The meaning of "actually incurred" in section 11 of the Income Tac Act in the context of three specific transactions

The Income Tax Act 58 of 1962 (“Act”) entitles taxpayers to deduct certain losses \nand expenses incurred by them from their taxable income if such losses and \nexpenses comply with the requirements of section 11(a) of the Act. One of the \nrequirements of section 11(a) is that, in order to be eligible for a deduction, the \nlosses and expenses must have been “actually incurred” by the taxpayer. \nThe area of tax deductions in our tax law represents the frontline in the continuous \nand inevitable war between the taxpayer (almost always desperately trying to \nmaximise her deductions) and the revenue authorities (as often times desperately \ntrying to minimise the deductions to which the taxpayer is entitled). The stage on \nwhich the various battles which make up this mighty war between citizen and state \nare fought is the court and the arsenal with which each party comes armed is the Act \nand, more specifically, the absolute belief of each party in the correctness of their \ninterpretation of the Act, which, each party hopes, will be ably demonstrated by their \nable (and often extremely expensive) counsel. Such is the determination of the \ntaxpayer and the tax authorities alike that the body of case law relating to this \nspecific area of our law is, especially when one considers that it essentially involves \non only one section of the Act, relatively voluminous. \nThe author’s intention is to consider only one of the requirements with which the \ntaxpayer must comply in order to be eligible for a deduction, namely, the requirement \nthat the relevant loss or expenditure must have been “actually incurred” by the \ntaxpayer. Despite the fact that the meaning of the phrase “actually incurred” has \nbeen considered extensively by our courts, significant uncertainty still exists as to its \nexact meaning. The author will deal with three specific contexts in which the \nmeaning of this phrase remains a subject of uncertainty, namely, share-based \npayments, contingent liabilities and losses and expenses incurred in relation to illegal \nreceipts. The author will begin first by dealing with the interpretation of tax statutes, the author \nwill then, in general terms, consider the general deduction formula after which the \nauthor will delve into the meaning of the phrase “actually incurred” in the contexts of \neach of the transactions mentioned above.