Trade - Given widest possible meaning (Burgess) - implies continuity but a single venture could still qualify

Transcription

1 Preamble: - Trade to be carried on - Income to be derived from such trade Trade - Given widest possible meaning (Burgess) - implies continuity but a single venture could still qualify Expenditure & Losses - Cash outflows - Liabilities to be settled in cash or otherwise S11 General Deductions Allowed Actually incurred - Unconditional obligation to pay (Edgar Stores) - No amount is deductible until the amount is determined (Golden Dumps) - Contingent on future event; only deductible when event ocurred i.e. is certain (Nasionale Perse) Links to S23(e) - Provision is not dectible S11(a) During the YOA - Previous year expenditiure is not deductible in current year (Sib-Nigel) Links to S23H - Prohibits S11(a) deductions where an expense is incurred in one tax year but the benefits (of the expenditure) are not enjoyed in full during YOA General Deductions In the production of income - Action is closely enough connected to TP's operations i.e. trade (PE Electric Tramway/Rendle) - 'Inevitable concomitant' of TP's trade (Joffee & Co) Links to S23(f) Not of a capital nature - New State Areas: Fixed Capital - adding to income earning structure = Capital Floating Capital - adding to income earning operations = Revenue - British Insulated & Helsby Cobles Creates an enduring benefit = Capital Does not create an enduring benfit = Revenue S23(g) General Deductions Prohibited S23H General Deductions Limit Any moneys claimed as a deductions to the extent to which the moneys are not laid out or expended for the purposes of trade. Limits the deduction to a portion of the expenditure where the benfits from the expenditure are for a period which extends beyond the YOA. - apportioned expenditire between: Trade purposes = deductible Non-trade purposes = not deductible - Link between the company's trae and expnditure incurred is not too remote (Warner Lambert)

2 Section Deduction S11A Pre-trade expenditure S24J Interest S11(c Legal Expenses S11(cA) Restraint of Trade S11(i) Bad Debts S11(j) Allowance for doubtful debts S11(l) Employer contribution to funds

3 S11(gB) Registration of Intellectual Property S11(gC) Acquisition of Intellectual Property S18A Donations to PBO

4 Specific Deductions Requirement Can claim deduction in YOA trade commences if: Expenditure & losses Actually incurred Prior to the commencement of & in preparation for carrying on trade: Where any person has incurred interest in a YOA in the production of income. Actually incurred Action, claim, dispute or action at law Oridinary course of business Amount included in GI of recipient Actually incurred In the course of trade Compensation for ROT imposed on a natural person Amount included in GI of recipient Due to the TP Becomes bad during the year Previously included in GI Must qualify for S11(i) Reversed in next YOA before current year deduction An employer may: Deduct any sum contributed by him During the YOA For the benefit of the employees To any pension, provident or medical aids

5 Intellectual property will be used in production of income Intellectual property includes: Patent (grant, restoration or extension) Design (registration or extension) Trademark (regostration or renewal) Intellectual property will be used in production of income Actually incurred when asset is bought for the first time Excludes trademarks Donations are not in the production of income, thus no S11(a) deduction S18A allows deductions of donations to: - Approved PBO's in terms of S30(1)/other S10(1)(cA) bodies or bodies that provide funding - That carry on activities in Part II of 9th Schedule Welfare, humanitarian, health care, environment & animal welfare, land & housing

6 Limit None Which would have been allowed as a deduction in terms of S11; S11D; S24J Which was not allowed as a deduction when it was actually incurred None Only deductible if: TP wins when TP = appellent TP looses when TP = defendant Legal expenses follow nature of claim Lessor of: ROT/number of years or 1/3 * ROT Actual BD = SOCI balance (movement) 25% of allowance S11(l)(i): Lumpsum contribution LS/number of employees S11(l)(ii): Annual contribution

7 Full deduction of costs actually incurred > R5000: 5% for Patent 10% for Design <= R5000 Full 100% Deduction is limited to: 10% of Taxable Income before this deduction g

8 Pr *Deductions in bold often tes Section Deduction Disallowed S23(a) S23(b) Domestic, private, family S23(c Insured Loss S23(d) Tax, penalties & interest on tax S23(e) Provisions (uncertain) S23(f) Expenses to produce exempt income S23(g) Non-trade Expenditure S23(l) Restraint of trade payments

9 S23(m) Expenditure relating to employment Employees may only receive certain deductions: S11(c, (e), (i), (j), (k), (n) S23(o) Unlawful activities, bribes, fines S23H Prepaid expenditure Provisos to S23H

10 rohibited Deduction S23 sted to ensure students completed self-study section. Further detail Prohibits the deduction costs of maintenanec of the taxpayers family or home. Office at house generally not equal to a deduction UNLESS: It is specifically equipped Used regularily Variable remuneration (comission) Prohibits the deduction of the gross amount if there is a direct link between: The loss and the amount recoverable Prohibits the deduction of: Any tax imposed under the Income Tax Act; or Interest or penalty imposed by an Act administered by CSARS A taxpayer may not claim a deduction for aany provision unless the Act provides for it. Linked to S11(a) - deduction only when expenditure is actually incurred Expenses incurred for the purposes of earning any amount which is not income is not deduc SARS practice allows for an apportionment. Prohibits a deduction of of moneys paid to the extent that it is not for trade. Requires apportionment of expenditure laid out for: Trade puposes (deductible) - link between the company's trade and expenditure incurred is Non-trade purposes (not deductible)

11 Prohibits deductions of expenditure relating to employment or the holding of office unless it S23(m) applies to employees or holders of office - who earn a remuneration S23(m) does not apply to an agent or representative - remuneration normally derived from c S23(m) allows salaried employees to claim the follwing deductions: S11(c - Legal Expenses S11(e) - Wear & Tear S11(i) - Bad Debts S11(j) - Allowance for doubtful debts S11(k) - Pension fun contributions S11(n) - RAF contributions Deduction related to domestic expenses not disallowed by S23(b) Prevents the deduction of any payments resulting from a corrupt activity e.g. bribes and unlawful kickbacks, fine charged or penalty imposed as a result of an unlawful activity. S23H defers certain deductions Applies to amounts which are allowed as a dection in terms of S11(a), (c, (d), S11D BUT the goods will be supplied; or the service will be rendered in the NEXT year of assessm Hence, you cannot claim the deduction in the year that you paid it. You can only claim it when the goods are supplied; or the service is rendered (actuall S23H does not defer deductions when: - expenditure actually paid in terms of legislation; or - where the G/S are supplied within 6 months of the end of the YOA; or - where the aggregate of all amounts subject to S23H do not exceed R Where any of these 3 provisos apply then S23H does not apply and you can claim the

12 ctible. not too remote (Warner Lambert)

13 is specifically permitted in term of this section. commission ment ly incurred) i.e. deduction is limited. e deduction the the YOA that you paid it.

14 M Trading Stock S1 Purchases Spare parts S11(a) S11(d) Cost of Sales IAS 2 Closing Sotck S22(1) Opening Stock Included in closing stock Not included in closing stock S22(2) S22(2)(a) S22(2)(b) Stock acquired for no consideration S22(4) Consumption of trading stock S22(8)

15 Private or domestic use/consumption S22(8)(a) Disposed of, other than in the ordinary course of trade for consideration below MV S22(8)(b)(i) Distributed in specie Applied for any other purposes Ceases to be held as trading stock Acquisition or disposal of trading stock S22(8)(b)(iv) S22(8)(b)(v) S23(f)

16 Module 3 - Trading Stock (a) Anything - (i) produced, manufacturedc, constructed, assembled, purchased or in any other manner ac for the purpose of manufacture, sale or exchange by him or on his behalf; or (ii) the proceeds from disposal of which forms or will form part of his gross income; or (b) any consumable stores and spare parts acquired by him to be used or consumed in the Trading Stock, except for spare parts, is a revenue item, thus it is deductible in terms of S11 Spare parts is a capital item and the purchase is deductible in terms of S11(d) Cost price = cost of acquiring the stock + any other costs incurred getting it into its existing c i.e. transport costs, handling costs, import duties, any other directly attributable costs Add to taxable income the value of the trading stock held but not yet disposed of by the taxp Value = the lower of Cost & NRV Need to disclose to SARS if using NRV & SARS needs to approve lower NRV (write downs) Deduct from taxable income the value of the trading stock held and not yet disposed of at th The value of the opening stock = the value of the closing stock The value = original cost of trading stock UNLESS, for CGT purposes the stock is deemed to have been disposed of and reacquired Then the value is deemed to be the market value Value is deemed to be at market value, on date of acquisition No provision for S11(a) deduction SARS practice is to allow the stock to be included in opening stock at MV in YOA acquired f Will be included in closing stock if still on hand at the end of the YOA at the lower of: Market value of date acquired; or Market value at the end of the YOA Proviso: if used or consumed for trade (e.g. trading stock given away in a promotion), S22(8

17 But will also be allowed a S11(a) deduction for expenditure incurred of the same amount. Deemed recoupment = - cost of stock limted to carrying value if stock is already written down (per S22(1)); or - market value where the cost cannot be determined Deemed recoupment = Market value Recoupment reduced by the amount received Donations to a PBO recoupment = amount included in terms of S22(2) Deemed recoupment = Market value Deemed recoupment = Market value Deemed recoupment = Market value Cannot claim a S11(a) deduction in respect of the cost of trading stock acquired if: - stock was not disposed of by the taxpayer during the YOA - stock was not included in the taxpayers closing stock at the end of the year The cost is carried forward and claimed as a S11(a) deduction in the first YOA in which: - trading stock s disposed of; or - it is included in closing stock per S22(1); or - the trading stock was destroyed; or - for some other reasons the trading stock cannot be disposed of or held by the taxpayer

18 cquired by a taxpaper course of his trade 1(a) condition and location payer at the end of YOA ) he beginning of the YOA at market value, for no consideration 8) recoupment for MV

19 Movable Immovable Capital Allowances Wear & Tear Special Depreciation Industrial Buildings Commercial Buildings Section S11(e) S12C S13(1) S13quin What are the requirements? What is the allowance claimed on? Any moveable machinery, plant Any moveable machinery, or equipment plant, euipment New and unused buildings process of manufacture or Owned Owned Acquired on or after 1/04/2007 similar process Brought into use for the first Where the taxpayer incurs the Used for the purposes of trade Owned time in the taxpayers trade costs of erecting a building or Used directly in the process of The building is wholly or manufacture Lower of cost & market value Lower of cost & market value Cost of the building Lower of cost & market value Therefore, it is possible to claim wear & tear allowance, even when there is no cost. However, if there is no cost then one cannot claim S12C allowance On buildings used wholly or mainly (i.e. >50%) in the purchasing a building maining used by the taxpayer for the purpose of prosucing income in the course of the taxpayers trade Rate: Interpretation Note 47 New & unused: 40/20/20/20 Post 1/10/1999: 5% 5% annual allowance Depends on asset Second hand: 20/20/20/20 Straight-line/dimishing asset Small asset (<R7000) fully written off in acquisition period Is the allowance apportioned for time when asset is acquired during the year? When is the allowance From the date the asset is brought into use for the claimed? purposes of the taxpayer's Yes, if not used for entire YOA No No No From the date the asset is brought into use for the purposes of the taxpayer's From the date the asset is brought into use for the purposes of the taxpayer's Recoupment - S8(4)(a)? Yes Yes Yes Yes From the date the asset is brought into use for the purposes of the taxpayer's Srapping allowance - S11(o) Yes Yes No No