An analysis, from a South African case law perspective, of the deductibility of losses due to embezzlement, fraud, theft, damages and compensation

Jachi, Adelaide Gamuchirai

Title: An analysis, from a South African case law perspective, of the deductibility of losses due to embezzlement, fraud, theft, damages and compensation
Creator: Jachi, Adelaide Gamuchirai
ThesisAdvisor: Stack, Elizabeth May
Subject: South Africa. Income Tax Act, 1962
Subject: Tax deductions -- South Africa
Subject: Taxation -- Law and legislation -- South Africa
Subject: Tax courts -- South Africa
Subject: Tax administration and procedure -- South Africa
Subject: Tax accounting -- South Africa
Subject: Income tax deductions for losses -- South Africa
Date: 2018
Type: text
Type: Thesis
Type: Masters
Type: MCom
Identifier: http://hdl.handle.net/10962/60855
Identifier: vital:27846
Description: When calculating the income tax payable for a year of assessment, a taxpayer deducts from his or her or its income, allowable deductions in terms of the preamble to section 11 and section 11(a) as read with section 23(g) of the Income Tax Act, 58 of 1962. Amongst the expenditure and losses incurred by a taxpayer during a year of assessment, a claim may be sought for the deduction of losses incurred due to embezzlement, fraud and theft as well as damages and compensation. The requirements of the preamble and section 11(a) include the requirement that expenditure and losses must be incurred “in the production of the income”. Losses incurred due to defalcations, as well as expenditure on damages and compensation must satisfy this requirement to be allowed as deductions. The objective of the research was to analyse the judicial decisions dealing with “in the production of the income” in granting a deduction for income tax purposes in cases dealing with embezzlement, fraud and theft, and damages and compensation, to establish why the courts grant or disallow the deduction of expenditure and losses. A doctrinal research methodology was applied to the research. The provisions of the Income Tax Act, relevant case law relating to embezzlement, fraud and theft, and damages and compensation, and the contributions of the revenue authority and tax experts in articles of accredited journals, textbooks and other writings were analysed. The major conclusions drawn from the research were that losses due to defalcations are regarded as having been incurred “in the production of the income” if the taxpayer discharges the onus of proof that the risk of the act leading to misappropriation is an incidental risk of the business. Expenditure on damages and compensation is deductible provided the expense is attached to the performance of a business operation bona fide performed for the purpose of earning income and the expense is so closely connected with the business operation as to be regarded as part of the cost of performing it. Where negligence is attached to an expense or loss, the South African courts have held that negligence does not increase the likelihood of disallowing an expense or loss as not having been incurred “in the production of the income”.
Format: 91 pages, pdf
Publisher: Rhodes University, Faculty of Commerce, Accounting
Language: English
Rights: Jachi, Adelaide Gamuchirai

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