Week 5 - General Deductions

Question 1

can you have deductions if you have no Income?

Answer 1

no

Question 2

two tests in the general deduction formula?

Answer 2

• s11a = positive test
  AND
• s23g = negative test

Question 3

preamble of s11a?

Answer 3

• trade MUST be carried on
• income must be derived from such trade
  if the amount meets these requirements = look at s11a

Question 4

requirements of s11a?

Answer 4

deductions are allowed for an amt that is:

• exp and losses
• actually incurred
• during the YOA
• in the production of income
• not of a capital nature

Question 5

trade according to s11?

Answer 5

• adopt widest possible meaning
• not passive income
• business, employment, venture, etc

Question 6

expenditure and losses?

Answer 6

• cash flows
• liabilities which may be settled in cash or otherwise
• exp = loss = the same = involuntary exp

Question 7

things that are not actually incurred as an expense?

Answer 7

• provision

- issues of shares so a company can acquire an asset

Question 8

summary of actually incurred?

Answer 8

• unconditional legal obl = actually incurred
• conditional = not incurred till conds met
• quantifiable = incurred
• paid = incurred

Question 9

in the production of income?

Answer 9

• closely enough connected with the actions that produce income
• if inevitable concomitant of trade = naturally accompanying, no negligence

Question 10

lump sum paid in terms of general policy?

Answer 10

deductible

Question 11

loan procured?

Answer 11

• if used to produce income (buy cap assets) = deductible

- if used to pay dividends or something = not deductible

Question 12

take out a loan to buy shares?

Answer 12

• not deductible bc shares produce dividends

Question 13

non-contractual, non-policy retirement payment?

Answer 13

not deductible = person is retiring = no more income from them
= only deductible if policy to motivate employees

Question 14

capital in nature?

Answer 14

• floating capital and inc earning operations = rev
• fixed capital and inc earning structure = capital
• enduring benefit
• adds to inc earning structure

Question 15

are royalties capital in nature?

Answer 15

• if royalties are paid to procure use of intellectual property = revenue
• don’t create/preserve a capital asset