Page 633 - SAIT Compendium 2016 Volume2

IN 72 Income Tax acT: InTeRPReTaTIon noTes IN 73
(b) where the seller or lessor is a dealer, an amount equal to or exceeding the price (including tax) at which the goods are normally sold by him for cash or may normally be acquired from him for cash (including tax) and any charge (including tax) made by the seller or lessor in respect of the erection, construction, assembly or installation of the goods if such charge is nanced by the seller or lessor under the instalment credit agreement;
instalment credit agreement’ means any agreement entered into on or after the commencement date whereby any goods consisting of corporeal movable goods or of any machinery or plant, whether movable or immovable—
(a) ... .
(b) are supplied under a lease under which—
(i) the rent consists of a stated or determinable sum of money payable at a stated or determinable future date or periodically in whole or in part in instalments over a period in the future; and
(ii) such sum of money includes nance charges, including any amount determined with reference to the time value of money, stipulated in the lease; and
(iii) the aggregate of the amounts payable under such lease by the lessee to the lessor for the period of such lease (disregarding the right of any party thereto to terminate the lease before the end of such period) and any residual value of the leased goods on termination of the lease, as stipulated in the lease, exceeds the cash value of the supply; and
(iv) the lessee is entitled to the possession, use or enjoyment of those goods for a period of at least 12 months; and
(v) (aa) the lessee accepts the full risk of destruction or loss of, or other disadvantage to, those goods and assumes all obligations of whatever nature arising in connection with the insurance, maintenance and
(bb) (A)
repair of those goods while the agreement remains in force; or
the lessor accepts the full risk of destruction or loss of, or other disadvantage to those goods and assumes all obligations of whatever nature arising in connection with the insurance of those goods; and
(B) the lessee accepts the full risk of maintenance and repair of those goods and reimburses the lessor for
the insurance of those goods, while the agreement remains in force;
INTERPRETATION NOTE: NO. 73
DATE: ACT: SECTION: SUBJECT:
Preamble
24 April 2013
INCOME TAX ACT 58 OF 1962 (the Act)
Sections 11 (a), 11 (e), 20 (1), 23A and 25D
Tax Implications of Rental Income from Tank Containers
In this Note unless the context indicates otherwise –
• ‘section’ means a section of the Act;
• ‘tank container’ means a large metal container, usually of standard size, used for transporting freight; and • any word or expression bears the meaning ascribed to it in the Act.
1. Purpose
This Note provides guidance on the income tax implications of the letting of tank containers.
2. Background
Tank containers are used for bulk transportation of various cargoes such as liquids, chemicals, gas, foodstuff and bitumen to all parts of the world. The most frequent users of tank containers are local and international shipping, leasing and operating companies.
Investment in tank containers is common, not only for companies, but also for individuals. Tank containers are often bought by investors in rand and let, mostly, to international clients for a US dollar return.
A taxpayer may acquire tank containers for letting purposes through direct acquisition or by hire, typically from a nancial institution.
In a typical tank container leasing arrangement the investor purchases a tank container and appoints a South African investment management company as the investor’s agent for a period of 10 years. The investment management company in turn has agreements with various offshore lease managers who manage the container on a day-to-day basis and conclude lease agreements with lessees on behalf of the investment management company and hence the investor. The tank is generally placed in a pool and the investor derives a share of the net pool rental income which is determined after deducting various operating costs such as insurance and the fees paid to the leasing agents and investment manager.
This Note discusses how the rental income from the letting of tank containers as well as related deductions and assessed losses will be treated.
3. The law
For ease of reference, the relevant sections of the Act are quoted in the Annexure.
4. Application of the law
4.1 Gross income
From years of assessment commencing on or after 1 January 2001, South Africa switched from a largely source-based system to a residence-based system of taxation.
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