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IN 69 Income Tax acT: InTeRPReTaTIon noTes IN 71
For a detailed discussion on these special factors, see paragraph 7 of the ring-fencing guide.
Step 4 [section 20A (4)]— The ‘six-out-of-ten-years’ requirement (the ‘catch all’ provision)
Step 4 is a ‘catch all’ provision that applies even if a taxpayer has escaped ring-fencing under step 3. However, it does not apply to farming operations. Thus even if a game farmer incurs losses in six out of the last ten years, ring-fencing can be prevented if the taxpayer can satisfy SARS that a business is being carried on with a reasonable prospect of deriving taxable income within a reasonable period.
5 Conclusion
The same principles used to determine whether a person carries on farming operations apply to game farmers. The test for this purpose is a subjective one, that is, one based on the taxpayer’s intention.
Income from the sale of game, game meat, carcasses and skins and fees related to hunting constitute farming income. However, income from accommodation, catering and admission charges is not farming income. This will be relevant when applying the ring-fencing provisions of paragraph 8 to game livestock. Game viewing fees may or may not constitute farming income depending on the facts and circumstances of the particular case.
The rules governing the deduction of expenditure, including capital development expenditure, are similar to those which apply to normal farming operations.
A farmer is required to bring to account the value of game livestock in opening and closing stock. No standard values have been prescribed by regulation for game livestock, but the Commissioner accepts that game livestock may be allocated a standard value of nil. Game livestock which is acquired by donation or inheritance is included in opening stock in the year of acquisition at market value under paragraph 4.
The deduction under section 11 (a) for the cost of livestock is ring-fenced under paragraph 8, while an assessed loss or balance of assessed loss from farming is subject to potential ring-fencing under section 20A.
A farmer who ceases to carry on game-farming operations must generally continue to deal with any game livestock under the First Schedule.
Special rules apply for income tax and CGT purposes upon the death or sequestration of a farmer.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
INTERPRETATION NOTE: NO. 71
DATE: ACT: SECTION: SUBJECT:
Preamble
18 March 2013
INCOME TAX ACT 58 OF 1962 (the Act)
Paragraphs 2(a), 5 (2)(b) and 5 (4) of the Seventh Schedule Long service awards
In this Note unless the context indicates otherwise –
• ‘paragraph’ means a paragraph of the Seventh Schedule to the Act; • ‘section’ means a section of the Act; and
• any word or expression bears the meaning ascribed to it in the Act.
1. Purpose
This Note provides guidance and clarity on the income tax consequences for an employee when the employer gives an employee an asset as a long service award.
2. Background
Employers give employees a wide range of awards. The reasons for the awards are varied; often it is a gesture of appreciation for services rendered, recognition for outstanding performance or recognition for the length of the employee’s service (commonly referred to as a ‘long service award’). These awards are, with a few exceptions, subject to taxation.
The award could be in a number of forms including money, an asset, a service, the right of use of an asset or residential accommodation.
This Note focuses on the income tax treatment for an employee when an employer gives the employee an asset as a long service award. The income tax consequences will be different if an employer gives an employee a long service award in a form other than an asset.
3. The law
The relevant legislation is contained in paragraph 2 (a) read with paragraph 5. For ease of reference, the relevant sections of the Act are quoted in the Annexure.
4. Application of the law
4.1 General rule
A taxable bene t arises when employees acquire any asset from their employers consisting of any goods, commodity, nancial instrument or property of any nature (other than money), either for no consideration or for a consideration which is less than the value of the asset. The asset may be granted by the employer, an associated institution in relation
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