Page 100 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes PN 4/1999
doubtful, the loss, bad debt or allowance in terms of sections 11 (a), 11 (i) and 11 (j), in respect of such an exchange item, are based on an amount which takes into account all exchange differences which were, or will be, included in or deducted from the taxpayer’s income in any previous year or in the current year of assessment. This is achieved by basing such loss, bad debt, or allowance on the amount which is obtained by multiplying the spot rate, in respect of such exchange item on the date of write-off, by the foreign currency amount (to the extent that it is irrecoverable) of such exchange item.
The total deduction which is determined in the above-mentioned manner for purposes of section 11 (j), is included, in terms of that section, in the income of the taxpayer during the succeeding year of assessment.
Exchange items, to the extent that the foreign currency amount thereof became irrecoverable and in respect of which a loss or a bad debt was allowed as a deduction from income in terms of sections 11 (a) and 11 (i) are, for practical purposes, considered to have been realised for purposes of section 24I. Thus, no further exchange differences are thereafter taken into account for tax purposes in respect of such exchange items, except in respect of that portion of the amount of the exchange item written-off, which is recouped or recovered at a later stage. In this regard see the paragraph dealing with the recoupment of bad debts written-off.
An exchange difference on debt written off, calculated from the translation or transaction date to the write off date will, therefore, be included in taxable income and the amount of the debt translated on write off date will be considered as a deduction in terms of sections 11 (a) or 11 (i).
Exchange items in respect of which an allowance in terms of section 11 (j) has been granted, remain exchange items until the date on which they are realised in a manner de ned in section 24I (1) or until they become irrecoverable, with the result that exchange differences in respect of such exchange items should still be taken into account for tax purposes.
See annexure C, example 7.
Recoupment of bad debts written off
When a taxpayer recoups amounts in relation to an exchange item in respect of which a loss or a bad debt was claimed and deducted in terms of sections 11 (a) or 11 (i), the total amount recouped by him is included in his taxable income in the year of assessment in which such recoupment occurred. The recoupment can be broken down into two parts. The rst portion is that portion of the amount which was written off in terms of section 11 (a) or 11 (i) and which is now recouped. Such portion is recouped in terms of section 8 (4) (a). The second portion of the ‘recoupment’ is the exchange difference, in respect of that portion of the exchange item which was written off but which is now recouped, which should have been calculated had such portion not, for practical purposes, been considered realised for purposes of section 24I, as determined above. The reason for this is that the debt is an exchange item until the date when it is repaid; the write-off of a bad debt does not constitute repayment, settlement or disposal thereof.
See annexure C, example 7.
14 Assessed losses
Exchange differences which are taken into account in the determination of the taxpayer’s taxable income in terms section 24I of the Act, may give rise to or increase an assessed loss.
15 Objection and appeal
Any decision of the Commissioner for the South African Revenue Service under section 24I is subject to objection and appeal in terms of section 3 (4) of the Act.
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