, USE THIS DOCUMENT AS A GUIDE TO ANSWER YOUR ASSIGNMENT
TAX2601 ASSIGNMENT 1 SEMESTER 1 2026
ANSWERS
DUE DATE: 8 APRIL 2026
QUESTION 1
A. GENERAL DEDUCTION FORMULA (SECTION 11(A))
For a deduction to be allowed, the loss must be actually incurred, in the production of income, and
not of a capital nature. The houses destroyed were trading stock of Dzindu Properties (Pty) Ltd and
were completely lost due to flooding. The loss is therefore real, arises from the normal operations of
the business, and is revenue in nature.
Amount
Requirement Application
(R)
Loss actually incurred 2 700 000 Houses destroyed by flood → definite loss
In the production of Houses held as trading stock in property development
2 700 000
income trade
Not of a capital nature 2 700 000 Trading stock → revenue nature
B. SECTION 23 CONSIDERATIONS
Section 23 prohibits certain deductions. In this case, the loss was incurred in the course of trade and
is therefore not prohibited by section 23(g). However, the insurance proceeds received must be
taken into account, as a taxpayer cannot claim a deduction for a loss that has been recovered.
Provision Amount (R) Application
Section 23(g) 2 700 000 Loss incurred in carrying on trade → allowed
Insurance proceeds (2 000 000) Compensation received reduces deductible loss
TAX2601 ASSIGNMENT 1 SEMESTER 1 2026
ANSWERS
DUE DATE: 8 APRIL 2026
QUESTION 1
A. GENERAL DEDUCTION FORMULA (SECTION 11(A))
For a deduction to be allowed, the loss must be actually incurred, in the production of income, and
not of a capital nature. The houses destroyed were trading stock of Dzindu Properties (Pty) Ltd and
were completely lost due to flooding. The loss is therefore real, arises from the normal operations of
the business, and is revenue in nature.
Amount
Requirement Application
(R)
Loss actually incurred 2 700 000 Houses destroyed by flood → definite loss
In the production of Houses held as trading stock in property development
2 700 000
income trade
Not of a capital nature 2 700 000 Trading stock → revenue nature
B. SECTION 23 CONSIDERATIONS
Section 23 prohibits certain deductions. In this case, the loss was incurred in the course of trade and
is therefore not prohibited by section 23(g). However, the insurance proceeds received must be
taken into account, as a taxpayer cannot claim a deduction for a loss that has been recovered.
Provision Amount (R) Application
Section 23(g) 2 700 000 Loss incurred in carrying on trade → allowed
Insurance proceeds (2 000 000) Compensation received reduces deductible loss
