Page 351 - SAIT Compendium 2016 Volume2

IN 19 (3) Income Tax acT: InTeRPReTaTIon noTes IN 19 (3)
4.1.4 Share-purchase arrangements
Trusts created by an employer (a company) as vehicles for share-purchase arrangements designed to bene t employees of the company normally have the same year-end as the company. Permission may be granted to the trust to submit nancial accounts in accordance with the year end of the company. In most of these types of trusts the main source of taxable income will consist of passive income such as interest. All income received by or accrued to a share-purchase trust may be returned to the date approved for submitting its nancial accounts.
4.1.5 General
Multiple sources of business income with differing accounting periods
A taxpayer with more than one source of business income may apply to have different accounting dates for each source of income. A separate application must be submitted for each business.
Example 5 – Multiple businesses with differing closing dates
Facts:
X, an individual, applies to submit accounts for various businesses as follows: • Partnership income (business) End of March
• Farming income End of June
Result:
Assuming that the request is properly motivated, permission may be granted to X to draw up the accounts for the partnership and farming operation to the end of March and June respectively. In both instances the results will be accounted for in the immediately preceding year of assessment, that is, the results for the years ended 31 March 2013 and 30 June 2013 will be included in the 2013 year of assessment ended 28 February 2013.
Capital gains and losses
A person’s capital gain or loss is determined for a year of assessment. Such a determination must be made in the year of assessment in which an asset is disposed of or in a later year of assessment when, for example, further proceeds are derived or further expenditure is incurred in relation to the asset disposed of.*
Section 66 (13B) provides that the word ‘income’ in section 66 (13A) includes any aggregate capital gain or aggregate capital loss. This means that a capital gain or capital loss arising in an accounting period may be carried back to the preceding year of assessment or to a subsequent year of assessment if it relates to a business for which the Commissioner has granted approval under section 66 (13A).
A capital gain or loss which is extraneous to a business for which an accounting period applies must be accounted for in the year of assessment in which it arises.
Example 6 – Treatment of capital gains
Facts:
Permission is granted to a farmer to draw up nancial accounts with a closing date of 30 June for the farming operation. During the period 1 March 2012 to 30 June 2013 the farmer realised capital gains on the following assets: • 30 June 2013 – Tractor used in the farming operation
• 30 April 2013 – Holiday home
• 25 March 2012 – Listed shares
Result:
The capital gain on disposal of the tractor must be accounted for in the nancial accounts covering the year ended 30 June 2013 and the taxable income from the farming operations for that period (including the capital gain) must be brought to account in the 2013 year of assessment covering the period 1 March 2012 to 28 February 2013.
The capital gain on disposal of the holiday home must be accounted for in the 2014 tax return covering the period 1 March 2013 to 28 February 2014 since it is extraneous to the farming operation.
The capital gain on disposal of the listed shares must be accounted for in the 2013 tax return covering the period 1 March 2012 to 28 February 2013 since it is extraneous to the farming operation.
Foreign income
• Foreign interest - when a taxpayer receives an annual certi cate from a foreign nancial institution which re ects interest earned during the tax year of the foreign country, an equitable apportionment of the income and tax over the tax year will be acceptable. The appropriate portions can then be allocated to the relevant South African year of assessment, taking into account the provisions of section 24J.
• Remuneration normally accrues on a monthly basis and may be easily accounted for in a year of assessment.
• Residents (natural persons and trusts) conducting a business offshore may apply for permission to draw up accounts
for a period used for nancial reporting purposes in the foreign country concerned.
* Paragraphs 3 and 4 of the Eighth Schedule set out the general rules for determining a capital gain or capital loss for a year of assessment.
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