Page 218 - SAIT Compendium 2016 Volume2

IN 9 (5) Income Tax acT: InTeRPReTaTIon noTes IN 9 (5)
Example 4 — Deduction of moving costs
Facts:
Company X is an SBC with a year of assessment which ends on the last day of February. Due to unforeseen circumstances, the business operations of Company X had to be moved on one occasion. The following information was submitted:
• Asset A quali es for an allowance under section 12E (1A) (b) and was acquired on 1 May 2005 at a cost of
R100 000. The cost to move asset A was R6 000.
• Asset B quali es for an allowance under section 12E (1) and was acquired on 1 April 2005 at a cost of R50 000.
The cost to move asset B was R4 000.
Calculate the section 12E (1) or (1A) deduction in respect of assets A and B for the 2006, 2007, 2008 and 2009 years of assessment (if applicable). Also calculate the section 12E (3) deduction for assets A and B, where the assets were moved on either—
• 1 July 2005;
• 1 July 2006;
• 1 July 2008.
Result:
a) Calculation of section 12E (1A) (b) deduction for asset A
2006 year of assessment: 50% of R100 000 = R50 000 2007 year of assessment: 30% of R100 000 = R30 000 2008 year of assessment: 20% of R100 000 = R20 000
b) Calculation of section 12E (3) deduction of moving costs of asset A
• 1 July 2005 (2006 year of assessment) [section 12E (3) (a)] 2006 year of assessment: R6 000/3 = R2 000
2007 year of assessment: R6 000/3 = R2 000
2008 year of assessment: R6 000/3 = R2 000
(Moving costs incurred during the year of assessment in which the asset was brought into use, therefore the write-
off period of moving costs is the same as the write-off period for capital cost.)
• 1 July 2006 (2007 year of assessment) [section 12E (3) (a)]
2007 year of assessment: R6 000/2 = R3 000
2008 year of assessment: R6 000/2 = R3 000
(Two years [2007 and 2008 years of assessment] remains to claim capital cost, therefore the write-off period of moving costs are also two years [2007 and 2008 years of assessment].)
• 1 July 2008 (2009 year of assessment) [section 12E (3) (b)]
2009 year of assessment: R6 000/1 = R6 000
(The asset has already been written off in the 2008 year of assessment, therefore the moving cost is claimed in full in the 2009 year of assessment.)
c) Calculation of section 12E (1) deduction for asset B
2006 year of assessment: R50 000 3 100% = R50 000 (once off)
d) Calculation of section 12E (3) (b) deduction of moving costs of asset B
(As the asset was written off in full in the 2006 year of assessment, the moving costs is to be written off in full in the year of assessment in which such moving cost was incurred.)
Deduction: R4 000 (once off) [under section 12E (3) (b)]
5.5 Assets acquired for no consideration
The value of an asset acquired for no consideration (for example, by means of a donation, inheritance or as a dividend in specie) must be increased by the direct cost incurred for the installation or erection of that asset under section 11 (e) (vii) or cost incurred in moving of that asset from one location to another under section 11 (e) (v). Expenditure incurred for the installation, erection or moving an asset for no consideration must therefore be written off under section 11 (e). 5.6 Assets written off in full under section 11 (e)
The installation, erection or moving costs of an asset will be allowed as a deduction in the year of assessment in which such costs were incurred if that asset which has been written off in full under section 11 (e) is installed, erected or moved from one location to another.
5.7 Recoupment
Any amount which is recovered or recouped as a result of the disposal of an asset used by an SBC is subject to the recoupment provisions under section 8 (4) (a). The inclusion in the income of the SBC in respect of the amount which is recovered or recouped can, however, despite the provisions of section 8 (4) (a), be deferred under section 8 (4) (e) if the taxpayer has made an election that paragraph 65 or 66 of the Eighth Schedule to the Act should apply. The election to defer the recoupment of allowances previously granted can be made only if the proceeds for the disposal of the asset exceed the base cost of the asset and the taxpayer intends acquiring a replacement asset. The amount to be recovered or recouped as well as any capital gain (if any) is spread over the future years of assessment in proportion to the capital allowances to be claimed on the replacement asset. This method of deferring recouped allowances and capital gains is available in respect of assets which are disposed of on or after 22 December 2003.
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