Page 480 - SAIT Compendium 2016 Volume2

IN 50 Income Tax acT: InTeRPReTaTIon noTes IN 50
‘government grant’ means an appropriation, grant in aid, subsidy or contribution, in cash or kind, paid by a department listed in Schedule 1 to the Public Service Act, 1994 (Proclamation 103 of 1994), (other than a provincial administration), but does not include any amount paid in respect of the supply of any goods or services to that department;
Section 23 (n)
Section 10 (1) (y) and (yA)
23. Deduction not allowed in determination of taxable income.
No deduction shall in any case be made in respect of the following matters, namely—
(a) — (m) . . .
(n) any deduction or allowance in respect of any asset or expenditure to the extent that amount—
(i) is granted or paid to the taxpayer and is exempt from tax in terms of section 10 (1) (y) or (yA); and
(ii) is so granted or paid for purposes of the acquisition of that asset or funding of that expenditure:
Provided that the provisions of this paragraph shall not apply if the grant or payment is in respect of programmes or schemes that the Minister has identi ed by notice in the Gazette for purposes of this paragraph;
10. Exemptions.
(1) There shall be exempt from normal tax—
(a) — (x) . . .
(y) any government grant or government scrapping payment received or accrued in terms of any programme or
scheme which has been approved in terms of the national annual budget process and has been identi ed by the Minister by notice in the Gazette with effect from a date speci ed by the Minister in that notice (including any date that precedes the date of such notice) for purposes of this paragraph, having regard to—
(i) whether the programme or scheme meets government policy priorities and objectives with respect to—
(aa) the encouragement of economic growth and investment; (bb) the promotion of employment creation;
(cc) the development of public infrastructure and transport; (dd) the promotion of public health;
(ee) the development of innovation and technology;
(ff) the provision of housing and basic services; or
(gg) the provision of relief in the case of natural disasters;
(ii) the extent to which the programme or scheme will support the policy priorities and objectives contemplated in subparagraph (i);
(iii) the nancial implications for government should government grants or government scrapping payments in terms of that programme or scheme be exempt from tax; and
(iv) whether the tax implications were taken into account in determining the appropriation or payment in respect of that programme or scheme;
(yA)any amount received by or accrued to any person in respect of goods or services provided to bene ciaries in terms of an of cial development assistance agreement that is binding in terms of section 231 (3) of the Constitution of the Republic of South Africa, 1996, to the extent—
(aa) that amount is received or accrued in relation to projects that are approved by the Minister after consultation
with the Minister of Foreign Affairs;
(bb) that agreement provides that those receipts and accruals of that person must be exempt; and (cc) the Minister announces that those receipts and accruals are exempt by notice in the Gazette;
[Note: At the time of release of this Note, no schemes had been approved.]
The whole or a portion of the deduction under section 11D (1) is limited from the usual 150% to 100% if a government
grant is received by or accrues to a taxpayer to fund qualifying R&D expenditure.
The portion of the expenditure that will be limited to a 100% deduction is equal to twice the amount of the government
grant. The balance of the expenditure (if any) will qualify for the 150% deduction. If ‘twice the grant’ exceeds the R&D expenditure, the deduction under section 11D (1) will simply be limited to 100% of the R&D expenditure.
To the extent that R&D expenditure has been disallowed under section 23 (n), the ‘twice the grant’ limitation rule does not apply. This will occur when the taxpayer receives a government grant that is exempt from tax which triggers a disallowance of expenditure under section 23 (n). The Minister can exclude certain government grants that are exempt from tax from triggering section 23 (n), and in that event the ‘twice the grant’ limitation rule will apply to expenditure funded by such a grant which is exempt from tax.
472 saIT comPendIum oF Tax LegIsLaTIon VoLume 2