BIM34001 - Change of basis of computing taxable profits: introduction and flowchart

The basis on which taxable profits of a trade, profession or vocation are computed may change from one period of account to the next. This may be as:

  • a result of a change in the legislation,
  • a change in our understanding of the legislation,
  • a change of accounting policy, or
  • to correct errors.

These different situations have been dealt with differently by case law and legislation.

For tax purposes a major distinction is whether the old basis was a valid or an invalid basis. A valid basis is one, which conforms to the law or practice applicable to the period of account concerned, an invalid basis conforms to neither.

Flowchart

Please see the for a diagrammatic representation.