The deductibility of training expenses in terms of section 11(a) of the Income Tax Act
06 November 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: A business
wants to deduct training expenditure in terms of section 11(a) of the Income
Tax Act. What proof is needed to justify that the training was in production of
income and actually incurred?
The training still needs to be performed but was already
paid for. My view is that as long as the training is in the production of
income (closely related to business activities), the deduction of the training
expense will be allowed if a valid invoice is kept as proof that the training
A: You state that
the training was already paid for, but the still needs to be performed. We assume that the section 23H limitation
It is true that the taxpayer bears the burden of proving
that an amount or item is deductible or may be set-off – refer to section
102(1)(b) of the Tax Administration Act.
A valid invoice would certainly be necessary to meet this burden and
should provide detail of the expense.
The detail can also be provided by means of other documents.
We agree that the deduction needs to qualify in terms of
section 11(a) and not be prohibited by section 23(g). We accept that you are happy that the expense
is not of a capital nature. The only
other requirement then is that the expenditure must be actually incurred in the
production of the income. You correctly
referred to the following passage from the judgment of Corbett JA in
Commissioner for Inland Revenue v Standard Bank of South Africa Ltd 1985 (4) SA
485(A) at 500H-J:
'Generally, in deciding whether money outlayed by a taxpayer
constitute expenditure incurred in the production of income (in terms of the
general deduction formula) important and sometimes overriding factors are the
purpose of the expenditure and what the expenditure actually effects; and in
this regard the closeness of the connection between the expenditure and the
income-earning operations must be assessed.'
As to how close this connection must be, the court in Port
Elizabeth Electric Tramway Co v Commissioner for Inland Revenue 1936 CPD 241
explained that '…income is produced by the performance of a series of acts and
attendant upon them are expenses. Such expenses are deductible expenses
provided that they are so closely linked to such acts as to be regarded as part
of the cost of performing them... 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' (at 245).
Both the above were quoted from the Warner Bros case.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.