Tutorial letter 201/1/2015

TAX2601/201/1/2015 Tutorial letter 201/1/2015 Principles of Taxation TAX2601 Semester 1 Department of Taxation QUESTIONS AND SUGGESTED SOLUTIONS ASSIGNMENT 3 (exam paper) Bar code

2 Dear Student This tutorial letter contains assignment 3, which are the questions and updated solutions for a previous exam paper. This assignment is not compulsory; however, it will assist you in your preparation for the exam. The solution for Assignment 1 will be provided in tutorial letter 202 and the solution for assignment 2 will be provided in tutorial letter 203. Best wishes for your preparation for the exam. Kind regards TAX2601 Lecturers Telephonic contact with lecturers: The lecturers who are available to assist you are: Prof AP Swanepoel Ms MSI Wentzel Ms Matenche Ms C Cass Ms C Stedall Mr A Swanepoel Mr M van Dyk Ms Moosa Ms H van der Merwe Ms E Doussy 012 429 4133 (this is a hunting line you will need to let it ring so that the exchange can find a free extension) Departmental cell phone number: 079 365 1124 E-mail contact with lecturers: TAX2601-15-S1@unisa.ac.za (semester 1) TAX2601-15-S2@unisa.ac.za (semester 2) Course contact tab on myunisa Fax numbers: (Department of Taxation) 012 429 4902 or 012 429 4443 Ms P Mohase (Administrative assistant) 012 429 4918

3 TAX2601/201 This assignment is based on an examination paper. This is a selfassessment assignment. These are the instructions that will also appear on your examination paper. ead them now and make sure that you understand what we require from you. We also suggest that you try to do this assignment like a proper examination, under examination conditions, to see how much you know and what you need to spend time on. This paper consists of seven (7) pages plus the annexures (pp i ii). IMPOTANT INSTUCTIONS: 1. All amounts exclude VAT unless stated otherwise. 2. All persons mentioned are residents of the epublic of South Africa unless stated otherwise. 3. SAS = South African evenue Service The answering of this paper: 1. This paper consists of four (4) questions. 2. Answer all the questions. 3. Start each question on a new (separate) page. 4. Show all workings, where applicable. Where an amount is subject to a limitation, clearly indicate the application of the limitation. Where any item is exempt from tax or not allowable as a deduction, this must be indicated. All amounts must be rounded to the nearest rand. 5. Please complete the cover page of the answer book in full. 6. You are reminded that answers may NOT be written in pencil. 7. Principle errors will be marked negatively. 8. Proposed timetable (try as far as possible not to deviate from this timetable): Question Topic Marks Minutes 1 Tax liability of a company 23 28 2 Capital allowances 26 31 3 Capital gains tax 25 30 4 Gross income and general deduction 26 31 TOTAL 100 120

4 QUESTION 1 (23 marks, 28 minutes) ashupi Trailers (Pty) Ltd (ashupi) is a company that manufactures and sells trailers. The company is not a small business corporation as defined in the Income Tax Act and its financial year ends on 31 March. The company s accountant calculated the taxable income of 4 781 142 without taking into account the transactions that took place in February and March 2015. The following is a summary of the transactions that took place in the last two months of the year of assessment ended on 31 March 2015: Income Notes Sales 800 000 Local dividends 150 000 Interest 355 000 Expenditure Trading stock 1 - opening stock 244 000 - purchases 486 000 - closing stock (457 000) - cost of sales (273 000) Dividends paid 2 (250 000) Salaries (455 000) Doubtful debts - 2015 3 (54 000) estraint of trade 4 (450 000) Depreciation 5 (36 111) Contribution by employer 6 (57 630) Leave pay provision (45 247) Notes: 1. The accountant had not taken trading stock into account in calculating the taxable income of 4 781 142. The information in the table below relates to the trading stock. Trailers 01/04/2014 31/03/2015 Cost Price Market Value Cost Price Market Value 244 000 350 000 457 000 420 000 2. ashupi paid a dividend of 250 000 to its shareholders. 3. The following table relates to the doubtful debts: List of doubtful debts 01/04/2013 31/03/2014 01/04/2014 31/03/2015 78 000 54 000

5 TAX2601/201 QUESTION 1 (continued) 4. Dieketseng Moloi, the former Chief Executive Officer of ashupi, was paid 450 000 on 15 January 2015 to restrain her from working for the competition for a period of 24 months. 5. Depreciation was calculated as follows: Description Date of purchase Date brought into use Cost Depreciation Manufacturing machines - new and unused 05/02/2015 01/03/2015 350 000 11 667 Trucks - new and unused 01/05/2010 01/06/2010 440 000 24 444 36 111 The accountant was not sure how to account for the transaction for taxation purposes and did not take the capital allowances into consideration when calculating the taxable income of 4 781 142. Binding general ruling No 7 makes provision for the following write-off period: Trucks 4 years 6. ashupi made contributions of 57 630 to a medical aid scheme for the benefit of its employees. The remuneration approved by the Commissioner in this regard was 480 000. 7. ashupi had an assessed loss of 274 145 in the previous year of assessment. The company also made a provisional tax payment of 976 214 for the current year of assessment. EQUIED: MAKS Calculate ashupi Trailers (Pty) Ltd s normal tax liability for the year of assessment ended 31 March 2015 by starting with the taxable income of 4 781 142. 23

6 QUESTION 2 (26 marks, 31 minutes) Bear Cut & Drill (Pty) Ltd is a South African company that manufactures a wide range of steel products for the building industry. The company is not a small business corporation as defined in the Income Tax Act and its tax year ends on 31 March 2015. The accountant has approached you to assist with the income tax calculation for Bear Cut & Drill (Pty) Ltd for the 2015 year of assessment. The company has an accounting profit of 2 676 387 for the 2015 year of assessment before the following has been taken into account: 1. epairs and maintenance On 31 October 2014, a severe hailstorm caused damage to the factory roof. Bear Cut & Drill (Pty) Ltd repaired the damaged roof on 30 November 2014 at a total cost of 72 000 of which 65 000 was covered by an insurance policy. During the period the factory roof was repaired, Bear Cut & Drill (Pty) Ltd also enlarged the factory floor space to increase its production capacity. The total cost of the additions to the factory building was 250 000 and was completed on 30 November 2014 and brought into use on 2 December 2014. 2. Factory machinery On 15 August 2014 Bear Cut & Drill (Pty) Ltd purchased a new steel bending machine at a total cost of 450 000 to be used directly in its process of manufacturing steel products. Installations costs of 20 000 were incurred and the machine was brought into use on 5 September 2014. Bear Cut & Drill (Pty) Ltd decided to sell a steel drill machine, which it originally purchased second hand on 30 June 2012 for 120 000 and brought into use on the same date. The steel drill machine was sold for 80 000 on 28 February 2015. 3. Other assets purchased and sold Bear Cut & Drill (Pty) Ltd had the following non-manufacturing assets on hand at 31 March 2015: A delivery truck that was purchased new on 30 June 2014 at a total cost of 185 000 and brought into use on 1 August 2014. Two laptop computers that were purchased on 31 May 2013 at a total cost of 15 000 and brought into use on the same date. Bear Cut & Drill (Pty) Ltd sold one of its passenger vehicles that was damaged during the hail storm on 31 October 2014 for 59 500. This vehicle was originally purchased for 90 000 on 1 April 2014 and brought into use on the same date. Binding general ruling No. 7 allows for the following write-off periods where applicable: Delivery trucks 4 years Laptop computers 3 years Passenger vehicles 5 years

7 TAX2601/201 QUESTION 2 (continued) 4. Factory building The factory building that houses the whole manufacturing process of Bear Cut & Drill (Pty) Ltd was originally erected on 31 July 2011 at a total cost of 3 600 000 and brought into use on 1 August 2011. Several windows of the factory building were damaged by a hailstorm on 31 October 2014 and had to be replaced at a cost of 61 000 on 2 November 2014, of which no amount was covered by the company s insurance policy. 5. Commercial building Bear Cut & Drill (Pty) Ltd purchased a used commercial building at a total cost of 350 000 on 31 August 2014 and brought it into use on 15 September 2014. The building was used mainly to house the debtors and creditors administration of Bear Cut & Drill (Pty) Ltd from the date the building was brought into use. 6. Other information Loose CC, one of Bear Cut & Drill (Pty) Ltd s debtors, was liquidated on 15 November 2014 and owed Bear Cut & Drill (Pty) Ltd 18 000 (excluding any finance charges). The liquidators managed to recover 2 000 of the outstanding balance of 18 000 on 17 February 2015 and remitted that amount to Bear Cut & Drill (Pty) Ltd on 19 February 2015. Bear Cut & Drill (Pty) Ltd claimed a doubtful debt allowance of 42 500 for the 2014 year of assessment. The list of doubtful debtors on 31 March 2015 amounts to 212 000. The monthly rental for the telephone and security system of 4 000 for March 2015 was not accounted for in the accounting records. The rental invoice dated 1 March 2015 was only received via e-mail on 15 April 2015. Bear Cut & Drill (Pty) Ltd has incurred an assessed tax loss of 181 697 during the 2014 year of assessment. EQUIED: MAKS Calculate the income tax liability of Bear Cut & Drill (Pty) Ltd for the year of assessment ended 31 March 2015. Start your calculation with the accounting profit of 2 676 387 as provided. 26

8 QUESTION 3 (25 marks, 30 minutes) PAT A (17 marks, 20 minutes) Aerostar (Pty) Ltd manufactures and sells sports cars. Aerostar (Pty) Ltd has a February yearend and an assessed capital loss brought forward from the previous year of assessment of 64 500. The following capital transactions took place during the 2015 year of assessment: Transaction one Factory A was sold on 12 January 2015 to an unconnected person for 780 000. Factory A was purchased on 15 July 1999 for 250 000 and was brought into use on the same date directly in the process of manufacturing the sports cars. Transfer costs of 25 000 were incurred on the purchase price of Factory A. The total capital allowances claimed on Factory A was 220 000 up to the date of disposal. Other information applicable to Factory A: Market value on 1 October 2001 350 000 Time-apportionment base cost (TAB) 98 125 Transaction two Aerostar (Pty) Ltd sold manufacturing machine C on 18 May 2014. The capital gain on this machine was 50 000. EQUIED: MAKS Calculate the taxable capital gain/capital loss of Aerostar (Pty) Ltd for the year of assessment ended on 28 February 2015. 17 PAT B (8 marks, 10 minutes) Aerostar (Pty) Ltd had a taxable income of 1 150 622 for the 2013 year of assessment and the date of the assessment was 30 July 2013. The company s 2014 tax assessment was issued on 15 June 2014 and reflected a taxable income of 1 320 564. The actual calculated taxable income for the 2015 year of assessment was 1 055 877. Aerostar (Pty) Ltd is a small business corporation as defined and the company has a February year-end. EQUIED: a) Calculate the first provisional tax payment for the 2015 year of assessment and clearly state on which date the payment must be made to SAS. b) Calculate the second provisional tax payment for the 2015 year of assessment and clearly state on which date the payment must be made to SAS. Note: All amounts must be rounded to the nearest and. MAKS 8

9 TAX2601/201 QUESTION 4 (26 marks, 31 minutes) XYZ Trust is a resident of the epublic for tax purposes and its year of assessment ends on 28 February 2015. The trust has several investments (that produce interest and dividends), as well as a business that sells electric chainsaws. Seven electric chainsaws were sold to a timber company (the customer) for 14 000 in total on 2 December 2014. XYZ Trust supplied the customer with a warranty against any mechanical failure of these seven chainsaws. This means that XYZ Trust will replace any faulty chainsaw without charging any costs to the customer. The warranty is applicable for a period of six months from the date of sale. XYZ Trust originally purchased the chainsaws for 1 500 each from their supplier. The auditors made a warranty provision of 10 500 at year-end (debit: warranty expense, credit: provision). The accountant calculated the following amounts for the 2015 year of assessment for the trust (you can assume that the calculations are correct): Taxable income = 1 253 000 Qualifying turnover = 1 798 000 Taxable turnover = 1 120 000 EQUIED: MAKS (a) Explain the difference between direct and indirect taxes. Give an example of a tax that will classify as a direct tax and an indirect tax. 4 (b) Provide two reasons why XYZ Trust will not qualify as a micro business. 2 (c) (d) (e) (f) State when a legal entity will be classified as a resident of the epublic for tax purposes. 3 Shortly discuss what the implication for tax purposes is if a legal entity is a resident of the epublic. 1 State the two types of tests that the courts have established to assist in deciding whether income is of a capital nature or not. 2 Name one of the court cases that are applicable to the received by, accrued to, or in favour of requirement of the gross income definition. 1 (g) Discuss whether the warranty expense would be deductible or not by XYZ Trust for the 2015 year of assessment in terms of the general deduction formula section 11(a) and section 23 (prohibited deductions) of the Income Tax Act: List the requirements of the general deduction formula and briefly discuss each element at the hand of the given information. Make a brief reference to the relevant case law to strengthen your argument. 13

10 ANNEXUE A: EXTACT FOM THE INCOME TAX ACT (ACT 58 OF 1962, AS AMENDED) EIGHTH SCHEDULE 25. Determination of base cost of pre-valuation date assets. - The base cost of a prevaluation date asset (other than an identical asset in respect of which paragraph 32(3A) has been applied), is the sum of the valuation date value of that asset, as determined in terms of paragraph 26, 27 or 28 and the expenditure allowable in terms of paragraph 20 incurred on or after the valuation date in respect of that asset. 26. Valuation date value where proceeds exceed expenditure or where expenditure in respect of an asset cannot be determined. - (1) Where the proceeds from the disposal of a pre-valuation date asset (other than an asset contemplated in paragraph 28 or in respect of which paragraph 32(3A) has been applied) exceed the expenditure allowable in terms of paragraph 20 incurred before, on and after the valuation date in respect of that asset, the person who disposed of that asset must, subject to subparagraph (3), adopt any of the following as the valuation date value of that asset- (a) the market value of the asset on the valuation date as contemplated in paragraph 29; (b) 20 per cent of the proceeds from disposal of the asset, after deducting from those proceeds an amount equal to the expenditure allowable in terms of paragraph 20 incurred on or after the valuation date; or (c) the time-apportionment base cost of the asset as contemplated in paragraph 30. (2) Where the expenditure incurred before valuation date in respect of a pre-valuation date asset cannot be determined by the person who disposed of that asset or the Commissioner, that person must adopt any of the following as the valuation date value of that asset- (a) the market value of the asset on the valuation date as contemplated in paragraph 29; or (b) 20 per cent of the proceeds from disposal of the asset, after deducting from those proceeds an amount equal to the expenditure allowable in terms of paragraph 20 incurred on or after the valuation date. (3) Where a person has adopted the market value as the valuation date value of an asset, as contemplated in subparagraph (1) (a), and the proceeds from the disposal of that asset do not exceed that market value, that person must substitute as the valuation date value of that asset, those proceeds less the expenditure allowable in terms of paragraph 20 incurred on or after the valuation date in respect of that asset. ANNEXUE B: ADDITIONAL INFOMATION The income tax rates applicable to a small business corporation are as follows: 0% on taxable income not exceeding 70 700 7% on taxable income exceeding 70 700, but not exceeding 365 000 20 601 plus 21% on taxable income exceeding 365 000, but not exceeding 550 000 59 451 plus 28% on taxable income exceeding 550 000

The income tax rates applicable to micro businesses: 11 TAX2601/201 Turnover 0 150 000 150 001 300 000 301 000 500 000 500 001 750 000 750 001 1 000 000 ates of tax Nil 1% of the amount over 150 000 1 500 + 2% of the amount over 300 000 5 500 + 4% of the amount over 500 000 15 500 + 6% of the amount over 750 000 ANNEXUE C: INCOME TAX MONETAY THESHOLDS SUBJECT TO PEIODIC LEGISLATIVE CHANGE (extract) Description eference to Income Tax Act, 1962 Additional employer deductions for learnerships: Employers receive additional deductions for learnerships depending on the circumstances Monetary ceiling of additional deduction for the employer when entering into a learnership agreement with an existing employee Monetary ceiling of additional deduction for the employer when entering into a learnership agreement with a new employee Monetary ceiling of additional deduction for the employer in the case of completing a learnership agreement (all employees) Small-scale intellectual property: Intellectual property with a cost below the amount indicated is immediately deductible Urban development zone: Developers undertaking projects in excess of the amount indicated must provide special notice to the Commissioner. Prepaid expenses: Limit of prepaid expenses that will not be deferred until delivery of goods, services or benefits Small business corporations: Corporations qualify for tax incentives if gross income does not exceed the amount referred to Housing associations: Housing associations investment income is exempt up to the amount indicated Monetary amount Section 12H(1) 30 000 Section 12H(2) and (3) 30 000 Section 12H(4) +20 000 Paragraph (aa) of the proviso to section 11(gC) Section 13quat (10A) Paragraph (bb) of the proviso to section 23H(1) Section 12E(4)(a)(i) 5 000 5 million 100 000 20 million Section 10(1)(e) 50 000

12 QUESTION 1 SUGGESTED SOLUTION Taxable income (given) 4 781 142 Sales 800 000 (1) Local dividends 150 000 (1) Dividend exemption (150 000) (1) Interest 355 000 (1) 5 936 142 Expenditure Trading stock (sec 22) - opening stock at cost (lower of cost/mv) (244 000) (1) - closing stock at market value (lower of cost/mv) 420 000 (1) - purchases (486 000) (1) Dividends paid - no deduction Nil (1) Salaries (455 000) (1) Doubtful debts (sec 11(j)) - 2014 78 000 x 25% 19 500 (1) - 2015 54 000 x 25% (13 500) (1) estraint of trade (sec 11(cA)): The lesser of: (1) 450 000/2 = 225 000 450 000/3 = 150 000 (150 000) (1) Depreciation - no deduction can be claimed Nil Manufacturing machine (sec 12C) - 350 000 x 40% (140 000) Trucks (sec 11(e)) - (440 000/4) x (2/12) (18 333) (3) Contribution to medical aid scheme (sec 11(l)) 57 630 Limited to 10% of approved remuneration 48 000 (48 000) (2) Leave pay provision - not actually incurred and prohibited deduction Nil (1) 4 820 809 Assessed loss brought forward (274 145) (1) Taxable Income 4 546 664 Normal tax liability at 28% 1 273 066 (1) Provisional tax paid (976 214) (1) Normal tax payable to SAS 296 852 (1) Marks [23]

13 TAX2601/201 QUESTION 2 Accounting profit (given) 2 676 387 epairs to factory building (sec 11(d)) (72 000) (1) Less: ecovered from insurance (sec 23) 65 000 (7 000) (1) Addition to factory building (sec 13) (250 000 x 5%) (12 500) (1) New steel bending machine (sec 12C) ((450 000 + 20 000) x 40%) (188 000) (2) Drill machine sold Cost 120 000 Section 12C allowance: 2013 (120 000 x 20%) (24 000) (1) 2014 (120 000 x 20%) (24 000) (1) 2015 (120 000 x 20%) (24 000) (24 000) (1) Tax value 48 000 (1) Proceeds 80 000 ecoupment (sec 8(4)(a)) 32 000 32 000 (1) Delivery truck (sec 11(e)) (185 000/4 x 8/12) (30 833) (2) Laptop computers (sec 11(e)) (15 000/3) (5 000) (1) Damaged vehicle sold Cost 90 000 Wear & tear (sec 11(e)): 2015 (90 000/5 x 7/12) (10 500) (10 500) (1) Tax value 79 500 Proceeds 59 500 (1) Section 11(o) scrapping allowance 20 000 (20 000) (1) Building allowance (sec 13) (3 600 000 x 5%) (180 000) (1) epair of damaged windows (sec 11(d)) (61 000) (1) Commercial building (sec 13quin) (Not new, no allowance) Nil (1) Bad debts (sec 11(i)) (18 000) (1) Less: Amount recovered 2 000 (16 000) (1) Doubtful debt allowance (sec 11(j)) 2014 42 500 (1) Doubtful debt allowance 2015 (212 000 x 25%) (53 000) (1) Telephone and security system rental (sec 11(a)) - March 2015 (4 000) (1) Sub-total 2 139 054 Less: Assessed loss from 2014 (181 697) (1) Taxable income for 2015 1 957 357 Income tax (1 957 357 x 28%) 548 060 (1) MAKS [26]

14 QUESTION 3 PAT A Transaction one - Factory A Tax value Cost price 250 000 Add: Transfer costs 25 000 (1) 275 000 Less: Capital allowances (given) (220 000) (1) Tax value on date of sale 55 000 (1) ecoupment Selling price 780 000 (1) Less: Tax value (55 000) (1) ecoupment 725 000 Limited to previous allowances 220 000 (1) Adjusted proceeds Proceeds 780 000 Less: ecoupment (220 000) Adjusted proceeds 560 000 (1) Calculate valuation date value (VDV) Total expenditure = 55 000 (tax value) Adjusted proceeds = 560 000 Paragraph 26 is applicable because proceeds > expenditure (1) VDV is the greater of: (1) 1. Market value as at 1 October 2001 350 000 (1) 2. Time Apportionment base cost (TAB) 98 125 (1) 3. 20% - rule: Adjusted proceeds 560 000 (1) Less: Expenditure incurred after 1 October 2001 Nil 560 000 560 000 x 20% 112 000 (1) Market value is the highest, VDV is therefore 350 000 Base cost = VDV + Cost after 1 Oct 2001 = 350 000 + nil = 350 000 Capital gain Proceeds (adjusted) 560 000 Less: Base cost (350 000) 210 000 (1)

15 TAX2601/201 QUESTION 3 (continued) Calculation of taxable capital gain Factory A 210 000 Manufacturing Machine C 50 000 Aggregate capital gain 260 000 (1) Less: Assessed capital loss (64 500) (1) Net capital gain 195 500 Taxable capital gain at an inclusion rate of 66.6% 130 203 (1) PAT B Marks [17] a 1 st provisional tax payment (payable on 31 August 2014) (1) Taxable income assessed in 2014 (Basic amount) 1 320 564 (1) (2014 assessment is more than 14 days old) Tax on 1 320 564 = (1 320 564 550 000 = 770 564 x 28% = 215 758) + 59 451 * 275 209 (2) x 50% for the first payment 137 605 (1) b 2 nd provisional tax payment (payable on 28 February 2015) Lower of: Basic amount (2014 assessment) 1 320 564 Actual estimated taxable income 1 055 877 (1) Actual estimated taxable income for 2015 1 055 877 (1) Tax on 1 055 877 = (1 055 877 550 000 = 505 877 x 28% = 141 646) + 59 451 * 201 097 Less: 1 st provisional tax payment (137 605) (1) Amount payable to SAS 63 492 Marks [8] * The amount used in the DVD (59 702) is based on the old 2014 tax table. The amounts used in this tutorial letter are the correct ones. The method and principles remain unchanged.

16 QUESTION 4 PAT A Difference between direct and indirect tax: Direct tax: The same person who earns the income pays the tax e.g. income tax, dividends tax and capital gains tax. (2) Indirect tax: The seller bears the impact of the tax while the consumer pays the tax / This is tax imposed upon a taxable sales transaction e.g. VAT (2) PAT B XYZ Trust will not qualify as a micro business: The qualifying turnover for the 2015 year of assessment exceeds 1 million. (1) A trust cannot qualify as a micro business. (1) PAT C Legal entity classified as a resident for tax purposes: A person other than a natural person (in other words a business entity such as a company or a close corporation) is a resident of the epublic if it is: incorporated, established or formed in the epublic, or (2) has its place of effective management in the epublic (1) PAT D Implication for an entity of being a resident: esidents are taxed on worldwide (all) income. (1) PAT E Two types of tests - income is of a capital nature or not: Subjective tests. (1) Objective tests (1)

17 TAX2601/201 QUESTION 4 (continued) PAT F Court case that is applicable to the received by, accrued to, or in favour of requirement: Geldenhuys v CI (1) CI v People's Stores (Walvis Bay) (Pty) Ltd (1) Lategan v CI (1) Name any one Max (1) PAT G The requirements of the general deduction formula are: Trade (1) XYZ carries on a trade of selling electric chain saws (1) Expenditure or loss (1) in this case there could be expenditure of 1 500 (1) per chain saw that is returned, although there was no expense at year-end (1). Actually incurred (1) an expense is only incurred if a chain saw is returned (1) and needs to be replaced. The expense is therefore conditional (1) and is not actually incurred (1). (Edgars Stores (1)) In the year of assessment (1) no chain saws were returned on 28 February 2015, therefore no expense was incurred in the 2015 year of assessment (1). In the production of income (1) the chain saws are XYZ Trust s trading stock and the replacement of a stock item relates to earning income from selling chain saws, as it forms part of the sale agreement. It is closely connected to (or is an inevitable concomitant) (1) of the income producing operations (1) (Port Elizabeth Electric Tramway Company Ltd (1)) and the replacement of a chain saw is thus in the production of income. Not of a capital nature (1) The expenditure relates to the Trust s trading stock and is not of a capital nature (1). Section 23 prohibits this deduction (1). Conclusion (1): The expense does not meet all the requirements of the general deduction formula, on the basis that there is no amount actually incurred at year-end, and will not be deducted for income tax purposes. (Total 19; Max 13) Unisa LW/(as) TAX2601_2015_TL_201_1_E.docx