Page 130 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes
PN 4/1999
Loan (£33 333)
Ruling exchange rates:
Date of previous translation (31-12-1996) Date of translation (31-12-1997)
Exchange difference:
[(5,6600 – 5,7800) x $33 333]
Portion of exchange difference deductible from income in the 1997 year of
5,6600 5,7800
assessment
[((-R39 299 + R29 474) – R4 000) x 10%]
R4 000 loss
R1 383 loss R1 383 loss
R42 224 loss
R710 000 (R572 000)
R12 442 (R192 666)
R42 224
Deferred amount of exchange difference to be deducted in following years [R13 825 – R1 383]
NET TAX RESULT
(- R1 000 – R4 367 – R6 000 – R29 474 – R1 383)
RECONCILIATION
Rands received on transaction date ($200 000 x 3,5500)
Rands used to repay £100 000 (£100 000 x 5,7200)
Balance of deferred exchange differences on 31-12-1997
Rand equivalent of loan on 31-12-1997 (£33 333 x 5,7800)
Net loss
EXAMPLE 14 TRANSITIONAL EXCHANGE DIFFERENCE
On 1 September 1991 the taxpayer imported bicycles to the value of $900 000. The debt was payable in three equal instalments of $300 000 each, payable on the rst day of September in 1992, 1993 and 1994. The taxpayer’ s nancial year ends on 28 February.
The cost of the stock was determined on 28 February 1992 by using the spot rate on that date, in accordance with the principles laid down in the case of Caltex Oil (SA) Ltd v CIR 1975 (1) SA 665 (AD) (37 SATC 1). Realised exchange differences were taken into account on 28 February 1993 for tax purposes. The taxpayer claimed an amount of R60 000 as an exchange loss in terms of section 24B on payment of the rst instalment of $300 000. All the stock was sold by 28 February 1993.
(In the above-mentioned court case, the court held that, where a debt in respect of imported stock was still outstanding at the end of the year of assessment in which such debt was incurred, the cost of such imported stock must be determined by using the ruling spot rate at the end of such year of assessment)
122 SAIT CompendIum oF TAx LegISLATIon VoLume 2