Page 349 - SAIT Compendium 2016 Volume2

IN 19 (3) Income Tax acT: InTeRPReTaTIon noTes IN 19 (3)
4.1 Financial accounts drawn up for a period that differs from the year of assessment (accounting period)
4.1.1 Introduction
Section 66 (13A) applies when it is not convenient for a taxpayer to render accounts for business income derived during the period ending on the last day of February. It does this by allowing the taxpayer to draw up accounts for the business for a period ending on a date agreed to by the Commissioner.
A distinction must be made between a ‘year of assessment’ as de ned in section 1 (1), and the ‘accounting period’ for which nancial accounts are drawn up. The ‘year of assessment’ of all natural persons and trusts runs from 1 March of one year to the last day of February of the succeeding year and this is not changed by section 66 (13A). The ‘year of assessment’ will not necessarily coincide with the accounting period approved by the Commissioner for which the nancial accounts of the business are drawn up.
The Commissioner may approve an application to draw accounts to a date other than the last day of February if satis ed that the whole or some portion of the taxpayer’s income cannot be conveniently returned for any year of assessment, subject to any conditions as may be imposed.
Section 66 (13A) deems the income for the accounting period to be the income for the year of assessment ending on the last day of February. It is not required to apportion any income to fall into the year of assessment. The term ‘income’ is not used in its de ned sense as contained in section 1 (1) but rather in the sense of ‘pro t’ or ‘taxable income’. Such an interpretation is necessary in order to ensure that any deductions or allowances relating to an accounting period can be taken back or carried forward to a year of assessment.*
4.1.2 Conditions imposed by the Commissioner
While nancial accounts for a business or professional may be submitted to a date different from the year of assessment, the last day of February will be the operative date for all other purposes of the Act, for example, the rebates and rates of tax will be governed by the statutory year of assessment.
Approval to submit nancial accounts to a date other than the last day of February is limited to income derived from a business or profession. The Commissioner will not permit taxpayers to make up their returns for a period other than the statutory year of assessment ending on the last day of February for any other income such as remuneration, interest, rentals, royalties and dividends.
In the case of remuneration, the employer must comply with the Fourth Schedule, for instance, an employees’ tax certi cate must be issued for the year of assessment ending on the last day of February –†
• if the employer has not ceased to be an employer in relation to the employee concerned, within 60
days after the last day of February; or
• if the employer has ceased to be an employer in relation to the employee concerned but continues to
be an employer in relation to other employees, within 14 days of the date on which the employer has
so ceased or
• if the employer has ceased to be an employer, within seven days of the date on which the employer
has so ceased.
IT3 returns for remuneration not subject to employees’ tax, interest, rentals, royalties and the like must also be compiled up to the last day of February for the year of assessment, notwithstanding that accounts of a business are made up to some other date.
Example 1 – Person carrying on business also in receipt of a salary
Facts:
In 2008 a trader was granted permission to render accounts for the year ending 30 June on condition that the results are taken back to each immediately preceding year of assessment. The trader also derives a monthly salary.
Result:
The trader’s annual statutory year of assessment covers the period 1 March to the last day of February while the accounts for the business cover the period 1 July to 30 June.
The salary for the period 1 March 2012 to 28 February 2013 must be accounted for in the 2013 year of assessment which covers the same period.
The taxable income from the business for the year ended 30 June 2013 must be accounted for in the 2013 year of assessment ending on 28 February 2013 while the results for the year ending on 30 June 2012 must be accounted for in the year of assessment ended on 29 February 2012.
Application to render accounts to a date other than the last day of February may involve negative tax implications for the scus. The early closing off of nancial accounts may lead to the manipulation of the income or expenditure of a person, for example, the deferral of income derived during peak seasons. Approval will only be granted if the Commissioner is satis ed that the purpose for the request is not the obtaining of a tax bene t.
Approval to render nancial accounts up to the end of September will be granted on condition that the income is subject to tax in the year of assessment ending on the last day of February of the same year. Approval to render nancial accounts ending after September of a year will be granted on the basis that the income will be subject to tax in the year of assessment ending on the last day of February following the closing date of the nancial accounts.
* For similar reasons, in CIR v Simpson 1949 (4) SA 678 (A), 16 SATC 268 at 282 Watermeyer CJ adopted the ordinary meaning of the word ‘income’ of ‘pro ts or gains’ in relation to the equivalent of section 7 (2).
† Paragraph 13(2) of the Fourth Schedule.
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