Page 529 - SAIT Compendium 2016 Volume2

IN 59 Income Tax acT: InTeRPReTaTIon noTes IN 59
For example, this exemption covers an amount paid or payable to a lm owner under the Film and Television Production Rebate Programme administered by the Department of Trade and Industry. Under the Programme the government will provide a cash grant to an eligible applicant for a sum totalling 15% for foreign productions or 25% for qualifying South African productions including of cial co-productions of the qualifying South African production expenditure that the applicant has expended on an eligible lm production.
As a condition for the subsidy, the Department of Trade and Industry informally requires the use of a special purpose vehicle. The special purpose vehicle is needed as a separate mechanism for tracing all lm funds associated with the subsidy. The use of this special purpose vehicle, however, undermines the tax-free treatment because transmission of the subsidy to the ultimate bene ciaries (for example, the investors) typically triggers tax.
Section 10 (1) (zG) has been amended* to cater for subsequent transfers to investors. Accordingly, the payment of the subsidy to any lm owner will be tax free. The amendment came into operation on 1 September, 2009 and applies in respect of any amounts received or accrued on or after that date.
3.6.6 Exemption under section 10 (1) (zH) – Speci c programmes
Any amount received by or accrued to a person is exempt from normal tax if it is received by that person from government as an allowance or incentive payable in accordance with the following programmes:
• The Small/Medium Manufacturing Development Programme (SMMDP) which came into operation on 1 October
1996; replaced by the Small Medium Enterprise Development Programme (SMEDP) – see below.
• The Tax Holiday Scheme under section 37H (applicable to any project which has been approved as a qualifying project for any application received on or before 30 September 1999) which came into operation on 1 October 1996.
• The SMEDP, which came into operation on 1 September 2000, was suspended on 31 August 2006.† See www. governmentgrants.co.za/government-grants- incentives-apply.htm for manufacturing and tourism grants
[Accessed 10 December 2010].
• The Critical Infrastructure Programme (CIP) which came into operation on 1 September 2000, provides a non-
refundable, cash grant that is available to an approved bene ciary upon the completion of an infrastructure project.
3.6.7 Exemption under section 10 (1) (zI) – Public Private Partnership (PPP)
A ‘Public Private Partnership’ is de ned in section 1 to mean a Public Private Partnership as de ned in regulation 16
of the Treasury Regulations issued under section 76 of the Public Finance Management Act 1 of 1999.
Any amount received by or accrued to a person from the government will be exempt from normal tax if the amount is received by that person as part of its obligations pursuant to a PPP. In addition, the person is also required to expend an amount at least equal to that amount for the improvement of any land or buildings owned by the government or over
which the government holds a servitude.
A PPP is a contract between a government institution (for example, a government department, public entity or
municipality) and a private party, in which the private party assumes substantial nancial, technical and operational risk in the design, nancing, building and operation of a project.
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Two types of PPPs are speci cally de ned, namely, those in which—
the private party performs an institutional function; or
the private party acquires the use of state property for its own commercial purposes.
A PPP may also be a hybrid of these types.
Payment in any scenario involves one of three mechanisms—
the government institution paying the private party for the delivery of the service; the private party collecting fees or charges from users of the service; or
a combination of these.
A list of projects in preparation, registered under Treasury Regulation 16, and municipal projects registered under the Local Government: Municipal Finance Management Act 56 of 2003, and section 78 (3) of the Local Government: Municipal Systems Act. 32 of 2000, are available at www.ppp.gov.za [Accessed 10 December 2010].
3.7 Government grants received for research and development expenses
Section 11D (8) provides that when a taxpayer receives a government grant to nance the acquisition of an asset or to fund an expenditure that is otherwise eligible for a deduction under section 11D (1), the deduction relating to that expenditure shall be limited to 100% instead of 150% to the extent of twice that amount, (except to the extent that the expenditure is prohibited under section 23 (n)). For further detail see the Interpretation Note 50 ‘Deduction for Scienti c and Technological Research and Development’ (28 August 2009) available on the SARS website.
There is no speci c exemption from normal tax for government grants received or accrued to cover research and development expenses. Whether such a grant is of a capital nature and thus excluded from gross income must be determined by applying the general principles discussed in this Note.
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Examples of grants currently paid by the government include the following:
The Support Programme for Industrial Innovation (SPII) which is a programme designed to promote and assist technology development in South African industry through the provision of nancial assistance for projects that develop innovative products or processes. The SPII is focused speci cally on the phase that begins at the conclusion of basic research (at the stage of proof of concept) and ends at the point when a pre-production prototype has been produced.
The Technology and Human Resources for Industry Programme (THRIP) is a partnership programme which challenges companies to match government funding for innovative research and development in South Africa.‡
* Section 10 (1) (zG) was amended by section 13 (1) (k) of the Taxation Laws Amendment Act 17 of 2009. † See www.thedti.gov.za/smedp/smedp2007.htm [Accessed 10 December 2010].
‡ See www.nrf.ac.za/thrip/ifrms/bout.html [Accessed 10 December 2010].
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