A critical analysis of the concept of carrying on trade in the South African Income Tax Act

LL.M. (Tax Law)This dissertation seeks to analyse the phrase “carrying on a trade” in the context of South African income tax law. South African income tax law places emphasis on the phrase “carrying on a trade”. The Income Tax Act 58 of 1962 (hereinafter referred to as “the Act”) makes reference to the phrase in several different contexts. Trading is relevant to the tax treatment of both income (the amount that falls in the gross income of the taxpayer) and expenditure (the amount that qualifies for deduction). The importance of “carrying on a trade” within the income tax law can be seen in light of the following provisions of the Act that form the crux of this dissertation: section 1 defines trade; section 7 provides for the treatment of income from the trade of spouses married in community of property; section 11 deals with deductions; section 20(1) deals with setting off of assessed losses; section 23(g) deals with deductions not permitted in terms of the Act; and section 24H deals with the treatment of income derived by a partner carrying on a trade in a partnership. It is important to note that though it is not explicitly mentioned in the Act, the revenue receipts or accruals arising out of trade are included in the taxpayer's gross income provided that the trade constitutes a scheme of profit-making. Section 11(a) of the Act contains what is often described as the general deductio