PRE-TRADE EXPENDITURE
When you requested to advise a client with regards the above. This can be asked in any format.
For the below, you will use memorandum format. (you should know it)
Important:
1. Answer using the requested format
2. Background eg (check the 1st paragraph below)
3. Give an explanation or your understanding on the trade requirement. Add cases and
sections as your reference (very important)
4. How is the pre trade deductible (uses cases and sections as well)
5. Your recommendations
6. NB (the client name used here can be anyone as per the question)
7. This granny flat can be anything eg (salon pre-trade expenses etc)
Dear Sir,
I have been requested to provide you with advice on the tax treatment of the expenses incurred
during the 2017 tax year in respect of the granny flat in Hartebeespoort that is being rented out. The
expenses claimed were disallowed in your 2017 Additional Assessment. SARS was correct to disallow
the expenses.
Please find my advice below on the treatment of such expenses incurred.
Trade Requirement
Section 11 (a) of the Income Tax Act No. 58 of 1962 (‘ the Act’) permits a deduction for expenditure
incurred, only if the taxpayer is carrying on a trade. The implication is that any expenditure incurred
prior to the commencement of trade is not deductible in terms of section 11(a) of the Act.
The terms trade given a wide meaning in the section 1 definition of the Act, and includes the
following:
- Any profession, trade business, employment, calling, occupation or venture including the letting of
any property.
In as much as trade has been defined, the SARS Interpretation Note 33 (Issue 5) states that although
the “trade” requirement may have been firmly established, difficulties still arise in determining
whether a company’s activities constitute the carrying on of a trade. This can happen where:
• the nature of the activity itself does not fall within the meaning of the word “trade” as defined in
section
1;
• the company’s activities have taken place prior to the commencement of trade;
• the company conducts non-trade activities after it has ceased trading; or
• the anti-avoidance provisions of section 103(2) of the Act apply
The above might imply that there must a continuity of activities but in the case Stephen v CIR a
single
When you requested to advise a client with regards the above. This can be asked in any format.
For the below, you will use memorandum format. (you should know it)
Important:
1. Answer using the requested format
2. Background eg (check the 1st paragraph below)
3. Give an explanation or your understanding on the trade requirement. Add cases and
sections as your reference (very important)
4. How is the pre trade deductible (uses cases and sections as well)
5. Your recommendations
6. NB (the client name used here can be anyone as per the question)
7. This granny flat can be anything eg (salon pre-trade expenses etc)
Dear Sir,
I have been requested to provide you with advice on the tax treatment of the expenses incurred
during the 2017 tax year in respect of the granny flat in Hartebeespoort that is being rented out. The
expenses claimed were disallowed in your 2017 Additional Assessment. SARS was correct to disallow
the expenses.
Please find my advice below on the treatment of such expenses incurred.
Trade Requirement
Section 11 (a) of the Income Tax Act No. 58 of 1962 (‘ the Act’) permits a deduction for expenditure
incurred, only if the taxpayer is carrying on a trade. The implication is that any expenditure incurred
prior to the commencement of trade is not deductible in terms of section 11(a) of the Act.
The terms trade given a wide meaning in the section 1 definition of the Act, and includes the
following:
- Any profession, trade business, employment, calling, occupation or venture including the letting of
any property.
In as much as trade has been defined, the SARS Interpretation Note 33 (Issue 5) states that although
the “trade” requirement may have been firmly established, difficulties still arise in determining
whether a company’s activities constitute the carrying on of a trade. This can happen where:
• the nature of the activity itself does not fall within the meaning of the word “trade” as defined in
section
1;
• the company’s activities have taken place prior to the commencement of trade;
• the company conducts non-trade activities after it has ceased trading; or
• the anti-avoidance provisions of section 103(2) of the Act apply
The above might imply that there must a continuity of activities but in the case Stephen v CIR a
single
