Page 606 - SAIT Compendium 2016 Volume2

IN 69 Income Tax acT: InTeRPReTaTIon noTes IN 69
Example 2—Application of paragraph 8 limitation to game farmers—cost of livestock exceeds its market value
Facts:
The facts are the same as Example 1 except that Farmer A is able to show that the fair market value of all the livestock at year-end is R220 000.
Result:
Determination of taxable income of the farmer:
Farming income
50 000
Standard value of livestock at the end of the year:
Game
Nil
Other
300
Value of produce at the end of the year of assessment
2 000
2 300
52 300
Less:
Standard value of livestock at the beginning of the year:
Game
Nil
Other
279
Produce
Nil
(279)
52 021
Less:
Allowable deduction—purchase of livestock [section 11 (a) and paragraph 8
(50 021)
Allowable deduction— excess above market value
(30 258)
Assessed loss from the carrying on of farming operations
(28 258)
Determination of the limitation on the acquisition of livestock:
Income received and accrued from farming operations
50 000
Value of the livestock held and not disposed of at the end of the year
300
Value of livestock held and not disposed of at the beginning of the year
_(279)
Subtotal
50 021
Expenditure deductible under section 11 (a) on the acquisition of game livestock
300 000
Less: Deductible amount current year
(50 021)
Additional amount under paragraph 8 (3) (b) (see below)
(30 258)
Amount of deduction carried forward to the following year
219 721
Determination of the additional amount to be allowed under paragraph 8 (3) (b):
R
Expenditure disallowed (Example 1)
249 979
Value of opening stock
_____279
250 258
Less: Market value
(220 000)
Additional amount allowable
30 258
4.4 Expenditure and allowances
Expenditure and losses incurred for purposes of trade, that do not qualify as a deduction under the First Schedule, may be claimed under other provisions of the Act provided they meet the requirements of the particular provision.
Section 11 (a) and section 23 (g)
In determining a person’s taxable income derived from carrying on any trade, the general deduction formula in section 11 (a) requires that the expenditure and losses must be actually incurred in the production of income and must not be of a capital nature. In addition, expenditure and losses must be claimed during the year of assessment in which they are actually incurred.
Section 23 (g) prohibits the deduction of moneys not expended for the purposes of trade.
598 saIT comPendIum oF Tax LegIsLaTIon VoLume 2