Page 527 - SAIT Compendium 2016 Volume2

IN 59 Income Tax acT: InTeRPReTaTIon noTes IN 59
Result:
The grant is a capital receipt because it relates to the replacement of a capital asset. However, under section 8 (4) (a) the total wear-and-tear allowances of R80 000 are recouped in full because the amount of the grant exceeds the original cost price of the machine. This amount is speci cally included in the ‘gross income’ of the company under paragraph (n) of the de nition of that term. The remaining part of the grant (that is, R20 000) does not form part of gross income because it is a capital receipt. The amount of R20 000 will therefore comprise a capital gain under the Eighth Schedule as follows:
Proceeds R100 000 less recoupment of R80 000 (paragraph 35 (3) (a) of the Eighth Schedule) Less: Base cost (cost of acquisition of R80 000 less wear-and-tear allowance
of R80 000 (paragraph 20 (3) (a) of the Eighth Schedule)
Capital gain
3.5 Speci c inclusion: Farming – Subsidies
20 000
(Nil)
20 000
Paragraph (l) of the de nition of the term ‘gross income’ in section 1 speci cally includes in the gross income of a farmer any amounts received or accrued by way of a grant or subsidy for any soil erosion works referred to in section 17A (1) or any expenditure incurred on farming development and improvements referred to in paragraph 12 (1) (a) to (i) of the First Schedule to the Act.
3.6 Speci c exemptions
3.6.1 Exemption under section 10 (1) (y) – Programmes approved under the national budget process
Any government grant or government scrapping payment received or accrued under a programme or scheme which has been approved under the national annual budget process and identi ed by the Minister in the Gazette, is exempt from normal tax. The Minister is required to consider the designation of such a project having regard to a variety of economic and socio-political government objectives set out in section 10 (1) (y) as well as the nancial implications for government of exempting the government grant or scrapping payment from normal tax and whether the tax implications were taken into account in determining the appropriation or payment in respect of the programme or scheme.
No scheme has been gazetted by the Minister under this provision up to the date of this Note. The approval of the above-mentioned programmes is the function of National Treasury.
3.6.2 Exemption under section 10 (1) (yA) – Of cial development assistance
Any amount received by or accrued to a person for goods or services provided to bene ciaries in terms of an of cial development assistance agreement that is binding under section 231 (3) of the Constitution, is exempt from normal tax, to the extent that—
• the amount is received or accrues in relation to projects that are approved by the Minister after consultation with the Minister of Foreign Affairs,
• the agreement provides that those receipts and accruals must be exempt, and
• the Minister announces that those receipts and accruals are exempt by notice in the Gazette. These agreements are governed by the Department: International Relations and Cooperation.* Section 231 of the Constitution of the Republic of South Africa, 1996 (the Constitution)†
31. International agreements
(1) The negotiating and signing of all international agreements is the responsibility of the national executive.
(2) An international agreement binds the Republic only after it has been approved by resolution in both the National Assembly and the National Council of Provinces, unless it is an agreement referred to in subsection (3).
(3) An international agreement of a technical, administrative or executive nature, or an agreement which does not require either rati cation or accession, entered into by the national executive, binds the Republic without approval by the National Assembly and the National Council of Provinces, but must be tabled in the Assembly and the Council within a reasonable time.
(4) Any international agreement becomes law in the Republic when it is enacted into law by national legislation; but a self-executing provision of an agreement that has been approved by Parliament is law in the Republic unless it is inconsistent with the Constitution or an Act of Parliament.
(5) The Republic is bound by international agreements which were binding on the Republic when this Constitution took effect.
(Emphasis added.)
The ‘international agreements’ envisaged in section 231 of the Constitution which are relevant for tax purposes can broadly be categorised as follows:
• •
Any agreement for the avoidance of double taxation between the Republic and another country [section 231(2) of the Constitution].
Any agreement of a technical, administrative or executive nature between South Africa and another country [section 231(3) of the Constitution].
The agreements mentioned in this Note fall under the second bullet point above.
* See www.dfa.gov.za under the heading Foreign Relations. Click on bilateral agreements. [Accessed 6 December 2010].
† Constitution of the Republic of South Africa, 1996.
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