Page 219 - SAIT Compendium 2016 Volume2

IN 9 (5) Income Tax acT: InTeRPReTaTIon noTes IN 9 (5)
Example 5 — Recoupment of deductions allowed in respect of the cost of assets
Facts:
An SBC with a year of assessment ending on the last day of February, acquired a truck costing R400 000 on 1 May 2005 and immediately brought the truck into use for the purposes of conducting business operations. The truck was, however, damaged beyond repair due to an accident, on 2 December 2006. An amount of R400 000 was paid out on 31 March 2007 under a contract of insurance. The taxpayer has elected that paragraph 66 of the Eighth Schedule must apply and any recoupment is therefore deferred under section 8 (4) (e).
The taxpayer has indicated that—
• a replacement vehicle will be acquired within a period of one year subsequent to the disposal of the original
vehicle; and
• the replacement vehicle will be brought into use within a period of three years from the date of disposal of the
original vehicle.
The SBC concluded an agreement for the acquisition of the replacement asset on 1 April 2007. The cost of the replacement asset was R450 000.
Calculate the deductions and/or recoupment for the 2006 to 2010 years of assessment.
Result:
2006
Section 12E (1A) (b) deduction 2007
Section 12E (1A) (b) deduction 2008
Section 12E (1A) (b) deduction in respect of damaged truck: As the truck was damaged beyond repair, the truck was not
used during the 2008 year of assessment, therefore,
no section 12E (1A) (b) deduction.
Section 12E (1A) (b) deduction in respect of replacement truck:
The time of disposal under paragraph 13 of the Eighth Schedule is 31 March 2007, that is, the date on which the compensation for
the damaged truck was received.
Original cost of damaged truck
Less: Deductions allowed in 2006 and 2007 (R200 000 + R120 000) Tax value as at 1 March 2007
Less: Insurance proceeds
Recoupment
Section 8 (4) (e) recoupment to be included in income:
2009
Section 12E (1A) (b) deduction
Section 8 (4) (e) recoupment to be included in income: 2010
Section 12E (1A) (b) deduction
Section 8 (4) (e) recoupment to be included in income:
R400 000 3 50% = R400 000 3 30% =
R450 000 3 50% =
R320 000 3 50% = R450 000 3 30% =
R320 000 3 30% = R450 000 3 20% = R320 000 3 20% =
R (200 000) (120 000)
(225 000)
400 000 (320 000) 80 000 400 000 320 000
160 000
(135 000) 96 000
(90 000) 64 000
6. Rate of normal tax
The rate of normal tax applicable to SBCs for the years of assessment ending during the period 1 April 2008 to 31 March 2009 is as follows:
Taxable income
Not exceeding R46 000
Exceeding R46 000 but not exceeding R300 000 Exceeding R300 000
Rates of tax
0% of taxable income
10% of the amount by which the taxable income exceeds R46 000
R25 400 plus 28% of the amount by which the taxable income exceeds R300 000
The rate of normal tax applicable to SBCs for the years of assessment ending during the period 1 April 2009 to 31 March 2010 is as follows:
Rates of tax
Not exceeding R54 200
Exceeding R54 000 but not exceeding R300 000
Exceeding R300 000
Taxable Income
0% of taxable income
10% of the amount by which the taxable income exceeds R54 200
R24 580 plus 28% of the amount by which the taxable income exceeds R300 000
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