Page 211 - SAIT Compendium 2016 Volume2

IN 9 (5) Income Tax acT: InTeRPReTaTIon noTes IN 9 (5)
2. Background
Section 12E provides for a special dispensation applicable to SBCs. The bene ts that emanate from qualifying as an SBC are as follows:
• An SBC which carries on a process of manufacture (or any other process which in the opinion of the Commissioner
is of a similar nature) may deduct the full cost of the expenditure incurred on or after 1 April 2001 for the acquisition of plant or machinery (assets) in the year of assessment, in which the assets are brought into use for the rst time by the taxpayer.*
• An SBC may elect an accelerated allowance for any machinery, plant, implement, utensil, article, aircraft or ship (other than plant or machinery used in a manufacturing or similar process) acquired on or after 1 April 2005. The accelerated allowance is 50% of the cost of that asset in the year of assessment during which that asset was brought into use for the rst time, 30% in the rst succeeding year and 20% in the second succeeding year.
• The rate of normal tax on the taxable income of an SBC is considerably lower than the rate of normal tax (28%) for companies in general (see paragraph 6). A company pays normal tax at the rate of 28% on taxable income, whilst an SBC will pay 0% normal tax on the rst R54 200 of taxable income, 10% of the amount by which taxable income exceeds R54 200 but does not exceed R300 000 and R24 580 plus 28% of the amount by which taxable income exceeds R300 000. This rate of normal tax structure is applicable for any year of assessment ending during the period 1 April 2009 to 31 March 2010.
3. The law
For ease of reference, the relevant sections of the Act are quoted in Annexure A.
4 Application of law
Inherently the de nition of a ‘small business corporation’ focuses on the various legal entities and the requirements that they have to meet in order to qualify as an SBC as well as exclusions from the said de nition. These requirements are discussed below.
4.1 Legal entities — section 12E (4) (a)
An SBC is limited to—
• a close corporation registered under the Close Corporation Act 69 of 1984;
• a ‘co-operative’ as de ned in section 1 of the Co-operatives Act 14 of 2005; or
• a company registered as a private company under the Companies Act 61 of 1973.
A company registered under foreign legislation will therefore not qualify.
4.2 Shareholder’s requirements — section 12E (4) (a)
All the shareholders or members of the company, close corporation or co-operative must, at all times during the relevant year of assessment, be natural persons [section 12E (4) (a)].
The other requirement (as discussed in 4.4) is that none of the shareholders or members, at any time during the year of assessment of the company, close corporation or co-operative holds any shares or has any interest in the equity of any other company, other than those as speci ed in section 12E (4) (a) (ii).
4.3 Gross income limitation — section 12E (4) (a) (i)
The gross income of an SBC may not exceed R14 million during the year of assessment. The de nition of the term ‘gross income’ in section 1 refers to the total amount, in cash or otherwise, received or accrued, excluding receipts or accruals of a capital nature, but includes the amounts mentioned in paragraphs (a) to (n) (whether of a capital nature or not) of that de nition. Gross income includes income that is exempt from normal tax, for example, dividends from a South African source. Any taxable capital gain is not included in gross income, as section 26A speci cally makes provision for the inclusion of the taxable capital gain in taxable income.
The limitation on gross income refers to the total amount received or accrued for a full period of 12 months, that is, the full year of assessment. An SBC that commenced or ceased trading during the year of assessment, must reduce the amount of R14 million proportionately in order to determine whether the gross income for the relevant period in question would have exceeded R14 million, had such company or close corporation traded for the full period of 12 months. Note:
In terms of section 12E (4) (a) (i), a part of a month is reckoned as a full month.
Amounts either received or accrued, whichever occurs rst are included in gross income.
* The plant, machinery, utensil, implement, article, aircraft or ship must be owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of an ‘instalment credit agreement’ as de ned in section 1 of the Value-Added Tax Act 89 of 1991.
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