Page 522 - SAIT Compendium 2016 Volume2

IN 59
Income Tax acT: InTeRPReTaTIon noTes CONTENTS
IN 59
Preamble
1. Purpose
2. Background
3. Application of the law
3.1 Section 1 – De nition of ‘gross income’
3.2 Receipt or accrual of a capital or revenue nature
3.2.1 General remarks
3.2.2 Government grants calculated with reference to accounting pro ts or loss of future income 3.2.3 Trading receipts
3.2.4 Compensatory receipts
3.2.5 Government grants to assist or compensate a person in meeting costs of a capital nature
3.3 Conditional receipt
3.4 Section 8 (4) (a) recoupment
3.5 Speci c inclusion: Farming – Subsidies
3.6 Speci c exemptions
3.6.1 Exemption under section 10 (1) (y) – Programmes approved under the national budget process 3.6.2 Exemption under section 10 (1) (yA) – Of cial development assistance
3.6.3 Exemption under section 10 (1) (zA) – Export incentives
3.6.4 Exemption under section 10 (1) (zE) – Small Business Development Corporation Limited 3.6.5 Exemption under section 10 (1) (zG) – Films
3.6.6 Exemption under section 10 (1) (zH) – Speci c programmes
3.6.7 Exemption under section 10 (1) (zI) – Public Private Partnership (PPP)
3.7 Government grants received for research and development expenses
3.8 Anti-double-dipping rules [section 23 (n)]
4. Conclusion
Preamble
In this Note—
• unless the context otherwise indicates, any word or expression in this Note bears the meaning ascribed to it in the Act;
• references to sections are to sections of the Act;
• ‘Eighth Schedule’ means the Eighth Schedule to the Act; and
• ‘government’ refers to any ‘organ of state’ as de ned in section 239 of the Constitution of the Republic of South
Africa, 1996 (‘the Constitution’).
1. Purpose
This Note provides guidance on the tax consequences resulting from the receipt or accrual of government grants and government scrapping payments.
2. Background
The term ‘government grant’ is de ned in section 1 to mean—
‘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’. The term ‘government scrapping payment’ is de ned in section 1 to mean—
‘any amount, in cash or otherwise, paid to any person by any department listed in Schedule 1 to the Public Service Act, 1994 (Proclamation 103 of 1994) (other than a provincial administration), or any such amount paid by any entity listed in the Schedules to the Public Finance Management Act, 1999 (Act 1 of 1999), in respect of an asset of that person supplied to that department or that entity solely for purposes of the scrapping, demolition or destruction of those assets for the purposes of public health and safety’.
In the context of income exempt from normal tax, the term ‘government grant’ is only used in section 10 (1) (y). In other instances, however, the term ‘grant’ is used, and in such event it becomes necessary to consider the ordinary dictionary meaning of the term.
In the Oxford Dictionary Thesaurus, and Wordpower Guide1* the term ‘grant’ is de ned as— ‘a sum of money given by a government or public body for a particular purpose’.
3. Application of the law
3.1 Section 1 – De nition of ‘gross income’
The term ‘gross income’ is de ned in section 1 and means in relation to any year or period of assessment—
• •
in the case of a resident (as de ned in section 1), the total amount, in cash or otherwise, received by or accrued to or in favour of such person during such year or period of assessment, excluding receipts or accruals of a capital nature, but including, without in any way limiting the scope of the de nition, such amounts (whether of a capital nature or not) so received or accrued as are described in paragraphs (a) to (n) of the de nition; or
in the case of any person other than a resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such person from a source within or deemed to be within the Republic during such year or period
* 2 ed (2001) Oxford University Press Inc., New York.
514 saIT comPendIum oF Tax LegIsLaTIon VoLume 2