Prohibited deductions for Income Tax purposes
THERE are certain deductions which are prohibited in terms of Section 16 of the Income Tax Act [Chapter 23:06]. Taxpayers should not deduct these amounts from their gross income when calculating taxable income.
Prohibited expenses in the calculation of taxable income The following are some of the cases where a deduction is prohibited:
◆ The cost incurred by any taxpayer in the maintenance of himself/herself, his/her family or establishment
◆ Domestic or private expenses of the taxpayer which include:
◆ transport expenses incurred between his/her home and the place at which he/she carries on a trade
◆ transport expenses incurred between two places at which trade is carried on in a case of a taxpayer who carries on two or more trades which are distinct in nature
◆ Any loss or expense that can be recovered due to compensation from any insurance contract or indemnity
◆ Tax on a taxpayer’s profits and interest and penalties for late payments
◆ Income transferred to a reserve fund or capitalised in any way
◆ Any expenditure which is incurred in the production of any amount exempt from Income Tax
◆ Any contribution made by a taxpayer to an unapproved pension fund, benefit or medical aid fund established for the purpose of providing pensions, annuities or sickness, accident or unemployment or other benefits for employees or the widows, children, dependants or nominees of deceased employees or for all or any of those purposes
◆ Interest which might have been earned on any capital employed in trade
◆ Rent, cost of repairs or expenses incurred on any premises not occupied for the purposes of trade, or any dwelling, house or domestic premises
◆ Any expenditure in restraint of trade
◆ The cost of hiring or leasing a passenger motor vehicle which is in excess of US$10 000 - the limit is determined over the life of the lease
◆ The cost of any shares awarded by any company to any employee unless if the shares are given as remuneration or as a bonus to an employee or director
◆ Entertainment expenditure incurred by any taxpayer whether directly or indirectly through the provision of any allowance to any employee to incur expenditure or entertainment on behalf of the taxpayer (“employee” includes a director; “entertainment” includes hospitality in any form)
◆ Any expenditure incurred in respect of a dividend from a foreign source
◆ Any expenditure incurred in the production of interest payable by financial institutions in respect of any loan or deposit with that financial institution
◆ Any expenditure incurred by a local branch or subsidiary of a foreign company, or by a local company or subsidiary of a local company, in servicing any debt or debts contracted in connection with the production of income to the extent that such debt or debts cause the person to exceed a debt to equity ratio of 3:1.
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