Page 371 - SAIT Compendium 2016 Volume2

IN 24 (3) Income Tax acT: InTeRPReTaTIon noTes IN 24 (3)
threshold must be applied collectively to the total receipts and accruals from all commercial business or trading activities and not individually to each such business or trading activity.
In the case of an approved regulating or co-ordinating body of a group of PBOs, the total receipts and accruals of all the individual PBOs within the group as re ected in the consolidated nancial statements will be taken into account in calculating the 5% of the total receipts and accruals. The amount of R200 000 is not increased by the number of individual organisations within the group, as this amount is applicable to a PBO, which in this case is the regulating or co-ordinating body.
7.2 Apportionment of expenditure
Expenditure directly incurred in the production of a speci c category of income must be allocated to such income. Expenditure paid as a single amount which relates to non-exempt income and income from PBAs must be apportioned pro rata between these two categories. The basis of apportioning an expense will depend on the nature of the expense. General expenditure incurred, such as accounting fees, audit fees, bank charges or overhead expenses, which does not speci cally relate to a particular source of income but which can be attributed to various sources, must be apportioned on a pro rata basis by applying the ratio that a particular source of receipts and accruals bears to the total receipts and accruals derived by the PBO (see from Step 5 in Example 13 in the Annexure).
Note: If a PBO has maintained accurate records of expenditure relating to particular sources of income it will be unnecessary for it to allocate the expenditure on a pro rata basis.
7.3 Allowable deductions
Expenditure incurred in the production of income is generally allowable as a deduction in determining taxable income to the extent that it meets the requirements of the Act. Expenditure which is of a capital nature (such as the cost of acquiring the business) and expenditure incurred which produces exempt income is not allowed as a deduction in determining taxable income. An equitable allocation must be made when expenditure is incurred with a dual intent, namely, for purposes of trade as well as to carry on approved PBAs. Such an allocation is necessary in order to exclude from deduction the portion of expenditure incurred in the production of exempt income.
8. Income from a trust of which a PBO is a bene ciary
A PBO may be a bene ciary of a trust. Generally income received by or accrued to a trust during a year of assessment is deemed to accrue to its bene ciary when the bene ciary acquires a vested right to such income during that year of assessment, including the acquisition of such a right through the exercise of the trustees’ discretion.* To the extent that an amount is not deemed to accrue to a bene ciary it is deemed to accrue to the trust.† It follows that a PBO that is a bene ciary of a trust must account for any income vested in it during the year of assessment. A distribution received by a PBO from a trust which is generated from a trading activity, such as rental income or income derived from the operation of a commercial bookshop, retains its character and will be deemed to be a receipt or accrual from a business undertaking or trading activity derived by the PBO. The receipt will qualify to be taken into account in the determination of the basic exemption of the PBO (see Example 14 in the Annexure).
9. Losses incurred
A pro t or loss arises from the nal result of a trading operation after allowable expenditure has been deducted. Expenditure and losses which are not of a capital nature and which are actually incurred in the production of income, may be deducted under section 11(a) in the determination of taxable income.
An ‘assessed loss’ as de ned in section 20(2) arises when the deductions admissible under section 11 exceed the income against which they are so admissible. A balance of assessed loss determined in a previous year of assessment may be carried forward from the preceding year of assessment for set-off against the income derived in the current year of assessment.
Losses incurred during years of assessment commencing on or after 1 April 2006 when the partial taxation system became applicable may be carried forward to the following year of assessment.
Note: In the case of a company, an assessed loss may not be carried forward or set-off in the next succeeding year of assessment unless the company has carried on a ‘trade’ as de ned in section 1(1). See Interpretation Note No. 33 (Issue 3) ‘Assessed Losses: Companies: The ‘Trade’ and ‘Income from Trade’ Requirements’ dated 4 February 2014. This Note applies to PBOs that are companies and not to PBOs that are registered as trusts.
10. Wear-and-tear or depreciation allowance on assets
Section 11(e) provides for the deduction of a wear-and-tear or depreciation allowance on certain qualifying assets. The allowance is claimed over the useful life of the asset concerned and will only be allowed to the extent that the asset is used for the purposes of trade. The allowance must be apportioned for an asset that has not been used throughout the year of assessment for the purposes of trade, for example, in the year of assessment in which an asset is acquired, disposed of or ceases to be used.
The allowance may be claimed proportionately on an asset that is used by a PBO partly for trade and partly for conducting approved PBAs. Only the portion of the allowance that is attributable to the PBO’s trade usage will qualify for deduction.
An asset may have been used by a PBO in a previous year of assessment during which its receipts and accruals were fully exempt from income tax. The PBO may later become taxable on its business or trading activities in the current year of assessment as a result of its income from such trading activities exceeding the basic threshold exemption. The use of
* Section 25B(1) and (2).
† Section 7 contains an exception to this rule when the income of the trust has been funded by a donation, settlement or other disposition. When section 7 applies the income will be deemed to accrue to the trust donor.
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