Page 567 - SAIT Compendium 2016 Volume2

IN 64 (3) Income Tax acT: InTeRPReTaTIon noTes
IN 64 (3)
3. Apportion general expenditure to income General expenditure:
Bank charges
Audit fees
Total deductions
2 000 12 000 14 000
R
50 000 (327) 49 673
49 673 908,44
Allowable expenditure __________________________ × ___________________
Source of receipts and accruals
Total receipts and accruals 1
Levy income: _2_0_4_0__0_0_0_ × _1_4_0_0_0_ = R13 346 2 140 000 1
Basic exemption: __5_0__0_0_0__ × _1_4_0_0_0_ = R327 2 140 000 1
Income not qualifying for exemption:
__5_0__0_0_0__ × _1_4_0_0_0_ = R327 2 140 000 1
4. Calculate taxable income Income subject to income tax (2) Less: Allowable deductions (3) Taxable income
5. Calculate income tax payable
Taxable income (4)
Income tax payable at 28% (2015/16 company tax rate)
8. Rate of tax
13
Qualifying entities fall within the de nition of ‘company’ in section 1(1) and are treated as companies for income tax purposes and pay tax at the company rate on their taxable income.
9. Provisional tax
Qualifying entities are excluded from the de nition of ‘provisional taxpayer’* and are no longer required to make provisional tax payments or submit provisional tax returns for years of assessment ending on or after 1 January 2009. A qualifying entity that has taxable income must settle its tax liability on assessment.
10. Donations tax
Donations made by or to a qualifying entity are exempt from donations tax under section 56(1)(h).
11. Capital gains tax (CGT)
All capital gains and capital losses made on the disposal of assets must be taken into account in determining a taxable capital gain or assessed capital loss unless excluded by speci c provisions. The CGT provisions are contained in the Eighth Schedule. CGT forms part of the income tax system and a taxable capital gain must be included in taxable income under section 26A. A body corporate, a share block company and an association of persons have an inclusion rate of 66,6%.† This inclusion rate means that only 66,6% of a capital gain will be included in the taxable income of a company.
In practice it would be unusual for a body corporate, a share block company or an association of persons to derive a capital gain during the normal course of its operations as illustrated by the following examples:
• Movable depreciable assets such as washing machines used in a common laundry room are unlikely to yield capital
gains on disposal because this would require a consideration in excess of the original cost.
• The common property in a development scheme is owned by the sectional title holder’s jointly in undivided shares and not by the body corporate.‡ The sale of a portion of the common property will therefore not have CGT consequences
for the body corporate; rather the unit holders must account for any capital gain or capital loss.
• The transfer of immovable property in a share block company to a holder of shares in the company will not give rise to a capital gain or capital loss in the company. Such a transfer could involve a conversion to sectional title or a transfer of freehold title.§ In this regard paragraph 67B(3)(a) of the Eighth Schedule provides that the share block company must disregard any capital gain or capital loss determined on the disposal. Likewise, paragraph 67B(3)(b)(i) provides that the holder of shares must disregard any capital gain or loss on disposal of the share, which of necessity includes
* Paragraph 1 of the Fourth Schedule.
† The inclusion rate in paragraph 10 of the Eighth Schedule was increased from 50% to 66,6% by section 9 of the Rates and Monetary Amounts and Amendment of Revenue Laws Act 13 of 2012 and applies to years of assessment commencing on or after 1 March 2012.
‡ Section 16 of the Sectional Titles Act.
§ Section 8(3)(c) of the Share Blocks Control Act prohibits the transfer of a unit to a member otherwise than through Schedule 1 of that Act, which deals with conversion to sectional title. Thus, to the extent that shareholders wish to take transfer under freehold title it would rst be necessary for them to cancel their rights of use and occupation before transfer can be effected.
saIT comPendIum oF Tax LegIsLaTIon VoLume 2 559