FunTaxit (Pty) Ltd is an accounting and tax consulting company operated from the private residence of Chris Luhe, the sole shareholder of the company. He has converted a granny flat, located on the same stand as his private residence, into company offices. FunTaxit (Pty) Ltd has concluded the following transactions for the year of assessment ended 28 February 2019 and requires your advice on the correct tax treatment of each of the transactions below:
1. N $3 700 paid to Swift Maintenance on 16 September 2018 to replace the front door of the offices that was damaged by an angry client. Fortunately, the full amount could be recovered from the company’s insurance. (3)
2. N$750 paid to the Receiver of Revenue on 1 November 2018 for administrative penalties relating to the late sub-mission of the annual income tax return for the 2017 year of assessment.
Briefly discuss whether or not the expenses relating to the transactions 1 and 2 above would be deductible by FunTaxit (Pty) Ltd for the 2019 year of assessment in terms of the general deduction formula section 17 and section 24 (prohibited deductions) of the Income Tax Act.
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