Can a trust that has not earned income claim deductions in preparation for future trade?
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
For purposes of the guidance that follows we accepted that the beneficiaries of the trust do not have vested rights to the income of the trust. In other words we will not deal with the section 25B implications that arises when the there is a vesting in terms of the trustees discretion.
The general principle is that a deduction can only be made if the taxpayer carries on a trade and then the deduction can only be made against the income derived from the trade. From the facts it is possible that the trade has not commenced yet. Section 11A of the Income Tax Act deals with expenditure (and losses) incurred prior to the commencement of an in preparation for carrying on a trade. These expenses are accumulated and can only be deducted when income is derived from the trade.