Page 229 - SAIT Compendium 2016 Volume2

IN 12 Income Tax acT: InTeRPReTaTIon noTes IN 13 (3)
Due to the fact that the asset was sold by the executor in the process of winding up of the estate the amount accrued to the estate. If Mr X had sold the plant during his lifetime, the depreciation allowances previously allowed would have been recouped and would have formed part of his income. In this case the proceeds will be used to pay off the debts of the estate and Y will, therefore, not receive any bene t from the estate.
The amount recouped (R500 000) will form part of the income of the estate. (The recoupment is limited to the amount of allowances claimed by Mr X.)
The executor will be obliged to ensure that the estate is registered for income tax purposes and render a tax return declaring the amount of the recoupment as taxable income in the year of assessment that the amount was recovered or recouped. Any assessed loss incurred by the deceased up to date of his death is forfeited and cannot be set off against the income of the estate. The loss does not constitute expenditure incurred by the estate in terms of section 25 (2).
No amount will be subject to income tax in the hands of Y as she will not obtain any bene t from the estate.
3.2 The executor of the estate sells the asset (ascertained heir entitled to inheritance)
The will stipulates that the plant must be sold in the winding up of the estate. (There were no debts in the estate.) The plant was sold for R600 000 and upon nalisation of the estate the net proceeds (after deduction of normal estate administration costs) were distributed to Y. The recoupment would have been income in the hands of the deceased, there is an ascertained heir and it is for the heir’s immediate or future bene t. The requirements of section 25 (1) have, therefore, been met. Y must, therefore, include the amount of the recoupment in her taxable income in the year of assessment during which the amount accrued to the estate and not when it is actually paid to her.
3.3 The executor of the deceased estate sells the asset (income not for immediate/future bene t)
In terms of the will the executor is required to sell the plant. However, the will stipulates that Y is entitled to the inheritance, but not before her marriage. It cannot therefore be said that the inheritance will be derived for her bene t (she may never receive the inheritance because she may not marry) and consequently the recoupment will be taxable in the hands of the estate and not in the hands of Y.
3.4 The executor of the deceased estate distributes the asset in specie to the heir or legatee
In terms of the will Y is the only heir. She is prepared to pay all the administration costs pertaining to the winding up of the estate. Upon nalisation of the estate the asset is transferred to her. Due to the fact that no amount accrues to the estate section 25 does not apply. No amount is therefore deemed to accrue to either the estate or the heir.
Law Administration, South African Revenue Services
Income Tax Interpretation Note No 13 (Issue 3)
Deductions: Limitation of Deduction for Employees and Of ce Holders
DATE: ACT: SECTION: SUBJECT:
Preamble
15 March 2011
Income Tax Act 58 OF 1962 (the Act)
Section 23 (m)
Deductions: Limitation of deduction for employees and of ce holders
References to sections are to sections of the Act, unless otherwise stated.
1 Purpose
This Note provides clarity on the deductions that may be claimed by employees and of ce holders.
This update incorporates the changes made in terms of section 18 (1) (g) and section 37 (1) (c) of the Revenue Laws Amendment Act 60 of 2008, which introduced sections 11 (nA) and (nB) into the Act and amended section 23 (m).
2 Background
Section 23 (m) was introduced to limit the deductions that may be claimed by employees and of ce holders against their employment income. The limitation excludes agents and representatives whose remuneration is normally derived mainly in the form of commission based on sales or turnover attributable to that agents or representatives.
Section 23 (m) has been periodically updated to expand the deductions that employees and of ce holders may claim. The most recent amendment provides that, if certain amounts were received by or accrued to an employee and were included in the employees’ taxable income, where any portion of that amount is refunded by the employee to the employer, the refunded amount will be allowed as a deduction against the employee’s taxable income. The same principle applies to restraint of trade payments that were previously included in taxable income, and were subsequently refunded by the employee.
To the extent that the employee’s taxable income is insuf cient in any particular year of assessment, the deduction for the repaid bene t may create an assessed loss, which may be carried forward to the following tax year.
3 The law
Section 23 (m) of the Act reads as follows:
’23. Deductions not allowed in determination of taxable income.—No deductions shall in any case be made in
respect of the following matters, namely—
(m) subject to paragraph (k), any expenditure, loss or allowance, contemplated in section 11, which relates to any employment of, or of ce held by, any person (other than an agent or representative whose remuneration is normally derived mainly in the form of commissions based on his or her sales or the turnover attributable to him or her) in respect of which he or she derives any remuneration, as de ned in paragraph 1 of the Fourth Schedule, other than—
saIT comPendIum oF Tax LegIsLaTIon VoLume 2 221