Professional Documents
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TL105 2022 Slides 6 Per PG
TL105 2022 Slides 6 Per PG
TL105 2022 Slides 6 Per PG
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XXX
General
TAXABLE CAPITAL GAIN (s 26A)
XX Deduction
Formula &
LESS: DEDUCTIONS in terms of s 18A (qualifying donations) (XXX)
TAXABLE INCOME XX
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• 23(k) – Expenditure incurred by personal services providers • Excluding: 23(n), (o)(iii) & (p)
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Example - Pre-trade expenditure and losses (s 11A) Example Solution - Pre-trade expenditure and
Example 6.1 Silke
losses (s 11A) Example 6.1 Silke
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https://www.freepik.com/search?format=search&query=pre-paid%20expense
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• Section 23H defers the deduction of certain S 23H does not apply, when:
expenditure, actually incurred i.t.o. ss 11(a), Goods received or services rendered
11(c), 11(d) and 11A, where the goods or within 6 months after year end?
services or benefits will only be received after Yes No
the end of the year of assessment
• If s 23H is applicable, then the deduction can S 23H not applicable Aggregate of all Pre-paid
only be claimed to the extent that the Yes
expenditure ≤ R100 000
goods/services are supplied in the current No
year of assessment
Full deduction Full deduction Deduction disallowed
allowed allowed ito s 23H
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Advertising (transactions occurred in the current YOA): In terms of section 11(a), a deduction will be available if
• Tsonga erected a billboard (being a permanent structure) on expenditure or losses is actually incurred in the
its property (next to the highway) at a cost of R300 000. production of income, provided such expenditure and
From 1 May, the day of completion, Tsonga has been using losses are not of a capital nature.
the billboard to advertise its products. The billboard that was erected is capital in nature as it is
• Since 1 December, a second billboard was rented at a permanent structure that provides an enduring benefit,
R15 000 (excluding VAT) per month from Derby (Pty) Ltd. the expense is thus not deductible in terms of
On 1 December, Tsonga paid R171 000 (excluding VAT), section 11(a) – (Rand Mines (Mining & Services) Ltd v
(being R15 000 x 95% x 12 months) as the rental contract Cir or BPSA (Pty) Ltd v CSARS [2007] SCA 7 (RSA)) or
stipulates that the rental is reduced by 5% if paid annually in New State Areas Ltd v CIR).
advance. This was the only pre-payment made by Tsonga
during its year of assessment ended 31 March. The billboard does not qualify for a section 11(e)
deduction, as section 11(e) specifically excludes
permanent structures.
Discuss whether the advertising expenses incurred are
deductible by Tsonga in its current year of assessment.
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The rental paid for the advertising space will be allowable in terms of Although the rentals are deductible in terms of section 11(a), section
section 11(a) as: 23H limits the deduction of the prepaid portion if:
The expenditure was actually incurred as it was actually paid by
Tsonga.
To determine if the amount was incurred in the production of income, The goods or services are not rendered to the company within 6
case law needs to be explored. months after the end of the year of assessment – in this case it will
be rendered within 8 months after year-end
The purpose of the expense is to advertise the products of the
company and to thereby increase the sale of products. The purpose (1 April to 30 November)
is therefore to produce income and is closely connected with the
income earned.
(Port Elizabeth Electric Tramway Co Ltd v CIR. (Also: C SARS v BP The aggregate of the pre-paid amounts exceeds R100 000. In this
South Africa (Pty) Ltd.)) case (R15 000 x 8 x 95%) = R114 000, thus it exceeds R100 000.
The expenditure is not of a capital nature. Tsonga is not acquiring a Therefore, section 23H is applicable to the rent paid.
permanent structure, but is paying for the use of it.
Only R57 000 (R15 000 x 4 x 95%) is deductible in the current year
(New State Areas Ltd v CIR). of assessment (1 December to 31 March).
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• Interest repaid to SARS – s 7F • Future expenditure on • S 11(c) allows a deduction of legal expenses
• Legal costs – s 11(c) contracts – s 24C actually incurred;
• Restraint of trade payments – • Instruments – s 24J (LU 10)
s 11 (cA) & 23(l) • on any claim, dispute or action at law, arising in
• Repairs – s 11(d) • Interest incurred on acquisition the course of trading;
• Bad debt – s 11(i) of equity shares in operating
company – s 24O (LU 10) Does not need to have been incurred in the production of income
• Doubtful debt allowance – s 11(j)
• Fund contributions by employers • Pension, provident & RAF • no deduction will be allowed for legal
– s 11(l) contributions – s11(k) (TL 106)
expenses that are capital in nature;
• Annuities to former employees or • Repayment of employee
partners – s 11(m) • as long as the accompanying compensation
benefits – s 11(nA) & 11(nB)
• Learnership agreements (s 12H) (TL 106)
• Donations – s 18A
or damages are either deductible under
• Assessed losses – ss 20 & 20A
• Variable remuneration – s 7B s 11(a) or constitute income in the
(but accrual aspect - TL 106)
(individuals – TL106) taxpayer’s hands. Example 12.9 Silke
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The renovation costs will only be deductible if it meets all The main concern is whether each cost can be classified as a repair, a
repair is a renewal of a subsidiary part, whilst an improvement will increase
the requirements of section 11(d), namely that it is the income-earning capacity of the asset (Flemming v KBI (1994))
expenditure actually incurred
during the year of assessment Replacement of damaged carpets with wooden floors – this is a
repair, since it is a renewal of a subsidiary part, although the
on repairs of property replacement material is not identical (CIR v African Products
occupied for the purposes of trade, or in respect of which Manufacturing Co Ltd (1944))
income is receivable. Installing a security system – this is not a renewal of a subsidiary part,
it is a new addition and an improvement to the house.
The expenditure was actually incurred by Reno Vate (given) Painting of the exterior and interior walls of the house – classified as
during the current year of assessment (started on 15 Sept a repair, since it is restored to its original condition.
and was completed in Dec). Landscaping of a garden (the house did not have a garden before,
only grass) – the garden is a new addition, will increase income-earning
capacity – not a repair (not replacing a subsidiary part), but an
improvement
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Doubtful debt allowance if the taxpayer applies IFRS 9 to Doubtful debt allowance if the taxpayer does
the debt (s 11(j)(i)): NOT applies IFRS 9 to the debt (s 11(j)(ii)):
The doubtful debt allowance is the sum of – The doubtful debt allowance is the sum of –
• 40% of the sum of the loss allowance relating to
impairment measured at an amount equal to the • 40% of debt in arrears for 120 days or more,
lifetime expected credit loss in respect of debt plus reduced by the value of any security available in
• Bad debt written off and reported in the financial respect of that debt plus
statements that was not allowed as a section 11(i) bad • 25% of debt in arrears for 60 days or more,
debt deduction and that was included in the taxpayer’s reduced by the value of any security available in
income in the current or any previous year, plus respect of that debt (excluding debt to which
• 25% of the loss allowance relating to impairment in IFRS 9 applies or that is already included in the
respect of debt other than debt that is already 40%).
included in the 40% above.
Example 12.12 Silke
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Restraint of trade payments – s 11(cA) & s 23(l) Fund contributions by employers – s 11(l)
Silke 12.2.1 Silke 12.2.2
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Calculate the s 12H allowance(s) available to Section 12H(2A)(a) annual allowance (R20 000)
Easy Employ (Pty) Ltd if Shezi successfully (R50 000 allowance if disabled (s 12H(5A))
completes the learnership agreement on Section 12H(4A) completion allowance of R20 000 for every full
31 December, 24-months later. You can 12‐month period thus R20 000 × 2 (R40 000)
assume that Easy Employ (Pty) Ltd has a (R50 000 × 2 full 12‐month periods = R100 000 (R50 000 x 2) if
disabled (s 12H(5A))
December year-end.
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https://www.freepik.com/search?format=search&query=Charity%20Support%20Welfare
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Example Solution: Donations deduction S 18A Example Solution: Donations deduction S 18A
Silke Example 12.15 Silke Example 12.15
adapted adapted
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Assessed losses - s 20
Silke 12.12
TL105
Assessed Losses
>
Allowable
– s 20
deductions
and
allowances
Total
income
= Assessed
losses
carried forward to
following year
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Assessed losses - s 20
Silke 12.12
TL105
Capital Allowances LU 8
Companies Persons other than companies
(individuals)
Must carry on a trade Need not carry on a trade
If no trade during year – the loss can no May carry forward balance of assessed loss
longer be set off (it is forfeited) (must carry even if no trade carried on for the year
on trade for at least part of year)
Assessed loss brought forward – may Assessed loss brought forward – may be
deduct from trade income deducted from non-trade income
Assessed loss from one trade may be set Assessed loss from one trade may be set
off against taxable income from other trade off against taxable income from other trade
- except if s 20A is applicable
Loss from non-RSA trade may not be set off against taxable income from RSA
trade.
If an estate is sequestrated, assessed loss (prior to sequestration) cannot be
carried forward unless order sets sequestration aside.
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Calculate the allowances Electra Ltd can claim during the Y1, Y2
and Y3 years of assessment.
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31 December Y1 R 31 December Y3
Allowance in respect of non-manufacturing machinery (Year 1 = 50%)
(s 12E(1A)) [R1 000 000 x 50%]................................................(500 000)
Allowance in respect of non-manufacturing machinery
Cost of manufacturing plant (100% deduction allowed in the first year) acquired during Y1
(s 12E(1)) [R1 250 000 x 100%]........................................... (1 250 000) (Year 3 = 20%) (s 12E(1A)) [R1 000 000 x 20%] (200 000)
31 December Y2
Allowance on non-manufacturing machinery acquired during Y1
Deduction for remaining moving costs incurred during Y2
(Year 2 = 30%) (s 12E(1A)) [R1 000 000 x 30%] ......................(300 000) on non-manufacturing machinery (remaining moving costs
Deduction for moving costs: written off in full as final allowance is claimed on asset in
Manufacturing plant (deduct in full as asset written-off in full) Y3 (R30 000 – R15 000)(s 12E(3)(a)) …………....(15 000)
(s 12E(3)(b)) ............................................................................. (50 000)
Non-manufacturing machinery (two years remaining that capital
deductions will be allowed) (R30 000/2) (s 12E(3)(a)) ..............(15 000)
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Section 13quin
Commercial buildings
(offices, shops etc.)
Section 13sex
Residential units
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IMMOVABLE PROPERTY ALLOWANCES Manufacturing buildings (factories) Commercial buildings (offices, shops) Residential units (RU)
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Immovable Property
Manufacturing building allowance – s13
Section 13 Section 13quin Section 13sex Silke 13.4.1
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• Buildings used for trade purposes – • Cost of building = < actual cost or
i.e. offices, shops etc. – excluding cash cost under arm’s length
residential accommodation transaction, including direct cost of
• Erected OR acquired new by the acquisition, improvement or erection
taxpayer (including improvements) UNLESS a part of a building was
Mainly acquired (not erected) – then cost
• Used wholly or mainly to produce income in the = >50%
will be:
course of taxpayer’s trade • 55% of acquisition price if a part is acquired, and
• Allowance is 5% p.a. • 30% of acquisition price if an improvement part is acquired.
Straight line –
NOT pro-rata
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Example - Residential units (low-cost) – s 13sex Example Solution - Residential units (low-cost)
– s 13sex
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Lessee: Lessor:
• Must be incurred in the production of income or • Include value (as stipulated in the contract) of
income to be derived therefrom AND taxable in leasehold improvements in Gross Income – per
the lessor’s hands par (h)
• Allowable deduction – s 11(f)
• Starting in year in which premium is paid
Lessee:
• Premium deductible in annual instalments
• Must be incurred in the production of income or income to be
• Over lease period (limited to 25 years) derived therefrom AND taxable in the lessor’s hands
• INCLUDE probable extension periods • Allowable deduction – s 11(g) (obligation ito agreement)
• Apportioned for part of year (pro-rata) – from date of – Lessee may elect s13(1) instead of s11(g) as neither of the sections prescribe
payment a specific sequence
NOTE: Lease premium vs lease rental payments in If NOT taxable in lessor’s hands – see s 12N
advance (ss 11(a) & 23H) Silke Example 13.16
https://za.pinterest.com/pin/511017888940485608/
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Recoupment
& Cap Gain
Recoupment Scrapping On 1 October Y2, Fast Feathers Ltd
R R R (December year-end) sold a manufacturing
Selling Price (SP) 130 000 70 000 5 000
machine to Slow Feathers (Pty) Ltd (its
100% subsidiary) for R1 500 000 (when
Lower of CP or SP 100 000 70 000 5 000 market value was R1 800 000). Fast
Less: TV (20 000) (20 000) (20 000) Feathers Ltd originally bought the new
Recoupment s8(4)(a)/
(Scrapping s11(o)) 80 000 50 000 (15 000)
machine for R3 000 000 on 1 March Y1.
Proceeds (SP less recoupment) 50 000 20 000 5 000 Calculate all the tax implications of the sale
Less: Base cost of the machine for Fast Feathers Limited for
(CP less allow claimed) (20 000) (20 000) (5 000)
the Y2 year of assessment.
Capital gain (Proceeds – BC) 30 000 Nil Nil
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Year ending 31 December Y2 - Fast Feathers Ltd On 1 October Y2, Fast Feathers Ltd (December
SP, R1 500 000, but sold to a connected person, it is deemed to have year-end) sold a manufacturing machine to Slow
been sold at MV at date of sale, R1 800 000 (1 October Y2) (s Feathers (Pty) Ltd (its 100% subsidiary) for
8(4)(k)).
R1.5 mil (when market value was R1.8mil). Fast
Recoupment in respect of sold machinery under s 8(4)(a):
Feathers Ltd originally bought the new machine
• R1 800 000 (value (proceeds) in terms of s 8(4)(k)) for R3 000 000 on 1 March Y1.
Less:
If the market value on 1 October Y2 was R3 200 000
• Tax value of R1 200 000 (R3 000 000 – R1 800 000)
• S 12C Y1: (R3 000 000 × 40% = R1 200 000
• S 12C Y2: (R3 000 000 × 20% = R 600 000 → Taxable income Calculate all the tax implications of the sale of
R1 800 000 the machine for Fast Feathers Limited for the Y2
Recoupment of (R1 800 000 – R1 200 000) year of assessment.
= R600 000 → Taxable income
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As a result of an insurance claim following the destruction of Cost of erection of the further building (factory) R1 600 000
his leased premises (factory) by fire, lessee has enjoyed a
recoupment of past allowances claimed on the cost of the Portion of the cost subject to the annual allowance:
destroyed building (factory) amounting to R500 000.
The untaxed recoupment will therefore be:
Tshlaene erects a further qualifying building (factory), this
recoupment is available for set-off against the cost of the Cost of further building R1 600 000
further building instead of being taxed immediately. Portion of cost deductible under s11(g) (R750 000)
The cost of the newly erected building amounts to R1.6 mil. R850 000
Calculate the allowances on this building if the portion of the Recoupment arising from prior building (s13(3)) (R500 000)
cost of that building deductible under s 11(g) (obligation to Cost on which annual allowance is based R350 000
effect improvements) is R750 000.
The taxpayer will elect any option available to him to minimise his Annual allowance (s 13(1)) (5% of R350 000) (R17 500)
tax liability.
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X
Capital allowance in year on replacement asset
Capital Gain
Contracts for the acquisition of the replacement asset/ assets to be concluded Total cap allowance (cost) of replacement asset
within 12 months after the disposal of the asset
Replacement asset to be brought into use within three (3) years of the disposal • Recoupment per year = same % that allowance on
of the asset and that asset is not deemed to have been disposed of and replacement asset is calculated at
reacquired by that person Silke Example 13.32 – 13.34
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• returned to lessor (no tax implications); OR Rental applied in Acquired for no or Nominal rental Rental = 10% or
No further
reduction of purchase inadequate charge (less than more of fair market
• acquired by taxpayer and rentals paid are taken into consideration price consideration
payment
10%) value
towards the settlement of the purchase price of the property (s 8(5)(a)) ;
OR No further normal Amount so applied
Excess of market value
Deemed re- No deemed
taxed as deemed coupment of fair
• acquired by taxpayer for no or inadequate consideration (s 8(5)(b)); tax implications
recoupment
over consideration taxed
as deemed recoupment in
market value
recoupment
OR (section 8(5)(a))
hands of person acquiring
(section 8(5)(bA))
asset (i.e. lessee or other
• continued to be used at no or nominal rent (s 8(5)(bA); OR person) (s8(5)(b))
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Crock Earthmoving Equipment is a company Since 1 April 2019, Crock Earthmoving Equipment leased a
delivery truck (with a cost price of R780 000) from Rentals
that manufactures earthmoving equipment (clas- Limited, a non-connected company, for R25 000 per month in
sified as a process of manufacture by SARS) terms of a 3-year lease agreement. The agreement stated
that Crock Earthmoving Equipment will be permitted to
that is used both locally and internationally by continue using the delivery truck at the end of the 3-year
mining and other construction companies. period for a rental of R3 000 per month. The Commissioner
will allow Crock Earthmoving Equipment to write off the
delivery truck over 2 years (the remaining useful life from
The following transaction relate to the 2022 year 1 April 2022), if applicable.
of assessment ending 31 December 2022 (all
REQUIRED:
amounts exclude VAT):
Calculate the Income Tax implications of the above
transaction for Crock Earthmoving Equipment (Pty) Ltd for its
2022 year of assessment.
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Example Solution - Hired assets (s 8(5)(bA)) Example Solution - Hired assets (s 8(5)(bA))
Rental payments until 31 March 2022: 3 x R25 000 (75 000) But a s 8(5) recoupment, since the annual rental of R36 000 (R3 000
Rental payments from 1 April ‐ allowed under s 11(a) x 12) payable from 1 April 2022 is less than 10% of the fair market
(R3 000 x 9) (27 000) value determined above (10% x R399 360 = R39 936), the rental is
Determination of the fair market value of the delivery truck: deemed to be nominal and Crock Earthmoving Equipment is
deemed to have acquired the delivery truck for no consideration for
Cost to Rentals Limited 780 000
purposes of s 8(5)(bA).
Less: 20% depreciation on the reducing balance The company must include in its income the lesser of the fair market
method per full year (s 8(5)(bB)(i)) value of R399 360, or rentals previously deducted of:
2020: (R780 000 x 20%) (156 000)
624 000 R900 000 (36 x R25 000) (s 8(5)(b) read with s 8(5)(a)) 399 360
2021: (R 624 000 x 20%) (124 800) S 11(e) allowance – R399 360/2 x 9/12 (149 760)
499 200
2022: (R499 200 x 20%) (99 840)
Deemed fair market value 399 360
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S 19 does NOT apply when the debt benefit is: S 19 does NOT apply when the debt benefit is:
• To a dormant company in the same group of •
Share issue within same group to settle debt
companies not carried on a trade in the between group companies
current or previous YOA
• This exclusion will not apply to debt: • This exclusion will not apply to debt:
– Used to directly or indirectly fund expenditure for an asset that was – incurred when the debtor was not part of the same group
S 19 later disposed of under the corporate roll-over relief provisions S 19 – settled or reduced by the issuing of shares in the debtor when the
applies (ss 42, 44, 45 or 47 – see TL107) applies debtor was not part of the same group
– incurred by the dormant company to settle, take over, refinance or
renew, directly or indirectly, any debt of another company that forms
part of the same group
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• Debt is reduced and creditor disposes of asset – Tax deductible Allowance Capital asset:
Trading stock:
= 8th Schedule applicable – calculate capital expenses asset: Still held during yoa
loss. and/or trading Still held during yoa of debt benefit:
1. Reduce cost
• If debtor and creditor are connected persons, par 39 (ring- stock already of debt benefit: 1.Reduce base cost
(s 19)
fencing) and/or par 56 may be applicable sold at time of 1.Reduce base cost (par 12A(3))
2. Excess ‐ 2.No tax effect if
debt benefit: to nil (par 12A(3))
• Par 56 disregards capital loss unless: Loss IS taken into recoup 2.Excess ‐ recoup remaining balance
– Base cost of asset reduced ito par 12A(3) account under s 19(4) under s 19(6) and
1.Recoupment No longer held:
– Capital gain included by debtor ito par 12A(4) and s 8(4)(a) s 8(4)(a) 1.Additional capital
under s 19(5)
No longer held: gain in yoa of debt
– Creditor proves amount included in gross income of acquirer of debt and s 8(4)(a) 1.Additional benefit (par
– Amount included in gross income or income of debtor or taken into recoupment in 12A(4))
account in balance of assessed loss yoa of debt
– Debtor includes capital gain in aggregate capital gain or loss benefit (s 19(6A)
(creditor must provide proof) and s 8(4)(a)) and
2.Additional capital
• If par 56 is not applicable (capital loss not disregarded), capital gain in yoa of
loss is ring-fenced ito par 39. Loss can only be set off against debt benefit (par
capital gains realised with same debtor. 147
12A(4)) 148
147 148
Example – Debt benefit (s 19 & par 12A) Example – Debt benefit (s 19 & par 12A)
4862 Exam 2013 adapted 4862 Exam 2013 adapted
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Tax deductible
Trading stock: Allowance Capital asset: Trading stock – Snapshot (Pty) Ltd
expenses asset: Still held during yoa The R475 000 debt benefit will first be applied to reduce the cost of the
and/or trading Still held during yoa of debt benefit:
1. Reduce cost trading stock still on hand at the time of debt concession. The deduction
stock already of debt benefit: 1.Reduce base cost
(s 19) under section 22(2) for the opening stock on hand at the beginning of Y1 will
sold at time of 1.Reduce base cost (par 12A(3))
debt benefit: 2. Excess ‐ 2.No tax effect if be reduced to Rnil.
to nil (par 12A(3))
recoup 2.Excess ‐ recoup remaining balance R
under s 19(4) under s 19(6) and Opening stock (s 22(2)) (150 000)
1.Recoupment No longer held:
and s 8(4)(a) s 8(4)(a) 1.Additional capital Debt concession under s 19(3) 150 000
under s 19(5)
No longer held: gain in yoa of debt Closing stock (s 22(1)) 0
and s 8(4)(a) 1.Additional benefit (par
recoupment in 12A(4)) The remaining R325 000 (R475 000 – R150 000) of the debt 325 000
yoa of debt benefit will be a deemed recoupment in income under s
benefit (s 19(6A) 8(4)(a) – (s 19(5))
and s 8(4)(a)) and
2.Additional capital
gain in yoa of
debt benefit (par
12A(4)) 151 152
151 152
Scrapbook (Pty) Ltd also requested and was granted a Tax deductible
concession on its outstanding debt from the following Allowance
expenses Trading stock:
creditor (an independent party) asset:
Capital asset:
and/or trading Still held during yoa
• Photoshop Ltd for computer equipment purchased on stock already 1. Reduce cost of debt benefit: Still held during yoa
1 October PY (prior year) for R350 000. SARS allows of debt benefit:
for a three year write off period on computer sold at time of (s 19) 1.Reduce base cost
equipment in terms of Interpretation Note No. 47. The debt benefit: 2. Excess ‐ to nil (par 12A(3)) 1.Reduce base cost
computer equipment is used for purposes of trade. recoup 2.Excess ‐ recoup (par 12A(3))
R275 000 of this debt was still outstanding on under s 19(6) and 2.No tax effect if
1.Recoupment under s 19(4) remaining balance
31 December Y1. under s 19(5) and s 8(4)(a)
s 8(4)(a)
No longer held: No longer held:
and s 8(4)(a) 1.Additional 1.Additional capital
REQUIRED recoupment in gain in yoa of debt
Discuss, supported by calculations and with reference to yoa of debt benefit (par
Income Tax legislation, the normal tax implications of the benefit (s 19(6A) 12A(4))
transactions for Scrapbook (Pty) Ltd for the company’s Y1 and s 8(4)(a)) and
year of assessment. 2.Additional capital
gain in yoa of
debt benefit (par
153
12A(4)) 154
153 154
Example Solution – Debt benefit Example – Debt benefit (s 19 & par 12A)
(s 19 & par 12A) 4862 Exam 2013 adapted 4862 Exam 2013 adapted
Computer equipment – Photoshop Ltd Scrapbook (Pty) Ltd also requested and was granted
concession on its outstanding debt from another creditor
The asset is still held. The R275 000 debt benefit will first be applied to
(independent party) as listed below:
reduce the base cost of the asset in terms of par 12A
• Frame It (Pty) Ltd for the purchase of two small second-
Base Cost: par 20 expenditure R 350 000
hand office blocks six years ago at a total cost of R850 000
less: s 11(e) allowance PY: R350 000 / 3 x 3/12 (R29 167) each. One of these office blocks was sold during PY for
less: s 11(e) allowance Y1: R350 000 / 3 x 12/12 (R116 667) R700 000. R630 000 of this debt was still outstanding on
Base cost (= Tax Value) R204 166 31 December Y1. 50% of the debt related to the property
Debt benefit under s 19(3) ❶ (R204 166) still held and 50% related to the property sold during PY.
The base cost of the asset will therefore now be Rnil No allowances could be claimed for tax purposes.
Base cost R nil The request for the concession on its outstanding debt was
No further allowances on the computer equipment will be allowed under s 19(7). granted on 31 December Y1.
The remaining R70 834 (R275 000 – R204 166) will be a recoupment.
Scrapbook (Pty) Ltd had an assessed capital loss brought
Recoupment under s 19(6) read with s 8(4)(a) ❷ R70 834
forward from the PY year of assessment of R150 000.
155 156
155 156
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157 158
159 160
Example Solution – Debt benefit (s 19 & par 12A) Example Solution – Debt benefit (s 19 & par 12A)
Example -Silke 13.38 Example -Silke 13.38
161 162
161 162
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Example – Debt benefit (s 19 & par 12A) Example Solution – Debt benefit (s 19 & par 12A)
Example -Silke 13.39 Example -Silke 13.39
On 1 June Y1, Nofuss (Pty) Ltd borrows R1,5 mil to Year ending 31 December Y1
acquire a new plant. Nofuss (Pty) Ltd purchased the The amount of the debt benefit of R1 500 000 was used to
plant for a total cost of R1 450 000 and used the fund tax-deductible expenses of R50 000 and the plant of
remaining R50 000 of debt to fund tax deductible R1 450 000. The amount of the debt benefit of R50 000 is not
administrative expenses. Nofuss (Pty) Ltd has claimed in respect of trading stock or allowance assets and will
allowances of R725 000 on the asset, at the stage when therefore be treated as a recoupment under section 19(5)
Nofuss (Pty) Ltd’s creditors discharge the R1 500 000 of read with section 8(4)(a).
debt, due to Nofuss (Pty) (Ltd)’s inability to pay. Nofuss The remaining R1 450 000 will first be applied against the
(Pty) (Ltd) still held the plant at the date on which the base cost of the asset which will be reduced to nil; the base
debt was discharged (i.e. within the same year of cost being R1 450 000 less the allowances claimed of R725
assessment). 000, thus a base cost reduction of R725 000. The remaining
debt benefit of R725 000 (R1 450 000 – R725 000) will be
recouped in income (s 19(6)).
Calculate the tax implications for Nofuss (Pty) (Ltd) of
the debt benefit for the year of assessment ending on Recoupment under s 19(5) read with s 8(4)(a) R 50 000
31 December Y1. Recoupment under s 19(6) read with s 8(4)(a) R725 000
163 164
163 164
165 166
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165 166
167 168
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167 168
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169 170
169 170
171 172
173 174
173 174
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175 176
175 176
CGT:
Proceeds: Selling price is R1 700 000 Limitation of deduction allowed under
(excluding VAT) section 11(a) – Section 23F Deduction
limited to the
Base cost on date of sale: R2 050 000 – extent that
Deductions limited in the following circumstances: payment has
R136 667 (R91 111 + R45 556) = R1 913 333 been received
• Applies to trading stock which was: for stock
– neither disposed of by the taxpayer nor disposed of
Standby will thus have a capital loss of – held by the taxpayer at the end of the year
(s 23F(1))
R213 333 (R1 700 000 – R1 913 333) that may • The deduction is deemed to have been incurred in the first
be deducted from aggregate capital gains subsequent year in which:
– Trading stock was disposed of, or
– Value of stock is included in gross income - s 22(1) as closing
stock, or
– Trading stock was destroyed
177
– For some reason stock can not be disposed of/ 178held by TP
177 178
179 180
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181 182
181 182
183 184
185 186
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• Deduction of interest: Interest of R27 500 for the year was received by
• Deemed to be incurred ito s 24J(2) if Macaroni Limited in respect of a financial
incurred in the production of income (and instrument which Macaroni Limited purchased on
carrying on of a trade) must be deducted 1 September Y1 at a discount of 6% on its face
from income from issuer/borrower
value of R550 000. Interest is receivable six-
• Taxation of interest: monthly (on 28/29 February and 31 August)
• Deemed to accrue ito s 24J(3) irrespective calculated on the face value at 5% per year. The
if it is of a capital nature or not must be instrument will mature on 31 August Y3, when
included in gross income of holder/lender Macaroni Limited will receive the face value plus a
• Use a timeline for accrual periods versus year- premium of 10%.
end (see par 10.6 in TL105 for an example)
Calculate the yield to maturity.
• Yield to maturity calculate (TAX4862 only)
187 188
187 188
189 190
191 192
191 192
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193 194
193 194
Interest incurred in respect of debts used to acquire certain Interest incurred in respect of debts used to acquire certain
shares is deemed to be in production of income s 24O shares is deemed to be in production of income s 24O
195 196
Interest incurred in respect of debts used to acquire certain Interest incurred in respect of debts used to acquire certain
shares is deemed to be in production of income s 24O shares is deemed to be in production of income s 24O
Definitions:
Note:
The determination as to whether the equity
shares represent a qualifying interest must In terms of the definition of an “acquisition
be done annually on one of the following transaction” the transaction in terms of
measurement dates: which the company acquires equity shares in
• Equity share held at year-end → determination is another company must be with a company
done on the year-end date. that does not form part of the same group of
• Equity share disposed of by company → companies as that company
determination is done on the date of disposal.
197 198
197 198
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Interest on hybrid debt instruments deemed Interest on hybrid debt instruments deemed
to be dividends in specie (s 8F) (TAX4862 only) to be dividends in specie (s 8F)
• Hybrid debt instrument = only an instrument in terms of
which a company owes an amount to another person can Company paying interest Company receiving
be a hybrid debt instrument. The following instruments are interest (holder)
classified as hybrid debt instruments:
• Interest paid deemed to • Interest received deemed to
• The company is entitled to or obliged to convert or be dividend received –
exchange the instrument (or part thereof) in any YOA be dividend paid therefor dividend included in gross
for shares, unless mv of shares = amount owed in no deduction allowed income (s 8F(2)(a))
terms of instrument;
• The obligation to pay an amount so owed on a date or (s 8F(2)(b)). • Dividend exemption:
dates falling in the YOA has been deferred as the (s 10(1)(k)(i))
obligation is conditional upon the mv of assets of
company not < than amount of liabilities of company (Note: def. of instrument –
(obligation to pay based on solvency of company) holder is a resident company
• Company owes amount to connected person and has or non-resident company if
no obligation to repay within 30 years of issue of the interest in respect of the
instrument (date liability comes into existence) unless instrument is attributable to a
repayable on demand. permanent establishment of
the non-resident company in
South-Africa)
199 200
199 200
EVERY FOREIGN
EXCHANGE TRANSACTION
Transactions
in foreign UNDERLYING ASSET EXCHANGE ITEM
currency
NON-MONETARY ITEM MONETARY ITEM
201
202
201 202
203 204
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205 206
Example Example
Transaction Date Spot rate
Date
$1 = R
16 September 2022 $1 = R15,85
30 September 2022 $1 = R15,80
25% paid REQUIRED Marks
15 October 2022 $1 = R15,95
1 November 2022 $1 = R15,60
$1 = R15,90 (forward rate under Calculate all the implications on Wooden Joy (Pty) Ltd’s
a four‐month FEC) taxable income regarding the acquisition and settlement of
Year-end 31 December 2022 $1 = R16,05 the debt of the two excavation machines for the 2022 year of 9
$1 = R16,25 (forward rate under assessment. Show all calculations and round off all amounts
a two‐month FEC) to the nearest Rand.
75% paid 28 February 2023 $1 = R16,15
Binding General Ruling No. 7 allows for a four year write-off period on
these types of excavation machines.
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208
207 208
209 210
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Example Example
Rx: 25% of debt Rx: remaining 75%
USING THE SAME INFORMATION AS THE PREVIOUS EXAMPLE, JUST CHANGING THE DATE Shipped Delivered & of debt
Order Yr‐end BIU Paid
THAT THE ASSETS WERE BROUGHT INTO USE FOB Pd 25%
Wooden Joy (Pty) Ltd (“Wooden”) is a resident company. Wooden is a registered VAT
vendor (on invoice basis, two‐monthly tax periods ending in January, March, etc.) and only Tx: Cost – s25D 1 Feb ‘22
16 Sept ‘22 30 Sept ‘22 15 Oct ‘22 31 Dec ‘22 28 Feb ‘23
makes taxable supplies. The company’s primary business is to assemble and install wooden
2 x $15 800 =
playground equipment (not classified as a process of manufacturing) at clients’ premises. s24I(7) deferred
$31 600 ($31 600 x 25% = $7 900) x (9.95 – 9.80) loss (S24I) unrealised g/(l)
Wooden has a December year-end. Wooden is not a small business corporation as defined. 15.95 15.60
DEBT 15.85 15.80 16.05 10.15
Wooden ordered two new excavating machines from an American company for $15 800 s24I(7) deferred
each on 16 September 2022 The two excavators were shipped FOB (free‐on‐board) on ($31 600 x 75% = $23 700) x (15.80 – 16.05) loss (S24I) unrealised g/(l)
30 September 2022. The machines arrived in South Africa on 15 October 2022 and was
cleared immediately. Import duties of R28 750 were paid, as well as the correct amount of
VAT. 25% of the outstanding debt was paid to the supplier on the date of the safe arrival of 1 Nov ‘22 31 Dec ‘22 28 Feb ‘23
the two machines in South Africa.
FEC 15.90 16.25 16.15
On 1 November 2022, Wooden entered into a four-month FEC in order to hedge the (2 mth FEC)
outstanding purchase price. The two excavators were brought into use by Wooden on s24I(7) deferred
1 February 2023. The outstanding debt was settled in full on 28 February 2023. ($31 600 x 75% =$R23 700) x (15.90 – 16.25) gain (S24I) unrealised g/(l)
211 212
211 212
Solution Solution
2023:
2022 Cost of excavation machines: Section 11(e) allowance = R528 030/4 years x 11/12 (brought
$31 600 ($15 800 x 2 machines) x R15,80 (s 25D) = R499 280 + R28 750 into use on 1 February 2023) (121 007)
(import duties) = R528 030 Foreign exchange differences (section 24I):
Section 11(e) allowance cannot be claimed as the asset has not been Debt: Deferred – 2022
brought into use in 2022 yoa 15 October 2022
Foreign exchange differences (section 24I): $7 900 ($31 600 x 25%) x (R15,80 – R15,95) = R1 185 loss (1 185)
Debt: 15 October 2022 (section 24I(7) 31 December 2022
$7 900 ($31 600 x 25%) x (R15,80 – R15,95) = R1 185 loss that cannot be $23 700 ($31 600 ‐ $7 900) x (R15,80 – R16,05) = R5 925 loss (5 925)
claimed as the asset has not been brought into use – defer to 2023 28 February 2023 (when realised)
31 December 2022 (section 24I(7)) $23 700 ($31 600 ‐ $7 900) x (R16.05 – R16,15) = R2 370 loss (2 370)
$23 700 ($31 600 ‐ $7 900) x (R15,80 – R16,05) = R5 925 loss deferred to FEC: Deferred - 31 December 2022
2023 $23 700 x (R16,25 – R15,90) = R 8 295 gain 8 295
FEC: 31 December 2022 (section 24I(7)) 28 February 2023 (when realised)
$23 700 x (R16,25 – R15,90) = R 8 295 gain deferred to 2023 $23 700 x (R16,25 – R16.15) = R2 370 loss (2 370)
213 214
213 214
215
TAX4862 ONLY
215 216
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Section 24I(10A) - Transactions between group Section 24I(10A) - Transactions between group
companies or connected persons companies or connected persons
217 218
217 218
On 1 January 2022 Watson (VAT vendor) purchased a new Date Spot rate
manufacturing machine on credit for €300 000 from €=R
Tsonga (a connected person). 1 January 2022 €1 = R18,00
On 1 February 2022 the machine was shipped (FOB). 1 February 2022 (transaction) €1 = R18,05
On 1 March 2022 the machine was cleared by Customs 1 March 2022 €1 = R18,14
(customs duty value was R 3 420 000) and on 15 March 15 March 2022 €1 = R18,25
2022 the machine was brought into use by Watson. 31 March 2022 (year-end) €1 = R18,32
31 March 2023 €1 = R18,37
It was agreed that Watson would pay Tsonga the full 31 December 2023 €1 = R18,40
amount of the debt on 31 December 2023. Watson did (payment/realisation)
not enter into any FEC to serve as a hedge in respect of Required:
the debt. (Year end = 31 March ) Calculate all the implications on the taxable income of Watson for the 2022 and 2023
year of assessment.
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219 220
219 220
221 222
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voting rights
20% equity or
Affected transaction
A transaction concluded between connected persons or
associated enterprises under conditions other than arm’s
length conditions between independent persons.
223 224
225 226
227 228
227 228
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229 230
231 232
231 232
233 234
233 234
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235
236
235 236
Define tomorrow.
237
40