Page 536 - SAIT Compendium 2016 Volume2

IN 60
Income Tax acT: InTeRPReTaTIon noTes
IN 60
Tax value at time of sale
Less: Amount received or accrued
Section 11 (o) allowance (suspended)
The suspended loss will be reduced by subsequent recoupments under sections 20B (2) and 24M (3) as follows:
25 000
(Nil)
Year 4 Year 5 Year 6 RRR
25 000
Year Receipts
Suspended loss b/f
Suspended loss c/f
Notes:
(10 000)
25 000
15 000
(5 000)
15 000
10 000
(6 000)
10 000
4 000
At the end of years 3, 4 and 5 the section 11 (o) allowance of R25 000, R15 000 and R10 000 respectively must be disregarded because the full consideration had not accrued to B at the end of each of those years of assessment. Under section 20B (2) the suspended loss must be deducted from any consideration included in B’s income during the years in question.
B will be entitled to claim a section 11 (o) allowance of R4 000 at the end of year 6 under section 20B (3). At that stage no further amounts will accrue under the agreement of sale.
See the Comprehensive Guide to Capital Gains Tax (Issue 3)* for a discussion on the application of section 24M. 4.3 Calculation of the allowance
Under section 23C (1), any value-added tax payable on acquisition or delivery of an asset must be excluded from the cost for purposes of calculating an allowance if the taxpayer is a registered vendor that is entitled to a deduction of input tax under section 16 (3) of the Value-Added Tax Act 89 of 1991.
The allowance under section 11 (o) is equal to the amount by which the cost to the taxpayer of the asset exceeds the sum of—
• the amount received or accrued from the alienation, loss or destruction of the asset; and
• the amount of the allowances or deductions in respect of the asset allowed in the current or any previous year of
assessment.
The second bullet point includes amounts deemed to have been allowed under sections 12B (4B), 12C (4A), 12DA (4)
or 37B (4) or taken into account under section 11 (e) (ix). These provisions deem a taxpayer to have claimed allowances during a previous year of assessment if the asset was used during that year in carrying on the taxpayer’s trade, the receipts and accruals from which were not included in the taxpayer’s income. This could apply, for example, if the taxpayer was previously not a resident and did not derive income from a source within South Africa.
Reformulated in more conventional terms, the section 11 (o) allowance is equal to the amount by which the consideration received or accrued on disposal of the asset is less than its tax value. Tax value for this purpose means the actual cost of the asset (as opposed to the value of the asset) less the qualifying capital allowances.
Although section 11 (o) refers to—
‘the amount received or accrued from the alienation, loss or destruction of that asset’,
the section does not require that some consideration be received or accrued. The section will therefore, also apply if the amount received or accrued is nil. For example, it could apply to the theft of an uninsured asset.
Cost deemed to be actual cost subject to certain adjustments [paragraph (aa) of the rst proviso to section 11 (o)]
The cost of any plant, machinery, implements, utensils or articles is deemed to be the actual cost as determined under paragraph (bb) of the rst proviso to section 11 (o) (see below). The actual cost must be increased by the cost of moving such assets from one location to another [other than amounts allowed under section 11 (a)]. The actual cost must be reduced by any amount referred to in paragraph (iv) of the proviso to section 11 (e). This proviso relates to the predecessor to section 8 (4) (e), which enabled a taxpayer whose plant and machinery had been damaged or destroyed to disregard a recoupment on those assets, the quid pro quo for that concession being that the cost of the replacement plant and machinery for wear-and-tear purposes had to be reduced.
Cost determined under a cash transaction [paragraph (bb) of the rst proviso to section 11 (o)]
The actual cost of machinery, implements, utensils or articles acquired by the taxpayer on or after 15 March 1984 is deemed to be the cost which, in the opinion of the Commissioner, a person would, if he had acquired such assets under a cash transaction concluded at arm’s length on the date on which the transaction for the acquisition of such assets was in fact concluded, have incurred in respect of the direct cost of the acquisition of such assets, including the direct cost of the installation or erection thereof. This provision ensures that interest and nance charges are excluded from the actual cost of an asset.
Aircraft qualifying for the section 14bis allowance (paragraph (cc) of the proviso)
The cost of an aircraft which quali ed for an allowance under section 14bis is deemed to be the actual cost. The actual cost must be reduced by any recoupment referred to in the de nition of ‘adjustable cost’ under section 14bis (2) (a). Section 8 (4) (g) provided for the disregarding of a recoupment on the disposal of an aircraft provided that it was replaced within a certain period. The quid pro quo for disregarding the recoupment was that the ‘adjustable cost’ of the aircraft for the purposes of section 14bis had to be reduced.
Ships qualifying for the section 14 allowance (paragraph (dd) of the proviso)
The cost of a ship which quali ed for an allowance under section 14 is deemed to be the actual cost. The actual cost must be reduced by any recoupment referred to in the de nition of ‘adjustable cost’ or ‘adjustable cost price’ under section 14 (2). Section 8 (4) (b), before its deletion by section 5 (1) (b) of the Taxation Laws Amendment Act 3 of 2008,
* In Chapter 10.
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