Tax treatment of losses incurred during lockdown

Tax treatment of losses incurred during lockdown

• 22 June 2020
• Accounting
• South African Accounting Academy

There is little doubt that the national lockdown in response to the COVID-19 health crisis has had a negative financial impact on individuals and business alike.

This publication takes a look at this effect that the national lockdown may have on expenditure or losses incurred by individuals and businesses. It also looks at the tax consequences that may arise as a result of employers providing their employees with personal protective equipment. To this end 2 scenarios are considered.

• Scenario 1: Tax treatment of losses incurred during lockdown
• Scenario 2: the provision of personal protective equipment

In order to determine whether the taxpayer was trading one has to consider whether there were objective factors that indicated that, despite the closing down of the business for a considerable period, the taxpayer nevertheless continued carrying on a trade.

It is submitted that as the use of personal protective equipment is required in order for businesses to be open, one could argue that the expenditure in respect of the provision of personal protective equipment would be expenditure that is necessary for the performance of the employer’s business operations.

If a taxpayer is uncertain whether an amount is deductible, they should obtain proper tax advice on the issue or consider applying to SARS for an advanced tax ruling, in particular if the expense in question is significant.

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