How far back can I claim pre-trade expenses?
A very common question was raised in the boardroom
Let’s quickly recap what SARS allows on this topic.
The general deduction rule stipulates that you can only deduct expenses incurred in the production of income that you may have earned from carrying on a trade. In other words, expenses after you have started to trade .
Section 11 A however does allow you to deduct expenses and losses:
- that was actually incurred prior to the commencement of and in preparation for carrying on that trade,
- which would have been allowed as a deduction according to the general deduction rule, had the expenditure or loss been incurred after you commenced that trade, and
- which haven’t been
allowed as a deduction in that year or any previous tax years.
You may only claim a deduction of pre-trade or preparation expenses once you’ve commenced trading and any losses incurred before you commenced doing business can’t be off-set against any revenue that is derived from another business.
VAT on pre-trade expenses
If your business is reimbursed for the expenses of the goods and services that you would normally use to do business, then it can claim an input tax deduction for the reimbursement.
- The food and beverage business was opened in the 2012 year.
- The following represents the financial transactions incurred by LifeInsure for the 2011 and 2012 years.
- John must calculate the taxable income of LifeInsure for 2012