An Analysis Of The Term Actually Incurred In Section 11a Of Income Tax ActionAct

Title	An Analysis Of The Term Actually Incurred In Section 11a Of Income Tax ActionAct
# of Words	4086
# of Pages (250 words per page double spaced)	16.34

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
critical part of the recognition process) a...

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