A critical analysis of the deductibility of bad debts for income tax purposes

Abstract

The objective of this thesis was to critically analyse the deductibility of bad debts for income tax purposes. This was achieved by applying a doctrinal research methodology to the data, which consisted of local and international legislation and case law, as well as other relevant writings. In setting out to achieve this primary objective, this thesis addressed certain subsidiary goals. The requirements of section 11 (i) of the South African Income Tax Act that provides for the deduction of bad debts were examined with reference to local case law, together with case law from selected international jurisdictions. To clarify the requirement of section 11 (i) that a debt must have become bad, this thesis set out to ascribe a meaning to the term "bad debt" which is currently not defined in the South African Income Tax Act and to ascertain the principles applicable in determining when a debt will be regarded as having become bad. The research also addressed the timing in relation to the identification of a debt as bad, as well as other commercial considerations. This research concluded that there is a need for further guidance in this area and provided brief recommendations that could provide more certainty in relation to the deductibility of bad debts.