Page 439 - SAIT Compendium 2016 Volume2

IN 44 (2) Income Tax acT: InTeRPReTaTIon noTes IN 44 (2)
3. The law
For ease of reference section 10 and the paragraphs of the Eighth Schedule which are referred to in this Note are reproduced in the Annexure.
4. General meaning of certain terminology
‘Substantially the whole’ – This concept is regarded by SARS as being 90% or more. However, in order to overcome certain practical dif culties, SARS will accept a percentage of not less than 85% – see Binding General Ruling No. 20 dated 10 December 2013. The percentage usage is determined using a method appropriate to the circumstances which may be based either on time or area.
5. Application of the law
5.1 Valuation date
Under paragraph (a) of the de nition of ‘valuation date’ in paragraph 1, the valuation date of a person who ceases to be an exempt person under paragraph 63, is the date on which that person ceases to be an exempt person. Since all PBOs fall outside paragraph 63 with effect from the introduction of partial taxation of PBOs, it follows that the valuation date of PBOs in existence on 1 April 2006 will be the rst day of their rst year of assessment commencing on or after 1 April 2006. For example, a PBO with a nancial year ending on 31 March will have a valuation date of 1 April 2006, which is the commencement of its 2007 year of assessment. The valuation date value of a pre-valuation date asset forms part of the base cost of that asset and ensures that any pre-valuation date growth or decline in value is disregarded for CGT purposes.
5.2 Base cost
The following methods of determining the base cost of an asset on valuation date are available: • The market value of the asset on valuation date (paragraphs 26, 27, 29 and 31).
• Twenty per cent (20%) of the proceeds from the disposal of the asset, after rst deducting from the proceeds an amount
equal to the expenditure allowable as part of the base cost incurred on or after valuation date (paragraph 26).
• The time-apportionment base cost of an asset (paragraph 30).
• The weighted-average method [paragraph 32(3A)]. This is only available for the four categories of identical assets
listed in paragraph 32(3A) (listed shares, participatory interests in collective investment schemes, gold and platinum coins whose prices are published in a newspaper, and listed section 24J instruments). This is unlikely to be of much relevance to a PBO in view of the disregarding of capital gains and losses on such assets under paragraph 63A(a) discussed in 5.3.1 below.
5.2.1 Market value
Under paragraph 29(4)(b)(i), a PBO may not adopt or determine the market value of an asset unless it has valued the asset within two years from the valuation date. There is, however, no time limit for the valuation of nancial instruments listed on a ‘recognised exchange’ (as de ned in paragraph 1) and participatory interests in South African collective investment schemes.
A PBO that comes into existence after 1 April 2006 does not need a valuation date since it will have acquired its assets at cost under paragraph 20 or in the case of assets acquired by donation, at a cost equal to the market value of the assets under paragraph 38. The table below summarises the valuation dates for PBOs in existence on 1 April 2006 and the nal date by which they should have completed their valuations in order to be able to use the market value method.
Table 1 – Summary of valuation dates for PBOs in existence on 1 April 2006
Example 1 – ‘Substantially the whole’
Facts:
A home caring for orphaned children has a hall which is used for social and other functions for the residents. During the year of assessment under review the hall was let occasionally for a total of 48 days.
Result:
The 48 days during which the hall was let represents 13,2% of the total usage for the year (48 / 365 × 100). The balance of 86,8% represents the days when the hall was used for conducting PBAs. This means that substantially the whole of the hall, namely, more than 85%, was used to conduct PBAs.
Year of assessment ending on the last day of
Valuation date
Final day for completion of valuation
March
1 April 2006
31 March 2008
April
1 May 2006
30 April 2008
May
1 June 2006
31 May 2008
June
1 July 2006
30 June 2008
July
1 August 2006
31 July 2008
August
1 September 2006
31 August 2008
September
30 September 2008
1 October 2006
October
1 November 2006
31 October 2008
November
1 December 2006
30 November 2008
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