Page 217 - SAIT Compendium 2016 Volume2

IN 9 (5) Income Tax acT: InTeRPReTaTIon noTes IN 9 (5)
(2) For the purposes of this section the cost to a taxpayer of any asset shall be deemed to be the lesser of the actual cost to the taxpayer to acquire that asset or the cost which a person would, if he had acquired the said asset under a cash transaction concluded at arm’s length on the date on which the transaction for the acquisition of the said asset was in fact concluded, have incurred in respect of the direct cost of acquisition of the asset, including the direct cost of the installation or erection thereof or, where the asset has been acquired to replace an asset which has been damaged or destroyed, such cost less any amount which has been recovered or recouped in respect of the damaged or destroyed asset and has been excluded from the taxpayer’s income in terms of section 8 (4) (e), whether in the current or any previous year of assessment.
5.1 Assets used directly in a process of manufacture or process of a similar nature — section 12E (1)
In terms of section 12E (1) an SBC that carries on a process of manufacture or a process which in the opinion of the Commissioner is of a similar nature, may deduct the full cost of an asset during the year of assessment in which such asset is brought into use for the rst time. This deduction is subject to the following requirements:
• The asset must be brought into use for the rst time by the SBC on or after 1 April 2001.
• The asset must be used directly in a process of manufacture or a process regarded by the Commissioner as being of
a similar nature.
• A cost should have been incurred in acquiring the asset (an asset acquired for no consideration will, as a result, not
qualify).
• The asset must be owned by the SBC or the SBC should have acquired the asset as purchaser under an ‘instalment
credit agreement’ as de ned in section 1 of the Value-Added Tax Act, 1991.
The asset does not need to be a new asset. An asset which quali es for a deduction under section 12E (1) will not qualify for any other allowance available under the Act. As the cost of an asset, used in a process of manufacture (or any other process of a similar nature), is deducted in full in the year in which the asset is brought into use for the rst time, such asset will not qualify for a scrapping-allowance under section 11(o). On disposal thereof, the asset will be subject to the recoupment provisions under section 8 (4) (a).
5.2 Other assets — section 12E (1A)
An SBC that makes use of assets other than those used directly in a process of manufacture (or any other process of a similar nature), may elect to claim either—
• the amount allowable in respect of those assets under section 11 (e) (the wear and tear allowance); or
• an amount over three years at the following rates—
• 50% in the year of assessment in which the asset is or was brought into use for the rst time ( rst year); • 30% in the second year; and
• 20% in the third year.
In this regard, the SBC may elect to use section 11 (e) [section 12E (1A) (a)] if it presents a more favourable allowance than the three year spread under section 12E (1A) (b). The election may be done on a per asset basis.
The assets must be acquired by an SBC under an agreement formally and nally signed by every party to the agreement on or after 1 April 2005, for the deductions under section 12E (1A) to be effective (see Example 5). The deduction under section 12E(1A) is based on the cost of acquisition of the asset and the asset which was acquired for no consideration will, as a result, not qualify for any deduction under section 12E (1A) (see 5.3).
5.3 The cost of an asset — section 12E (2)
In terms of section 12E (2), the cost of an asset is for the purposes of both sections 12E (1) [assets used directly in a process of manufacture or process of a similar nature] and 12E (1A) [other assets] deemed to be the lesser of—
• the actual cost to the taxpayer to acquire that asset;
• the direct acquisition cost that a person would have incurred if the asset had been acquired under an arm’s length
cash transaction on the date on which the transaction was in fact concluded; or
• where the asset has been acquired to replace an asset which has been damaged or destroyed, the actual cost less the
deferred recoupment which has been excluded from the taxpayer’s income under section 8 (4) (e).
The above cost excludes interest and nance charges, but includes the direct cost of installation or erection of the asset. Note: No deductions will be available under either section 12E (1) or section 12E (1A) if the taxpayer acquired an asset for no consideration, because the deductions for SBC assets are based on the cost to the taxpayer to acquire that asset. A wear and tear allowance based on the value of the asset will be allowed under section 11 (e) if that asset is
acquired for no consideration, for example, by means of a donation, inheritance or as a dividend in specie. 5.4 Cost in moving an asset — section 12E
In terms of section 12E (3) (b), the cost of moving an asset which has been written off in full, must be allowed in the year in which the expenditure is incurred. This will also include an asset which was written off under section 12E (1), that is, an asset used directly in a process of manufacture (or a process of a similar nature).
(3) Any expenditure (other than expenditure referred to in section 11 (a)) incurred by a taxpayer during any year of assessment in moving an asset in respect of which a deduction was allowed or is allowable under this section from one location to another must—
(a) where the taxpayer is or was entitled to a deduction in respect of that asset under subsection (1A) in that year and
one or more succeeding years, be allowed to be deducted from his or her income in equal instalments in that year
and each succeeding year in which that deduction is allowable; or
(b) in any other case, be allowed to be deducted from that taxpayer’s income in that year.
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