Page 450 - SAIT Compendium 2016 Volume2

IN 47 (3) Income Tax acT: InTeRPReTaTIon noTes IN 47 (3)
(vii) where the value of any such machinery, implements, utensils and articles acquired by the taxpayer on or after 15 March 1984 is for the purposes of this paragraph to be determined having regard to the cost of such machinery, implements, utensils and articles, such cost shall be deemed to be the cost which, in the opinion of the Commissioner, a person would, if he had acquired such machinery, implements, utensils and articles under a cash transaction concluded at arm’s length on the date on which the transaction for the acquisition of such machinery, implements, utensils and articles was in fact concluded, have incurred in respect of the direct cost of the acquisition of such machinery, implements, utensils and articles, including the direct cost of the installation or erection thereof; and
(viii) . . . . . .
(ix) where any such machinery, plant, implement, utensil or article was used by the taxpayer during any previous
year of assessment or years of assessment for the purposes of any trade carried on by such taxpayer, the receipts and accruals of which were not included in the income of such taxpayer during such year or years, the Commissioner shall take into account the period of use of such asset during such previous year or years in determining the amount by which the value of such machinery, plant, implement, utensil or article has been diminished;
4. Application of the law
4.1 General principles
4.1.1 Qualifying assets
Section 11(e) provides for the deduction of a wear-and-tear allowance on qualifying assets used for the purposes of trade which are—
• owned by the taxpayer; or
• acquired by the taxpayer as purchaser under an ‘instalment credit agreement’ as de ned in paragraph (a) of the
de nition of that term in section 1(1) of the Value-Added Tax Act.
Paragraph (a) of the de nition of an ‘instalment credit agreement’ in section 1(1) of the Value-Added Tax Act reads as follows:
‘instalment credit agreement’ means any agreement entered into on or after the commencement date whereby any goods consisting of corporeal movable goods or of any machinery or plant, whether movable or immovable—
(a) are supplied under a sale under which—
(i) the goods are sold by the seller to the purchaser against payment by the purchaser to the seller of a stated or determinable sum of money at a stated or determinable future date or in whole or in part in instalments over a period in the future; and
(ii) such sum of money includes nance charges stipulated in the agreement of sale; and
(iii) the aggregate of the amounts payable by the purchaser to the seller under such agreement exceeds the cash
value of the supply; and
(iv) (aa) the purchaser does not become the owner of those goods merely by virtue of the delivery to or the use,
possession or enjoyment by him thereof; or
(bb) the seller is entitled to the return of those goods if the purchaser fails to comply with any term of that
agreement; or
The ‘commencement date’ referred to in the de nition of an ‘instalment credit agreement’ is 30 September 1991. 4.1.2 Non-qualifying assets
No allowance will be allowed on non-qualifying assets. These assets are—
• assets used by a person carrying on farming activities, which constitute assets contemplated in paragraph 12(1) of the
First Schedule to the Act;*
• assets for which a deduction may be granted under section 12B, 12C, 12DA, 12E(1)† or 37B.‡ The exclusion of these
assets applies even if a higher allowance would otherwise have resulted under section 11(e). In the case of assets of a ‘small business corporation’§ (SBC) for which an allowance is granted under section 12E(1) no deduction is permissible under section 11(e). However, in the case of assets referred to in section 12E(1A), the SBC may elect to be granted either the 50:30:20 allowance under section 12E(1A) or the allowance under section 11(e);
• assets which are not owned by the person claiming the allowance (except assets purchased under an ‘instalment credit agreement’ ¶);**
• assets the ownership of which is retained by the taxpayer as a seller under an ‘instalment credit agreement’††‡‡
* Under the opening words of section 11(e) read with paragraph 12(2) of the First Schedule.
† The reference to section 12E has been replaced with section 12E(1) by the Taxation Laws Amendment Act 7 of 2010 in order to limit the scope of application of this paragraph only to subsection (1) of section 12E and not to the entire section 12E.
‡ Under the opening words of section 11(e).
§ As de ned in section 12E(4)(a).
¶ As contemplated in paragraph (a) of the de nition of an ‘instalment credit agreement’ in section 1(1) of the Value-
Added Tax Act, 1991.
** Under the opening words of section 11(e).
†† As contemplated in paragraph (a) of the de nition of an ‘instalment credit agreement’ in section 1(1) of the Value-
Added Tax Act, 1991.
‡‡ Paragraph (iA) of the proviso to section 11(e).
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