Page 108 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes
PN 4/1999
YEAR END 28-02-1999
Ruling exchange rates:
Previous date of translation (28-02-1998) Date of realisation
(See calculation 2)
6,4500 6,6923
Exchange difference:
[(6,4500 – 6,6923) x $26 000]
NET TAX RESULT
(+ R2 700 + R6 300)
RECONCILIATION
Rands paid on transaction date Rands received on realisation
Net gain
Calculations :
(1) Costs incurred to acquire debt
Foreign currency amount of debt Acquisition rate (R165 000 ÷ $26 000)
(2) Amount received on disposal of debt Foreign currency amount of debt Disposal rate (R174 000 ÷ $26 000)
R6 300 gain R9 000 gain
R165 000 R174 000
R 9 000
R165 000 $26 000 6,3462
R174 000 $26 000 6,6923
EXAMPLE 5
DEBT (DOLLAR OBLIGATION) HEDGED BY A FORWARD EXCHANGE CONTRACT
The taxpayer imported stock to the value of $100 000. He took delivery of the stock on 01-12-1997. On this date he became liable for the purchase price. The debt was payable on 31-05-1998. The taxpayer entered into a forward exchange contract on 01-12-1997. In terms of this contract he would purchase $100 000 on 31-05-1998 at a forward rate
of 6,4900. The taxpayer’s nancial year ends on 28 February.
MARKET RATES FOR PURPOSES OF THE EXAMPLE
DATE
SPOT RATE R/$
FORWARD RATE
6 MONTHS
3 MONTHS
01-12-1997
6,3700
6,4900
28-02-1998
6,4500
6,5100
31-05-1998
6,5600
5.1 The transaction was recorded on the transaction date at the spot rate, for accounting purposes. At the end of the nancial year (date of translation) the debt was translated at the spot rate, for accounting purposes.
Accounting recording of the transaction
Dr Purchases (Stock) R637 000 Cr Creditor
($100 000 x 6,3700)
R637 000
100 SAIT CompendIum oF TAx LegISLATIon VoLume 2