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Nine requirements to qualify for a deduction of expenditure and losses

by , 20 September 2015
A deduction is an amount SARS lets you deduct from your taxable income. It is very often the actual expense you've incurred.

You can use the full amount of your deduction to reduce your taxable income in the year you incur it. Or, you can do so over the year it applies to.

But now, how do you know if you can deduct an expense?

You can deduct any expenditure or loss you incur in your company's production of income. But only if it's not of a capital nature. This is the general deduction formula.

Having said that, here are nine requirements that must be met in order to qualify for a deduction of expenditure and losses, in terms of the general deduction formula:

Requirement#1:

You must carry on a trade.

Requirement#2:

You must derive income from that trade. Or, you must show you will in the future.

Requirement#3:

The amount claimed must be an expense or a loss.

Requirement#4:

You must incur the expense or loss in the year of assessment.
 
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Requirement#5:

You must incur the expense of loss in the production of income.

Requirement#6:

You must set out the expense or loss for the purpose of trade. 

Requirement#7:

As was stated earlier, the expense or loss may not be of a capital nature.

Requirement#8:

The expenditure or loss mustn't be prohibited by Section 23 of the Income Tax Act. Or any other section for that matter.

Requirement#9:

You may only claim expenses that are provided for under the Income Tax Act. In other words, you can only claim them as deductions once.
 

So, there were nine requirements that must be met in order to qualify for a deduction of expenditure and losses, in terms of the general deduction formula.

To learn more, click below…
 
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