Article 11a - before operations expenses deduction in personal capacity?
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
From the information provided section 11A will not apply to the expenditure related to the assets. You stated that the “main purpose” was “to develop to block of flats and / or buildings for commercial rental” and the expenses related to the development was therefore capital in nature. The block of flats or buildings would be an asset and not trading stock. A capital loss will therefore result when it is disposed of for less than its base cost. There may well be pre-trade expenses, such as interest and municipal charges that will not qualify as base cost. They will be lost as no income was derived by the taxpayer from the new trade.
The facts provided are not clear or possibly contain contradictory information. You state that ‘they bought’ the properties, but it appears that the intention was for the trust to acquire the property. We are not sure why the properties were registered in the names of the trustees and not in the trust. In any event, the loss suffered in 2014, we accept by the trust, should have been disclosed in the return of income of the trust. A request for correction should be done if within the three-year period to get the capital loss recognised. It is not possible to ‘claim’ it in a subsequent year otherwise.