Page 451 - SAIT Compendium 2016 Volume2

IN 47 (3) Income Tax acT: InTeRPReTaTIon noTes IN 47 (3)
• buildings or other structures or works of a permanent nature;*
• any ship to which section 14(1)(a) or (b) applies;†
• any aircraft to which section 14bis(1)(a), (b) or (c) applies;‡ and
• assets of which the cost has been allowed as a deduction from the taxpayer’s income under section 24D (expenditure
on a National Key Point or speci ed important place or area).§
Sections 23B(1) and (2) which address the claiming of deductions under more than one provision of the Act must also be borne in mind.
4.1.3 Amounts allowable
The amount of the allowance will be the amount that the Commissioner regards as just and reasonable (see 4.2.1)
4.1.4 Use requirement
The allowance will only be deductible to the extent that the qualifying asset is used by a taxpayer for purposes of his or her trade. The asset will be written off over its useful life.
An asset held in reserve or as a replacement in the event of a breakdown is not considered to be ‘used’ but rather ‘held’ and accordingly will not qualify for the allowance until such time as it is brought into use by the taxpayer.
4.1.5 Apportionment
The allowance for a qualifying asset that has not been used for the purposes of trade throughout the year of assessment must be apportioned. This would apply, for example, to an asset acquired and brought into use during the year of assessment or an asset disposed of during the year of assessment (see 4.3.8). Similarly, the allowance will not be available once an asset has been decommissioned or mothballed since it will have ceased to be ‘used’ by the taxpayer. 4.2 Value of an asset for purposes of section 11 (e)
4.2.1 General rule
Although the word ‘value’ is not de ned in section 11(e), it has always been the policy of SARS to, unless otherwise prescribed, regard the value of a qualifying asset for purposes of determining the amount of the allowance as the taxpayer’s cost of acquisition of the asset, that is, the cash cost excluding nance charges. The revaluation of an asset would, for example, have no effect on the value of that asset for purposes of determining the amount of the allowance.¶ Examples of exceptions to this general rule are assets acquired by the taxpayer by way of donation, inheritance, distribution in specie or from a connected person.
Under paragraph (vii) of the proviso to section 11(e), the aquisition cost of qualifying assets, shall be deemed to be the cost which, in the opinion of the Commissioner, a person would incur if that person had acquired that asset under a cash transaction concluded at arm’s length (also known as the market value), including the direct installation and erection costs.
Under section 23C(1), any value-added tax payable (input tax) on acquisition of an asset must be excluded from the cost for purposes of calculating the allowance if the taxpayer is—
• a registered vendor; and
• is or was entitled under section 16(3) of the Value-Added Tax Act to a deduction of ‘input tax’ as de ned in section
1(1) of that Act.
The cost pertaining to the acquisition of an asset could, therefore, include –
• the original purchase price (excluding input tax to which the vendor is or was entitled, or including input tax in case
the vendor was not entitled to a deduction or the taxpayer is not a registered vendor);
• the shipping or delivery charges relating to the delivery of the asset;
• any costs incurred in moving the asset from one location to another; and
• the costs directly relating to the installation or erection of the asset.
Interest and nance charges should be excluded from the cost of the qualifying asset.
4.2.2 Foundations or supporting structures
Under paragraph (iiA) of the proviso to section 11(e) any concrete or other foundation or supporting structure on which a qualifying asset is mounted or af xed to is not regarded as a structure or work of a permanent nature, but is treated as part of that qualifying asset provided the Commissioner is satis ed that—
• the foundation or supporting structure is designed for the asset and constructed in such manner that it is or should
be regarded as being integrated with the asset; and
• the useful life of the foundation or supporting structure is or will be limited to the useful life of the asset mounted
on it or af xed to it.
4.2.3 Moving costs
Paragraph (v) of the proviso to section 11(e) provides that the value of the qualifying asset must be increased by the amount of any expenditure which is proved to the satisfaction of the Commissioner to have been incurred by the taxpayer in moving the asset from one location to another. Moving costs must thus be written off over the remaining estimated useful life of the asset. For example, if the asset is being written off over ve years and moving costs are incurred in year 4, those costs will be allowed as a deduction in years 4 and 5. If the asset has been written off in full the moving costs will be allowable in the year of assessment in which they are incurred.
4.2.4 Qualifying assets acquired by way of donation, inheritance or as a distribution in specie
* Paragraph (ii) of the proviso to section 11(e).
† Paragraph (iii) of the proviso to section 11(e).
‡ Paragraph (iii) of the proviso to section 11(e).
§ Paragraph (iiiA) of the proviso to section 11(e).
¶ In ITC 1546 (1992) 54 SATC 477 (C) a landlord acquired second-hand furniture and ttings at a bargain price from
the liquidator of its tenant. The landlord attempted to claim the wear-and-tear allowance on a revalued amount, based on paragraph (vii) of the proviso to section 11(e). This was rejected by the court which held that the allowance was properly claimable on the cost of the articles.
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