Page 607 - SAIT Compendium 2016 Volume2

IN 69 Income Tax acT: InTeRPReTaTIon noTes IN 69
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Amounts generally deductible under section 11 (a) by a game farmer include, for example,—
normal running expenses of the farming operation (for example, expenditure on ammunition, electricity, feed, fuel, livestock, wages & salaries, and veterinary fees);
cost of butchers, trackers and professional hunters;
advertising and promotion costs; and
travelling costs (both local and overseas).
This list is not exhaustive and the facts of each case will dictate which items of expenditure qualify as a deduction under section 11 (a).
Capital allowances
Capital expenditure, which does not qualify as a deduction under paragraph 12 (see 4.5), may qualify for a deduction under one of the other capital allowance provisions in the Act. Depending on the nature of the particular asset and the context in which it is used, the provisions which are likely to be of relevance in the context of game farming are section 12B, 12C or 11 (e) and in respect of buildings, section 13bis, 13quin or 13sept.
The different capital allowance provisions are not discussed in detail in this Note. However given its particular relevance to farming operations, section 12B is brie y discussed below.
Section 12B provides for the deduction of a special depreciation allowance on machinery, implements, utensils or articles (other than livestock) which are—
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owned by the taxpayer or acquired under an instalment credit agreement; brought into use for the rst time by that taxpayer; and
used in the carrying on of farming operations.
The deduction under section 12B is—
50% of the cost to the taxpayer in the year of assessment during which the asset is brought into use; 30% of the cost to the taxpayer in the second year; and
20% of the cost to the taxpayer in the third year.
Equipment used by game farmers that would generally qualify for the special allowance under section 12B includes, for example, vehicles, rearms, meat saws and two-way radios. This list does not limit the qualifying assets and each asset must be considered on its own merits.
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The following assets are speci cally excluded from section 12B:
Any motor vehicle the sole or primary function of which is the conveyance of persons. Any caravan.
Any aircraft other than an aircraft used solely or mainly for the purpose of crop-spraying. Any of ce furniture or equipment.
An asset that does not qualify under section 12B may still qualify for an allowance under another provision of the Act. For example, if a game farmer also runs a game lodge business, the capital assets used in that business (such as beds, furniture, refrigerators and stoves) would not be considered to be used for farming operations and would not qualify for an allowance under section 12B. An allowance under section 12B would also not be available for certain assets used in the farming operations (such as aircraft used for the counting of game and of ce equipment) as those assets are speci cally excluded. The taxpayer may, however, qualify for a depreciation allowance under section 12C in some instances and in other instances under section 11 (e). *
The deductions allowed under sections 11 (e), 12B and 12C are included in the income of the taxpayer if subsequently recovered or recouped under section 8 (4) (a). These deductions must also be taken into account when determining whether any deduction under section 11 (o) is available on the alienation, destruction or loss of a depreciable asset.†
4.5 Capital development expenditure
Section 11 (a) prohibits the deduction of expenditure of a capital nature. The First Schedule, however, provides an exception to this general rule for persons who carry on farming operations and have incurred expenditure of a capital nature as listed in paragraph 12. Paragraph 12 also applies to persons carrying on game-farming operations.
Amounts qualifying as a deduction under paragraph 12 include amongst others expenditure incurred for—
• the eradication of noxious plants and alien invasive vegetation;
• the prevention of soil erosion;
• dipping tanks;
• dams, irrigation schemes, boreholes and pumping plants;
• fences;
• erection of or extensions, additions or improvements (other than repairs) to buildings used in connection with
farming operations, other than those used for domestic purposes;
• the building of roads and bridges used in connection with farming operations; and
• the carrying of electric power from the main transmission lines to the farm apparatus or under an agreement with the
Electricity Supply Commission under which the farmer has undertaken to bear a portion of the cost incurred by the Commission in connection with the supply of electric power consumed by the farmer wholly or mainly for farming purposes.
The expression ‘in connection with’ (see 6th and 7th bullet above) was considered by the Tax Court in ITC 885.‡ After an analysis of a number of cases dealing with the subject, the court concluded as follows:§
* See Interpretation Note No. 47 (Issue 3) ‘Wear-and-Tear or Depreciation Allowance’ (2 November 2012). † See Interpretation Note No. 60 ‘Loss on Disposal of Depreciable Assets’ (10 January 2011).
‡ (1959) 23 SATC 336 (C).
§ At 338.
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