UNIVERSITY OF SOUTH AFRICA
College of Accounting Sciences
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TAX2601: Principles of Taxation
Assessment 1 — Semester 1, 2026
⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄⋄
TAX2601
Module Code:
Principles of Taxation
Module Name:
Assessment 1
Assignment:
8 April 2026
Due Date:
Submitted in partial fulfilment of the require-
ments for Principles of Taxation — UNISA 2026
, UNISA | TAX2601 Assessment 1 — Semester 1 2026
Question 1: General Deduction Formula — Dzindu Properties (Pty) Ltd
1.1 Requirements of the General Deduction Formula
Section 11(a) of the Income Tax Act 58 of 1962 (hereafter “the Act”) permits the deduction
of expenditure and losses actually incurred in the production of income, provided the expen-
diture is not of a capital nature. Section 23(g) further prohibits the deduction of expenditure
not laid out or expended for the purposes of trade. To qualify for deduction under the general
deduction formula, an amount must satisfy all of the following requirements:
1. The expenditure or loss must have been actually incurred.
2. It must have been incurred in the carrying on of a trade.
3. It must have been incurred in the production of income.
4. It must not be of a capital nature.
Key Distinction
The general deduction formula is conjunctive: all four requirements must be met simul-
taneously. Failure to satisfy any single requirement means the expenditure or loss is
not deductible (Joffe & Co (Pty) Ltd v CIR 1946 AD 157).
1.2 Discussion: Development Cost of Destroyed Houses (R2 700 000)
Requirement 1 — Actually Incurred
Dzindu incurred development costs of R2 700 000 in constructing the residential houses
that were subsequently destroyed. These costs were actually incurred in the sense that
Dzindu had an unconditional obligation to pay them. The costs are therefore “actually in-
curred” within the meaning of section 11(a) (Edgars Stores Ltd v CIR 1988 (3) SA 876 (A)).
Requirement 2 — In the Carrying on of a Trade
Dzindu Properties (Pty) Ltd builds and sells residential houses. This constitutes a “trade” as
defined in section 1 of the Act, which includes “every profession, trade, business, employment,
calling, occupation or venture.” The development of residential houses for sale clearly falls
within the scope of Dzindu’s trade. This requirement is satisfied.
Page 2 of 12
College of Accounting Sciences
⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄⋄
TAX2601: Principles of Taxation
Assessment 1 — Semester 1, 2026
⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄ ⋄⋄
TAX2601
Module Code:
Principles of Taxation
Module Name:
Assessment 1
Assignment:
8 April 2026
Due Date:
Submitted in partial fulfilment of the require-
ments for Principles of Taxation — UNISA 2026
, UNISA | TAX2601 Assessment 1 — Semester 1 2026
Question 1: General Deduction Formula — Dzindu Properties (Pty) Ltd
1.1 Requirements of the General Deduction Formula
Section 11(a) of the Income Tax Act 58 of 1962 (hereafter “the Act”) permits the deduction
of expenditure and losses actually incurred in the production of income, provided the expen-
diture is not of a capital nature. Section 23(g) further prohibits the deduction of expenditure
not laid out or expended for the purposes of trade. To qualify for deduction under the general
deduction formula, an amount must satisfy all of the following requirements:
1. The expenditure or loss must have been actually incurred.
2. It must have been incurred in the carrying on of a trade.
3. It must have been incurred in the production of income.
4. It must not be of a capital nature.
Key Distinction
The general deduction formula is conjunctive: all four requirements must be met simul-
taneously. Failure to satisfy any single requirement means the expenditure or loss is
not deductible (Joffe & Co (Pty) Ltd v CIR 1946 AD 157).
1.2 Discussion: Development Cost of Destroyed Houses (R2 700 000)
Requirement 1 — Actually Incurred
Dzindu incurred development costs of R2 700 000 in constructing the residential houses
that were subsequently destroyed. These costs were actually incurred in the sense that
Dzindu had an unconditional obligation to pay them. The costs are therefore “actually in-
curred” within the meaning of section 11(a) (Edgars Stores Ltd v CIR 1988 (3) SA 876 (A)).
Requirement 2 — In the Carrying on of a Trade
Dzindu Properties (Pty) Ltd builds and sells residential houses. This constitutes a “trade” as
defined in section 1 of the Act, which includes “every profession, trade, business, employment,
calling, occupation or venture.” The development of residential houses for sale clearly falls
within the scope of Dzindu’s trade. This requirement is satisfied.
Page 2 of 12
