Page 635 - SAIT Compendium 2016 Volume2

IN 73 Income Tax acT: InTeRPReTaTIon noTes IN 73
• be laid out or expended for the purposes of trade.*
In addition, the expenditure must be claimed in the year of assessment in which it is actually incurred.†
All of the above requirements must be met in order for a deduction to be allowed under section 11 (a) read with section 23 (g). Expenditure that is likely to qualify as a deduction under section 11 (a) includes interest,‡ agent or management fees, repairs and maintenance, re-certi cation fees and insurance.
4.2.3 Wear-and-tear or depreciation allowance [section 11 (e)]
A wear-and-tear or depreciation allowance under section 11 (e) will generally be allowable as a deduction to a taxpayer if – • any machinery, plant, implements, utensils and articles;
• owned by the taxpayer or acquired by the taxpayer as a purchaser under an instalment credit agreement;
• are used for the purpose of his or her trade; and
• have diminished in value by reason of wear-and-tear or depreciation during the year of assessment.
SARS allows a wear-and-tear or depreciation allowance on large, metal-type tank containers used for transporting freight over a straight-line period of 10 years – see Annexure A to Interpretation Note No. 47 (Issue 3) ‘Wear-and-tear or depreciation allowances’ (2 November 2012).§ Interpretation Note No. 47 also deals with, amongst other things, the circumstances in which an allowance will not be allowed and how it must be calculated. A container which is let under a lease agreement covering a period exceeding 10 years must be written off over the period of the lease.¶
Any wear-and-tear or depreciation allowance recouped as a result of the disposal of a tank container will be dealt with under section 8(4). To the extent that the proceeds on disposal of the tank container exceed its original cost, a capital gain will arise which must be dealt with under the capital gains tax provisions of the Eighth Schedule.
The extent to which a lessor can claim a wear-and-tear or depreciation allowance is limited by section 23A (see 4.3.1). 4.3 Limitation of deductions
4.3.1 Allowances granted to the lessor
Section 23A limits speci ed allowances claimed by a lessor of an ‘affected asset’ as de ned in section 23A (1).** A detailed discussion of section 23A can be found in Interpretation Note No. 53 ‘Limitation of Allowances Granted to Lessors of Affected Assets’ (12 February 2010).
A tank container, which is let, is likely to be an ‘affected asset’ with the result that section 23A (2) will apply. Under the latter provision, any wear-and-tear or depreciation allowances are limited to the taxable income derived from the letting of affected assets, determined before deducting any such allowances.
Example 1 – Impact of section 23A on allowances granted to an investor in tank containers
Facts:
X, an individual, has, besides a plumbing business, investments in tank containers and residential properties. X lets the tank containers through an agent to international lessees. The taxable income from X’s different ventures for the 2013 year of assessment was as follows:
Plumbing business
Rental:
Tank containers (before allowing any wear-and-tear allowance)
Residential properties
X claimed a wear-and-tear allowance of R200 000 under section 11(e) on the tank containers.
Result:
R
1 000 000 140 000
60 000
Under section 23A (2) X’s deduction for the wear-and-tear allowance on the tank containers for the 2013 year of assessment is limited to R140 000, being an amount equal to the taxable income from letting of those tank containers (as determined before deducting the wear-and-tear allowance). The balance of R60 000 (being the difference between R200 000 and R140 000) must be carried forward to the 2014 year of assessment under section 23A (4).
Further examples to illustrate the practical application of section 23A are contained in Interpretation Note No. 53. Section 23A is applied before applying paragraph (b) of the proviso to section 20(1) pertaining to assessed losses. 4.3.2 Assessed loss
An ‘assessed loss’ is de ned in section 20 (2) as –
* To the extent that expenditure is not laid out for the purposes of trade it will not be allowed as a deduction [section 23 (g)].
† Although section 11 (a) is silent on this issue, it is clear from the structure of the Act that income tax is an annual event and that the claiming of expenditure cannot be postponed. See, for example, Concentra (Pty) Ltd v CIR 1942 CPD 509, 12 SATC 95 at 98.
‡ If the container is nanced through a loan which is denominated in a foreign currency then sections 25D and 24I will be relevant in determining the rand amount of the interest expense and the quantum of exchange differences.
§ Reproduced in Binding General Ruling No. 7 issued on 2 November 2012.
¶ Interpretation Note No. 47 (Issue 3) in 4.3.3(a).
** See the de nitions of an ‘affected asset’ and ‘operating lease’ in section 23A (1).
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