A large corporation (eg. Unilever) wishes to make bursaries available to its staff. They have been approached by a private educational institution who can provide the relevant training and development, with Seta recognized NQF qualifications. The large co
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
In principle, we need to consider section 11(a) of the Income Tax Act. Relevant tax law “For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person so derived- (a) expenditure and losses actually incurred in the production of income, provided such expenditure and losses are not of a capital nature”. It appears from your enquiry that the bursaries will be in respect of employees and will be targeted for training relevant to the duties of the employees for the employer. On that basis, let’s consider the expenditure in light of the components of section 11(a). 1. Trade requirement. It seems clear that the company you refer to is carrying on a trade. 2. Expenditure and losses. It’s safe to say that these outlays qualify as expenditure. 3. Actually incurred. This requirement would be met. 4. In the production of income. This is the pivotal enquiry in the present matter. Our case law is replete with decisions on this component. For the current purpose I’ll quote from the locus classicus on the subject. Port Elizabeth Electric Tramway Co Ltd v CIR [1936] 8 SATC 13 CPD: “the purpose of the act entailing expenditure must be looked to. If it is performed for the purpose of earning income, then the expenditure attendant upon it is deductible…
The other question is, what attendant expenses can be deducted? How closely must they be linked to the business operation? Here, in my opinion, all expenses attached to the performance of a business operation bona fide performed for the purpose of earning income are deductible whether such expenses are necessary for its performance or attached to it by chance or are bona fide incurred for the more efficient performance of such operation provided they are so closely connected with it that they may be regarded as part of the cost of performing it”. I would suggest that the proposed expenditure satisfies this requirement, because it meets every element of this famous dictum. As for using a private institution, a taxpayer could just as well use the services of a qualified individual if the training programme met the above test. In the present matter this is especially the case because the institution is recognised under the NQF criteria. 5. Not of a capital nature. The employer acquires no asset consequent upon the expenditure, merely a more efficient employee. In fact, the employee, rather than the employer, can be said to have acquired an asset.