Page 431 - SAIT Compendium 2016 Volume2

IN 43 (5) Income Tax acT: InTeRPReTaTIon noTes IN 43 (5)
Example 6 – Non-resident taxpayer removing a share from a permanent establishment after holding shares for three years
Facts:
ABC Plc operates a branch in South Africa for the purpose of carrying on share-dealing activities. At the beginning of year 1 the manager of the branch acquired 100 shares in XYZ Ltd, a JSE-listed company at a cost of R100. In year 4 ABC Plc decided to close down the branch and effectively manage the share-dealing activities from offshore. The XYZ Ltd shares had a market value of R120 at the time they ceased to form part of the branch.
Result:
Year 4
Opening stock [section 22(2)] Recoupment [section 9C(5)] 100 Proceeds 120
Less: Base cost
Capital gain 20
R (100)
(100)
Example 7 – Recoupment of share-dealing expenditure previously allowed under section 11(a)
Facts:
At the beginning of year 1, Z bought shares in ABC Ltd, a JSE-listed company with the intention of selling them at a pro t. Z incurred the following expenditure in years 1 to 6.
Interest Management fee Other costs Total costs
500 700 900 200 250 300 600 200 300 1 300 1 150 1 500
700 500 400 400 450 500 500 300 400 1 600 1 250 1 300
Z sold the shares during year 6.
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 RRRRRR
Result:
The expenditure incurred in years 1 to 3 is allowable as a deduction under section 11(a).The expenditure incurred in years 4 to 6 is not allowable under section 11(a) read with section 23(f) since it is incurred in the production of a receipt or accrual which will be of a capital nature. The expenditure allowed in years 1 to 3 of R3 950 (R1 300 + R1 150 + R1 500) is recouped under section 9C(5) and must be included in Z’s income in year 6.
Example 8 – Recoupment of expenditure despite disposal of shares at a capital loss
Facts:
At the beginning of year 1, X acquired 100 shares in ABC Ltd, a JSE-listed company at a cost of R100 000 with the intention of selling them at a pro t. During years 1 to 3 X claimed interest expenditure of R60 000 on funds used to purchase these shares as a deduction under section 11(a). At the end of year 4 the shares were sold for proceeds of R70 000.
Result:
In year 4 there will be a recoupment under section 9C(5) of R160 000, being the deduction for opening stock of R100 000 plus the interest expenditure claimed under section 11(a) of R60 000.
The capital loss on disposal of the shares is determined as follows:
Proceeds
Less: Base cost
Cost of acquisition (paragraph 20(1)(a) 100 000
of the Eighth Schedule)
Interest expense (paragraph 20(1)(g) 20 000 of the Eighth Schedule) R60 000 × 1/3
Capital loss
70 000 (120 000)
(50 000)
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