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Company: Tax deductible or not

A discussion on the expenses that a company incur and whether those expenses are deductible or not and when may they be deductible.

If you have a legal company, the expenses you may claim as a deduction must be in the production of income for business purposes. The expenses may include the following:

  • Material and equipment repair costs
  • Employee costs and administration costs
  • Business/office rental costs
  • Office supplies
  • Telephone costs
  • Travel and transport
  • Uniforms (if needed)
  • Wholesale purchase costs for goods resold
  • Financial charges (such as bank fees)
  • Legal fees (if not capital in nature)
  • Insurance fees
  • Marketing, advertising and promotion costs
  • Rent or mortgage
  • Insurance
  • Rates and taxes
  • Repair costs to the premises
  • Utilities
  • Cleaning
  • Education and training expense
  • Client entertainment expenses
  • Net operating losses carried forward from prior tax years

To be able to claim these expenses, you need to ensure that you keep records and supporting documentation.

If we look at the expenses in more detail, we may have to consider whether they are in fact deductible.

 

Repairs and maintenance

As with most decisions in regards to the determination of the deductibility of expenses incurred the unique facts of the case will drive the conclusion. Various case law/judgements has lead to certain principles that provided the backbone of the section in the Income Tax Act. According to the principles laid down in various case law, repairs and maintenance are thus deductible when:

–         The repair constitute a restoration of a subsidiary part of the whole of the asset repaired;

–         The materials used to effect the repair should be the same kind of materials that was originally used in the asset;

–         The repair may not lead to an improvement of the asset, i.e. there may not be as consequence of the repair an increase in the income producing capacity of the asset.

 

Travel and transport

Travel and transport expenses are mainly tax deductible if they are incurred for business purposes. There are instances were the travel and transport expenses may not be tax deductible, and that is when it relates to an asset (tax purposes, it is capital in nature.

An example of when these expenses are not tax deductible is when a business asset (not inventory) is purchased and travel and transport expenses are incurred to bring the asset to the business location.

 

Legal fees

The Income Tax Act provides for the deduction of legal expenses incurred during the year by the company for the carrying on of its trade. The deductibility of expenses is limited to those that are: not capital in nature ; not incurred in respect of a claim against the taxpayer where the amount that the legal fees relates to would not be deductible by the taxpayer, or where the proceeds would not be taxable.

Simply put, legal expenses take their tax nature from that of the underlying claim. If the claim is about damage to a capital asset like goodwill, the legal costs will not be deductible. If it involves loss of earnings, for example, the legal costs will be deductible.

 

Donations

Did your company make a donation as charitable gesture and not expect anything in return?

That donation is not tax deductible, unless you receive a section 18A certificate from the organisation to which you made the donation.

 

Claiming home office expenses

If you work from home, there are home office expenses you can claim for. These include items like data or internet expenses, electricity usage, rent, rates and cleaning costs. The claimable amount is based on how much of your home is taken up by your office space.

To work out what you can claim, you must work out what percentage of your home’s floor space is taken up by your dedicated workspace. You can only claim for that percentage of your expenses because the rest is for personal use.

 

At SBS we make your work a lot more lighter by taking care of the bookkeeping, accounting AND TAX for you. You are able to focus on running and growing your business with the time on your hands to pursue your passions and dreams.

Get in touch with us by sending an email to hello@santosbiz.co.za or Book a Call with us now.

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