An Analysis Of The Term Actually Incurred In Section 11(a) Of Income Tax Action Act No 58 Of 1962

An Analysis of The Term Actually Incurred In Section 11(a) of Income Tax Action

Act No 58 of 1962


                  A TECHNICAL REPORT TO BE PRESENTED TO

                      THE DEPARTMENT OF ACCOUNTING

                         UNIVERSITY OF CAPE TOWN


                        IN PARTIAL FULFILMENT OF

                        THE REQUIREMENTS FOR THE

                     BATCHELOR OF COMMERCE (HONOURS)

                           DEGREE IN TAXATION


                                   BY


                             PETER CRAWFORD

                          STUDENT NO. CRWPET005

                                APRIL 1996


I certify that the report is my own work and all references  used, are

accurately recorded.


 1.SYNOPSIS


 Generally Accepted Accounting Practice includes statement AC000: Framework for

the preparation and presentation of financial statements. This sets out broad

and definitive rules governing the recognition of liabilities and income and

expenditure in financial statements. Specifically the following paragraphs need

to be considered:


      Recognition of liabilities:


     91. A liability is recognised in the balance sheet when it is probable

          that an outflow of resources embodying economic benefits will

          result from the settlement of a present obligation and the amount

          at which the settlement will take place can be measured reliably...


     Recognition of expenses:


     94. Expenses are recognised in the income statement when a decrease in

          future economic benefits related to a decrease in an asset or

          an increase of a liability has arisen that can be measured

          reliably. This means in effect that recognition of expenses

          occurs simultaneously with the recognition of an increase

          or a decrease  in assets


      95. Expenses are recognised in the income statement on the basis

           of a direct association between the costs incurred and the and the

            earning of specific items of income. This process, commonly

            referred to as the matching of costs with revenues, involves the

            simultaneous or combined recognition of revenues and expenses that

            result directly and jointly from the same transaction or other

            events;


The fisc takes little notice of these rules when it comes to the recognition of

expenditure for the purposes of taxation. It is the part of these rules that

govern the  general deduction provision  that this report will examine.


Section 11(a) of the South African Income Tax Act No. 58 of 1962 (as amended)

reads as follows:


       11. General deductions allowed in the determination of taxable income.-

            For the purpose of determining the taxable income derived by any

            person from the carrying on of any trade within the Republic, there

            shall be allowed as deductions from the income of such person so

            derived-


       (a) expenditure and losses actually incurred in the Republic in the

            production of the income, provided such expenditure and losses

            are not of a capital nature.


The section defines the conditions that must be met for expenditure and losses

to be allowed as deductions from income. The expenditure or losses must have

been:                         Actu


        ssme


        nt

       In the Republic of South Africa.

       In the production of the income.

       Such expenditure or losses must not be of a capital nature.


The section has to be read together with s23(g)


        23. Deductions not allowed in the determination of taxable income.-

             No deductions shall be made  in respect of any moneys, claimed

             as a deduction from trade, to the extent to which such monies

             were not laid out or expended for the purposes of trade.'


This report will focus on the meaning of the  term "actually incurred" (as a

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