Page 481 - SAIT Compendium 2016 Volume2

IN 50 Income Tax acT: InTeRPReTaTIon noTes IN 50
Example 15 — Taxable government grants
Facts:
Company Z receives a government grant of R4 000 which is not exempt from tax to nance its R&D activities. The company spent the R4 000 and an additional R10 000 on qualifying R&D activities.
Calculate the amount which Company Z is entitled to claim as a deduction under section 11D.
Result:
Total R&D expenditure (R4 000 + R10 000) Less: Grant received (R4 000 3 2)
Amount eligible for 150% allowance
R6 000 3 150%
Amount subject to 100% deduction (R14 000 – R6 000) Deduction under section 11D
R 14 000 (8 000)
6 000 R
9 000
8 000 17 000
Example 16 — Government grant which is exempt from tax
Facts:
ABC (Pty) Ltd receives a government grant of R10 000 that is exempt from tax under section 10 (1) (y). The company incurs R&D expenditure of R110 000. The Minister has not exempted the grant from the application of section 23 (n). Calculate the amount which Company Z is entitled to claim as a deduction under section 11D.
Result:
R&D expenditure incurred
Less: Portion disallowed under section 23 (n) Allowable expenditure
Allowable deduction under section 11D
R 110 000
(10 000) 100 000 150 000
6.7 Recoupment of amounts allowed under section 11D (1) 6.7.1 The law — section 11D (9)
Section 8 (4) (a) speci cally excludes any recoupment of an amount that was allowed as a deduction under section 11D(1). This is because the recoupment of amounts allowed under section 11D (1) is dealt with under section 11D (9).
If a taxpayer disposes of an asset for value for which a deduction was allowed under section 11D (1), the amount which was previously allowed as a deduction and which is recovered or recouped is included in taxable income under section 11D (9). The recoupment equals the deductions previously allowed.
The mere cessation of an R&D project does not trigger a recoupment.
The waiver or prescription of a debt used to incur R&D expenditure will also give rise to a recoupment under section
11D(9) (see ITC 1704,* ITC 1634† and Omnia Fertilizer Ltd v C: SARS‡). 6.8 Recoupment of allowances allowed under section 11D (2)
6.8.1 The law — section 11D (10)
Section 11D (9) provides for the recoupment of any expenditure allowed under section 11D (1), but not section 11D (2). Amounts allowed under section 11D (2) are subject to recovery or recoupment under section 8 (4) (a). Any loss will be allowable under section 11 (o).
It is accordingly submitted that section 11D (10) is super uous.
* (1997) 63 SATC 258 (c).
† (1997) 60 SATC 235 (T).
‡ (2003) 65 SATC 159 (SCA).
(9) Where a taxpayer during any year of assessment recovers or recoups any expenditure in respect of which a deduction was allowed in terms of subsection (1) during that year or any previous year, such deduction shall be included in the income of that taxpayer.
Example 17 — Recoupment
Facts:
R&D Co. spends R100 000 on a researcher’s salary and claims a deduction of R150 000 under section 11D (1) for the amount expended. R&D Co. subsequently receives R100 000 from its holding company in reimbursement of the salary expense.
Determine the amount to be included in the income of R&D Co. under section 11D (9).
Result:
Under section 11D (9) R&D Co must include R150 000 in its income.
(10) The provisions of section 8 (4) (a) and 11(o) shall not apply to so much of the amount of any allowance contemplated in subsection (2) as has been included in the taxpayer’s income under the provisions of subsection (9), whether in the current or any previous year of assessment.
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