If you claim a tax deduction from your business taxes when SARS doesn't allow you to, it will hit you with penalties.
This happens more often than you think.
Even though the tax laws include provisions about deductable expenses they still cause ongoing fights between SARS and taxpayers.
Each time one of these fights goes to courts, it leads to a new decision that can change the tax laws.
So if you find yourself in a unique situation that tax law doesn't cover, it's difficult to know how to handle it. That's why I'm going to show you a few ways you can check if your business expenses qualify as tax deductions.
Read on to find out what they are...
Here are a few simple tests you can use to find out if your business expenses are tax deductable
The positive test
You can deduct any expenses and losses you incurred while running your business. But it can't be capital in nature (Section 11(a) of the Income Tax Act
). People call this section the 'general deduction formula'.
The negative test
Section 23 of the Income Tax Act
says you can't claim certain deductions. This forms an integral part of the general deduction formula.
The most important sub-section for the purposes of the overall general deduction formula is Section 23(g). This section says you can't claim any deductions for expenses you didn't pay for to run your business.
If these two tests don't help you, use this handy checklist to see if you qualify for a deduction.
Use this checklist to find out if you can claim a tax deduction
• You must be carrying on a trade.
• You must, in carrying on that trade, generate income.
• The amount you want to claim must be an expense or a loss.
• The expense or loss must be from the current year of assessment.
• You need to incur the expense or loss while generating your income.
• The expense or loss needs to come from your trade.
• The expense or loss mustn't be capital in nature.
• The expense or loss mustn't fall under the deductions Section 23 says you can't claim.
And be warned, there are two types of expenses you can never try to claim from your business taxes.
*********** Reader's choice ***************
How many of the tax allowances and deductions available to your business do you actually use?
Every business has the potential to save thousands of rands every year, but very few make the most of this potential.
Never claim these two types of expenses as business tax deductions
There are some common expenses you can't deduct from your income: Private and domestic expenses.
For example, you can't claim private and domestic expenses such as:
• School fees;
• The cost of maintaining your family and home. This includes rent, repairs and other expenses relating to your private residence; and
• Employment of a housemaid to look after your children so your wife can earn an income.