Page 232 - SAIT Compendium 2016 Volume2

IN 13 (3) Income Tax acT: InTeRPReTaTIon noTes IN 13 (3)
any deduction which is allowable under section 11 (a) in respect of any premium paid by that person in terms of an insurance policy, to the extent that—
it covers that person against the loss of income as a result of illness, injury, disability or unemployment; and
the amounts payable in terms of that policy as contemplated in item (aa) constitutes or will constitute income as de ned; and
It is crucial to ensure that the premium is deductible under section 11 (a) as premiums that do not qualify for a deduction under section 11 (a) are in any event not permitted.
The policy must provide cover against the loss of income as a result of one of the following:
• illness;
• injury;
• disability; or
• unemployment.
Many policies purport to cover loss of income but pay in the event of illness, injury or disability. Some calculate the bene t with reference to days in hospital or sickness, or the severity of the disability, but do not test against actual loss of income. Premiums on these policies do not qualify for deduction.
The bene t payable under the policy must also constitute ‘income’ as de ned. Premiums to policies that pay out amounts of a capital nature, and which are not included in the special inclusions in ‘gross income’, are thus prohibited.
any deduction which is allowed under section 11 (a) or (d) in respect of any rent of, cost of repairs of or expenses in connection with any dwelling house or domestic premises, to the extent that the deduction is not prohibited under paragraph (b).
Home of ce expenses that relate to rental, repairs and expenses incurred in relation to a dwelling house or domestic premises can also be permitted as a deduction. [See Example G of Annexure A]
5 Effective date
Section 23(m) of the Act is effective from 1 March 2002; and subparagraph (iiA) is effective from the commencement of any year of assessment ending on or after 1 January 2009.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
Date of rst issue: 27 March 2003 Date second issue: 30 March 2005
Annexure A – Examples
Example A
Facts:
An employee received pensionable salary of R130 000. The employee contributed R9 750 to an approved pension fund and incurred—
• entertainment expenses of R1 000;
• cell phone airtime expenditure of R1 500; and
• text book costs of R750 that are required for and relate directly to her profession.
Result:
The restrictions of section 23(m) apply to the remuneration of R130 000. In terms of these restrictions the entertainment, cell phone and textbook expenditure are not permissible deductions. Section 23(m) continues, however, to permit a wear-and-tear allowance under section 11(e) for the text book expenditure. The pension fund contribution remains deductible.
Example B
Facts:
Ms X received salary of R100 000 and fees of R198 000 from a professional practice in which she trades as an independent contractor. She incurred expenses of R88 000 in relation to the professional practice. In relation to the salary income she incurred—
• medical expenses of R3 000;
• entertainment expenses of R1 000;
• cell phone airtime expenditure of R1 500; and
• bad debt of R8 333 for salary due but not paid by the liquidated employer.
Result:
The expenses relating to the professional practice are deductible for tax purposes as they relate to income other than “remuneration”. The restrictions of section 23(m) apply to the salary of R100 000. In terms of these restrictions the entertainment and cell phone costs are not permissible deductions. The bad debt of R8 333 may be considered for purposes of section 11(i) or (j) as it relates to remuneration. The medical expenses can be considered for deduction under section 18.
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