Page 395 - SAIT Compendium 2016 Volume2

IN 29 (2) Income Tax acT: InTeRPReTaTIon noTes IN 29 (2) taxpayer for the current year as well as all future years of assessment, irrespective of the fact that farming operations may
be terminated. No provision is made in the Act for a variation either by the farmer or by the Commissioner.
3. The law
For ease of reference, the actual legislation is provided in the Annexure.
The following persons may elect to make use of the provisions of paragraph 19:
• Any natural person (individual) whose taxable income for any year or period of assessment consists of or includes
taxable income derived from farming operations carried on for the person’s own bene t.
• The executor of the estate of any deceased person or the trustee of the insolvent estate of any natural person, in that person’s capacity as such, who has continued farming operations in the year of assessment immediately succeeding the year of assessment in which that person died or became insolvent and are merely a continuance of the operations
carried on by that person before date of death or insolvency.
Paragraph 19(5) provides that a taxpayer must elect that the normal tax to be levied on farming income must be determined under this paragraph. This election must be made within three months after the end of the year or period of assessment. The three-month period may be extended if the taxpayer has not made an election during this prescribed period. In practice, extension will be granted up to a date before the raising of the assessment. An application form for this election is available in the ITR12 comprehensive guide on the SARS eFiling website www.sarse ling.co.za. Once an election has been made, and the applicable declaration endorsed, that declaration must be kept by the taxpayer and produced upon request from SARS. This application should not be submitted with the annual tax return, as was required in the past, but should be kept for future reference.
As indicated previously, the rating concession aims at a reduction in the rate of normal tax due to the abnormal accrual of income in the relevant year. The provisions of paragraph 19(4) state that the use of the rating formula does not relieve a farmer from tax on any portion of the farmer’s taxable income.
The taxpayer forfeits entitlement to use the following provisions of the First Schedule to the Act where the averaging provisions have been adopted, and apply in that speci c year:
• Paragraph 13(1)(b) (provisions related to the replacement of livestock sold as a result of the person’s participation in
a livestock reduction scheme organised by government);
• Paragraph 15(3) (rating formula on taxable income derived from plantations); and
• Paragraph 17 (rating formula arising as a result of abnormal receipts from the disposal of sugar cane damaged by
re).
A farmer must make the election in terms of the provisions in paragraph 19(5). The normal tax payable by the taxpayer during any year of assessment must then be determined in accordance with the provisions of section 5(10), in which the formula in the Annexure must be applied.
4. Application of the law
Paragraph 19(2) provides that the average taxable income from farming in relation to the relevant period must be determined as follows:
• The taxpayer carried on farming operations before the commencement of the current year of assessment
The taxpayer’s annual average taxable income from farming is determined with regard to the current and four previous years of assessment, during which the farming operations were carried on. The average will be determined over that applicable period if the taxpayer carried on farming operations for less than four years before the current year of assessment.
• The taxpayer never carried on farming operations before the commencement of the current year of assessment The taxpayer’s average taxable income from farming in the rst year is deemed to be an amount equal to two-thirds of such taxable income.
For the purposes of determining symbol "C" in the formula, the balance of an assessed loss incurred in any previous year must not be deducted from the taxable income derived from farming in the current year of assessment. This practice is supported by the judgment handed down in CIR v Zamoyski (47 SATC 50) where the court attached an interpretation to the words "taxable income...derived from farming operations" for the purpose of paragraph 12(3).
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