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GENERAL DEDUCTION FORMULA
In The Production Of Income
BPSA is a wholly-owned subsidiary of BPUK.
BPUK wanted BPSA to distribute all of its profits as dividends. BPSA did
not want to distribute all profits since they had several upcoming
capital expenditures that had to be financed.
BPSA declared a dividend of R682m and BPUK advanced a loan of
R348m to BPSA. The difference was paid out to BPUK. Interest of
R81m was incurred on the loan which SARS disallowed since it was
incurred in order to pay a dividend.
The court found that BPSA did not need the loan to pay dividends (they
had sufficient funds for the dividend), but that they would have had to
obtain additional funds within a few months to fund capital
expenditure.
The interest was therefore deductible.
(CSARS v BPSA, 2006)
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