A new section has been introduced in to the Income Tax Act commencing on 1 January 2004 for tax years (year of assessment) ending on or after this specific date.
This section allows a person to claim expenses he has incurred in setting up a business before it starts trading, from the date of trade. In other words if he incurred certain expenses to set up his business between December and February 2004 and eventually starts trading in March 2004, he can claim most of the expenses he has incurred in terms of section 11 from March 2004. Certain requirements however do have to be met first.
The requirements are as follows:-
A business (trade) must be carried on (he must start operating his business)
He must have incurred the expenses BEFORE he opens his business/start trading
These expenses must be for the preparation of the business (i.a. cost to set up an office, rent premises, etc)
The expenses must qualify for deduction under Section 11 only
The expenses must not have been claimed/allowed previously for tax purposes Any expense under any other section of the Act, excluding Section 11(a) to (w), do not qualify under this provision.
If pre-trade expenses (start up costs) create an assessed loss in the year of assessment it is claimed, the loss will not be allowed against any other profit but will be ringfenced and carried forward to a subsequent year of assessment to be utilised against the same trade income.
Queries can be forwarded to Teresa Louw
Regards
Teresa Louw
Worldwide Tax Solutions
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