Page 107 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes (2) Intrinsic value [(6,6000 – 6,4000) x $80 000]
PN 4/1999
16 000 0
R16 000 0,2000
Time value
Market value of option contract
Ruling exchange rate (R16 000 ÷ $80 000)
Note:
The tax result for the writer of a foreign currency option contract is always exactly the opposite of the result for the holder of such contract. In this example the tax result for the writer of the foreign currency option contract will therefore
be
YEAR END 28-02-1998
Exchange difference R5 200 loss Premium received R4 000 gain
YEAR END 28-02-1999
Exchange difference R10 800 loss
EXAMPLE 4
ACQUISITION AND DISPOSAL OF A DEBT (DOLLAR ASSET)
On 31-01-1998 a bank purchased a debt of $26 000 from a business for R165 000. The bank sold the same debt to another bank on 30-04-1998 for R174 000. The tax year ends on 28 February.
MARKET RATES FOR PURPOSES OF THE EXAMPLE
DATE
SPOT RATE R/$
31-01-1998
6,4200
28-02-1998
6,4500
30-04-1998
6,5300
YEAR END 28-02-1998
Ruling exchange rates:
Transaction date (31-01-1998) (See calculation 1)
Date of translation
Exchange difference:
[(6,3462 – 6,4500) x $26 000]
6,3462 6,4500
R2 700 gain
SAIT CompendIum oF TAx LegISLATIon VoLume 2
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