Page 103 - SAIT Compendium 2016 Volume2

PN 4/1999
Income Tax acT: PracTIce noTes PN 4/1999
Example 11 Example 12
Example 13 Example 14 Example 15 Example 16 Example 17
Postponement of exchange differences in terms of section 241 (7), in the case of a mining company
Identi cation of the premium or discount portion of an exchange difference in terms of section 24I (5)
Deferral of echange difference in respect of a qualifying loan or advance Transitional exchange difference
Roll-over of a forward exchange contract
Affected contract in respect of interest
Illustration of how, for tax purposes, a gain made between a forward exchange contract and an underlying position is taken into account, by using the market related forward rate
The taxpayer
The loan was repayable on 30-06-1998. The tax year ends on 28 February.
borrowed $100 000 on 31-01-1998.
EXAMPLE 1
NORMAL LOAN (DOLLAR OBLIGATION)
MARKET RATES FOR PURPOSES OF THE EXAMPLE
DATE
SPOT RATE R/$
31-01-1998
6,4200
28-02-1998
6,4500
30-06-1998
6,6000
YEAR END 28-02-1998
Ruling exchange rates:
Transaction date (31-01-1998) Date of translation (28-02-1998)
Exchange difference:
[(6,4200 – 6,4500) x $100 000]
YEAR END 28-02-1999
Ruling exchange rates:
Previous date of translation (28-02-1998) Date of realisation (30-06-1998)
Exchange difference:
[(6,4500 – 6,6000) x $100 000]
NET TAX RESULT
(– R3 000 – R15 000)
RECONCILIATION
Rand equivalent on transaction date ($100 000 x 6,4200)
Rand equivalent on date of realisation ($100 000 x 6,6000)
Net loss
6,4200 6,4500
6,4500 6,6000
R3 000 loss
R15 000 loss
R18 000 loss
R642 000 R660 000
R 18 000
SAIT CompendIum oF TAx LegISLATIon VoLume 2
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