Page 124 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes
PN 4/1999
(The acquisition cost of the plant was incurred in this year and quali es for a deduction in terms of section 15 read with section 36 but only to the extent that there is taxable income from mining from that speci c mine)
Taxable income
COST OF MINERAL PLANT
($3 920 000 x 5,4600)
NET TAX RESULT (Exchange differences)
(R3 200 + R156 800)
RECONCILIATION
Cost of mineral plant (See calculation above)
Rands paid to purchase $4 000 000 on 01-02-1998 ($4 000 000 x 5,3600)
Rands received on the sale of $4 000 000 on 01-02-1998 ($4 000 000 x 5,4000)
Rands paid to purchase $3 920 000 on 10-03-1998 ($3 920 000 x 5,4600)
Net gain
R nil R21 403 200
R160 000 gain
R21 403 200 (R21 440 000) R21 600 000 (R21 403 200) R160 000
EXAMPLE 12
IDENTIFICATION OF THE PREMIUM OR DISCOUNT PORTION OF AN EXCHANGE ITEM IN TERMS OF SECTION 24I (5)
The taxpayer imported stock to the value of $100 000. He took delivery of the stock on 01-01-1998, on which date he became liable for the purchase price. The debt was payable on 30-04-1998. The taxpayer took out a forward exchange contract on 28-02-1998. In terms of this contract he would purchase $100 000 on 30-04-1998 at a forward rate of 5,4900. The taxpayer’s nancial year ends on 28 February.
MARKET RATES FOR PURPOSES OF THE EXAMPLE
DATE
SPOT RATE R/$
01-01-1998
5,4000
28-02-1998
5,4500
30-04-1998
5,5300
YEAR END 28-02-1998 Debt
Ruling exchange rates:
Transaction date (01-01-1998) Date of translation (28-02-1998)
Exchange difference:
[(5,4000 – 5,4900) x $100 000]
Note:
5,4000 5,4900
This exchange difference is determined by using the spot rate as the ruling exchange rate on the transaction date and the forward rate as the ruling exchange rate on the date of translation. This exchange difference therefore complies with one of the four possible circumstances, as envisaged in section 24I(5) and the premium portion of that exchange difference must be spread, on a day-to-day basis, over the period of the forward exchange contract.
R9 000 loss
116 SAIT CompendIum oF TAx LegISLATIon VoLume 2