The taxpayer has a high value property that was previously rented to a non connected person. the expenses incurred exceeded the rental income as the property is still bonded and the interest on the bond alone was almost equivalent to the rental income. Th
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
We are not aware of any provision in the Income Tax Act that “states that these expenses will be disallowed” (in total – that is) on that basis that the parties are connected persons in relation to each other.
If the expenses incurred were any moneys, claimed as a deduction from income derived from trade, to the extent to which such moneys were not laid out or expended for the purposes of trade, the deduction thereof can’t be made (or can’t be made to the extent not so laid out). We don’t have enough information to comment on that, but it may be irrelevant to your request.
We suspect that you are concerned about section 20A of the Income Tax Act. Under section 20A(2) of the Act, section 20A(1) applies where the sum of the taxable income of a person for a year of assessment (determined without having regard to the other provisions of this section) and any assessed loss and balance of assessed loss which were set off in terms of section 20 in determining that taxable income, equals or exceeds the amount at which the maximum marginal rate of tax chargeable in respect of the taxable income of individuals becomes applicable, and where –
(b) the trade contemplated in subsection (1), in respect of which the assessed loss was incurred constitutes – …
(iii) the rental of residential accommodation, unless at least 80 per cent of the residential accommodation is used by persons who are not relatives of that person for at least half of the year of assessment;