LML4804 Assignment 1 Semester 2 2026 – Due 19 August 2026

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LML4804 Sem2 Assessment 1 2026
Due: 19 Aug 2026
QUESTION 1 (DEDUCTIONS)
1 Indicate whether the following is True or False. (5 Marks)
1.1 Expenditure can only be deducted under section 11(a) if the taxpayer carries on trade.
1.2 Because employment is not a trade, no expenditure relating to employment may be
deducted under section 11(a).
1.3 A taxpayer whose only income is derived from employment can claim all expenses
incurred as a section 11(a) deduction.
1.4 Interest paid on a loan used by shares in a company in order to earn dividend income
may never be deducted under section 11(a) or section 24J.
1.5 In order to be actually incurred, an expense must be paid.
2. S’Celo graduated from the University of Biology with a BSc in Agriculture Economics in
2024. In April 2025, after completing his internship program at the Eyethu Sonke Farmers
Association, he was not retained for permanent employment due to lack of funds. In May
2025, he registered a company called S’Celo’s Fresh Farm Produce (Pty) Ltd. The company
specialised on the supply of chicken eggs, chickens and vegetables in the Province of
Mpumalanga. In addition, the company was awarded a 24-month project to provide
agricultural economics advise to the Department of Agriculture in Mpumalanga province.
On 1 June 2025, S’Celo purchased an old house in eMalahleni which he transformed into an
office space. This house cost him R650 000 including estate agent’s commission and
transfer costs. On 10 June 2025, S’Celo paid Mandlendoda Construction R500 000 to
transform the house into an office space. S’Celo also purchased office furniture at a cost of
R30 500. On 1 September 2025, S’Celo commenced with business.
Advise S’Celo, with reference to case law and relevant authority, on the deductibility of
the above expenditures. (10 Marks)
3. Mr X is a South African and an attorney trading as a sole proprietor in the city of
Tshwane. In terms of his work policy, he does not render any service to his clients without
prior payment into his trust account. Accordingly, at the end of the 2025/26 year of
assessment Mr X had an amount of R175 000 in his trust account for the work he needed to
do. Despite his work policy, Mr X failed to ensure that other clients deposit money in his
trust account before rendering legal services. Therefore, he issued invoices to those clients