nomvuyiseko 2013-05-16 13:23:22

Phillip, SARS has just rejected our first year expenditure, regardless of proving that we were trading on year one. They say we did not make any provisional tax payments. Do you have to be a provisional tax payer in order for your Taxable loss to be allowed on year 1?

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