Can a Sole proprietor deduct bursaries from taxable income?
Important:
This answer is based on tax law for the tax year ending 28 February 2018.
Answer:
Please note that the service offered we does not include the giving of an opinion. We can only provide guidance.
The principle in this instance is that the taxpayer will have to meet the onus of proof with regard to two issues. Judge Conradie explained the two issues as follows in the Warner Lambert case:
“Deductible expenditure has certain characteristics: it must be incurred in the production of income (s 11(a)) and will not be allowed as a deduction against gross income if it is not laid out or expended for the purposes of trade.”
It was stated by judge Watermeyer, in the PE Tramway case, that “… income is produced by the performance of a series of acts, and attendant upon them are expenses. Such expenses are deductible expenses, provided they are so closely linked to such acts as to be regarded as part of the cost of performing them.” In the recent MTN case it was confirmed that expenses “which is “necessarily attached” to the performance of income-earning operations” also qualify.”
Judge Beadle explained it as follows in the Rendle case: “In deciding whether such an expenditure is deductible, it seems to me the enquiry must be whether the “chance” of such expenditure being incurred is sufficiently closely connected with the business operation. The enquiry is not whether the actual expenditure itself (should it ever eventuate) is sufficiently closely connected. If the expenditure itself had to be a necessary concomitant of the business before it could be deducted, it could hardly be called “chance expenditure”. The word “chance” is singularly inappropriate when describing an event which is bound, or almost bound, to happen. If such chance expenditure is to be deductible, if it is closely enough connected with the business operation, and is still to retain its character of “chance expenditure”, it can only be the “chance” or the “risk” of it being incurred which must be the links connecting it with that business operation.”
If the taxpayer therefore can prove that the cost of the study assistance meets these requirements the partners can make the deduction. We submit that the expense will not be capital in nature, but the taxpayer may have a difficulty meeting the other.
The fact that the individual earns remuneration is irrelevant. What is relevant is that she (the girlfriend) must render services to the partnership.