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IN 59 Income Tax acT: InTeRPReTaTIon noTes IN 60
3.8 Anti-double-dipping rules [section 23 (n)]
A taxpayer should not be able to use tax-free grants and scrapping payments to obtain a future tax bene t (that is,
‘double-dip’), for example, if exempt funds are used to acquire assets or incur expenditure and the taxpayer then claims depreciation or deductible operating expenses.
However, certain instances may arise in which a double-dip is permissible.
The anti-double-dipping rules are detailed in section 23 (n). The section provides that any deduction or allowance for any asset or expenditure is not deductible in determining taxable income to the extent that the amount is granted or paid to the taxpayer and is exempt from tax under section 10 (1) (y) or (yA) and was granted or paid for purposes of the acquisition of that asset or funding of that expenditure. Section 23 (n) is not applicable if a grant is for programmes or schemes that the Minister has identi ed by notice in the Gazette for purposes of section 23 (n).
Under paragraph 20 (3) (c) of the Eighth Schedule the expenditure on an asset must be reduced by any amount that is exempt from tax under section 10 (1) (y) or (yA) and is granted or paid for purposes of the acquisition of that asset. However, this base cost reduction rule does not apply to a government grant or government scrapping payment provided under programmes or schemes identi ed by the Minister of Finance in the Gazette.
Paragraph 64A of the Eighth Schedule provides that a person must disregard a capital gain or capital loss in respect of a disposal resulting in the person receiving a government scrapping payment in terms of a programme or scheme identi ed by the Minister for purposes of the paragraph by notice in the Gazette.
No scheme has been identi ed up to the date of this Note.
4. Conclusion
In determining whether a grant is subject to normal tax regard must be had to—
• general principles applicable in deciding whether a grant is of a capital or revenue nature, and hence whether it falls
within gross income;
• speci c inclusions in gross income (for example, farming subsidies and recoupments);
• any exemption under section 10;
• the disregarding under paragraph 64A of the Eighth Schedule of a capital gain or capital loss on disposal of an asset
resulting from the receipt of a government scrapping payment; and
• the facts and circumstances of the particular case.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
Income Tax Interpretation Note 60 Loss on disposal of depreciable assets
DATE: ACT: SECTION:
SUBJECT:
CONTENTS
Preamble
1. Purpose
2. Background
3. The law
4. Interpretation and application
4.1 Requirements
4.1.1 Election of the taxpayer
4.1.2 The trade requirement
4.1.3 Qualifying asset
4.1.4 Expected useful life
4.1.5 ‘Alienation, loss or destruction’
4.2 Limitation of losses under section 20B
4.3 Calculation of the allowance
4.4 Asset disposed of by donation
4.5 Death of a taxpayer
4.6 Interaction between section 11 (o) and the Eighth Schedule
4.7 Limitation imposed on the lessor under section 23A
4.8 Prohibition of the allowance for certain assets falling under the First Schedule 5. Conclusion
Preamble
In this Note—
‘Eighth Schedule’ means the Eighth Schedule to the Act;
‘First Schedule’ means the First Schedule to the Act;
‘section’ refers to a section of the Act unless otherwise indicated;
‘tax value’ means the amount remaining after reducing the cost or value of a depreciable asset by the cumulative
capital allowances on that asset; and
unless the context otherwise indicates, any word or expression in this Note bears the meaning ascribed to it in the Act.
10 January 2011
INCOME TAX ACT 58 OF 1962 (the Act) Sections 11 (o), 20B and 24M
Loss on disposal of depreciable assets
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