Page 131 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes PN 4/1999
MARKET RATES FOR PURPOSES OF THE EXAMPLE
Outstanding debt
DATE
SPOT RATE R/$
01-09-1991
2,5000
$900 000
28-02-1992
2,6500
$900 000
01-09-1992
2,8500
$600 000
28-02-1993
3,0500
$600 000
01-09-1993
3,2500
$300 000
28-02-1994
3,4500
$300 000
01-09-1994
3,6400
$ nil
The taxpayer’ s rst nancial year end after 1 January 1994 was 28 February 1994. The date of commencement of section 24I for the taxpayer was therefore 1 March 1993. The transitional exchange difference must be determined in respect of the debt which was still unrealised on 28 February 1993. On 28 February 1993 $600 000 of the debt was still unrealised ($900 000 less the rst payment of $300 000 on 1 September 1992).
Transitional exchange difference
Ruling exchange rates:
Transaction date (01-09-1991)
Day prior to date of commencement (28-02-1993)
Transitional exchange difference: [(2,5000 – 3,0500) × $600 000]
Note:
2,5000 3,0500
A portion of this transitional exchange difference has already been taken into account for tax purposes in that the cost of stock was determined on 28 February 1992 at the spot rate on such date.
Portion of the transitional exchange difference already taken into account for tax purposes: Value of debt on transaction date
($900 000 × 2,5000)
Cost of stock
($900 000 × 2,6500)
Increased deduction
Adjusted transitional exchange difference
[R330 000 – (R135 000 × $600 000 ÷ $900 000)]
R2 250 000 R2 385 000 R 135 000 R240 000
R330 000 loss
The transitional exchange difference is taken into account for tax purposes, in terms of the phasing in provisions of section 24I(3):
SAIT CompendIum oF TAx LegISLATIon VoLume 2 123