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IN 50 Income Tax acT: InTeRPReTaTIon noTes IN 51 (3)
for the allowances under section 11D. In such event the onus rests squarely on the taxpayer under section 82 to make a logical, fair and reasonable allocation of expenditure between qualifying and non-qualifying projects. It is therefore imperative for taxpayers to identify non-qualifying projects at the outset and to put measures in place which will enable them to make a sound allocation. Such measures would include, for example, the maintenance of time sheets.
11. Conclusion
The information contained in this Interpretation Note provides broad principles in interpreting the legislation pertaining to the deduction for scienti c or technological research and development. As the facts and circumstances pertaining to speci c R&D activities or projects differ, each case must be considered on its own merits.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
ANNEXURE A
EXAMPLES OF ACTIVITIES DIRECTLY ELIGIBLE FOR R&D PURPOSES
• Activities to create or adapt software, materials or equipment needed to resolve a scienti c or technological uncertainty provided that the software, material or equipment is created or adapted solely for use in R&D.
• Scienti c or technological planning activities.
• Scienti c or technological design, testing and analysis undertaken to resolve the scienti c or technological uncertainty.
• Design and construction of apparatus used directly for experiments, such as a pilot plant. Pilot plants and prototypes
qualify for deduction under section 11D (1).
• Data collection for use in experiments.
• Mathematical modelling used to analyse the results of experiments.
• Design, construction and operation of prototypes used in experiments.
• Phase I, II and III clinical trials.
ANNEXURE B
EXAMPLES OF ACTIVITIES EXCLUDED FROM ELIGIBILITY FOR R&D PURPOSES
• Commercial, legal and nancial activities necessary for research and development and for marketing of the new intellectual property created.
• Manufacturing and distribution of goods and services.
• Administration and general support services (such as human resources costs, transportation, storage, cleaning,
repair, maintenance — including maintenance of R&D equipment — and security).
• Scienti c and technical information services, insofar as they are conducted for the purpose of R&D support (such
as the preparation of the original report of R&D ndings).
• Training required to direct and support an R&D project.
• Research (including related data collection) to devise new scienti c or technological testing, survey, or sampling
methods, when this research is not R&D in its own right.
• Phase IV clinical trials.
• Feasibility studies to inform the strategic direction of a speci c R&D activity.
• Tooling up and industrial engineering.
INTERPRETATION NOTE: NO. 51 (Issue 3) Pre-Trade Expenditure and Losses
DATE: ACT: SECTION: SUBJECT:
Preamble
1. Purpose
2. Background
3. The law
4. Application of the law
4.1 4.2
4.3
Overview of section 11A(1)
Deduction of pre-trade expenses after trade has commenced [section 11A(1)] 4.2.1 Commencement of trade
4.2.2 Abandonment of a project before the commencement of trade
4.2.3 Change in intention or in the nature of the trade
4.2.4 Meaning of ‘that trade’
Pre-trade expenses actually incurred before the commencement of and in preparation for carrying on a trade [section 11A(1)(a)]
22 July 2014
Income Tax Act 58 Of 1962 Sections 11, 11A and 23 Pre-Trade Expenditure and Losses
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saIT comPendIum oF Tax LegIsLaTIon VoLume 2