Page 639 - SAIT Compendium 2016 Volume2

IN 74 Income Tax acT: InTeRPReTaTIon noTes IN 74 INTERPRETATION NOTE NO: 74
DATE: ACT: SECTION: SUBJECT:
Preamble
6 August 2013
INCOME TAX ACT 58 OF 1962 (the Act)
Sections 11 (d) and 8 (4) (a)
Deduction and Recoupment of Expenditure Incurred on Repairs
In this Note unless the context indicates otherwise –
• ‘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 on the interpretation and application of section 11 (d) which allows a deduction for expenditure incurred on repairs for the purposes of trade.
2. Background
Expenditure on repairs to an asset not comprising trading stock is likely to be of a capital nature, particularly when it is not incurred at regular intervals.* This is because the expenditure relates to the protection of a capital asset.†
Expenditure of a capital nature does not qualify as a general deduction under section 11 (a). Nevertheless, section 11 (d) makes provision for the deduction of expenditure incurred on repairs for the purposes of trade provided its requirements are met.
For purposes of section 11 (d) it is important to distinguish between a ‘repair’ and an ‘improvement’ since only expenditure incurred on repairs is deductible under section 11 (d). No hard and fast rules can be provided for this distinction. Each case must be decided on its own facts.‡
3. The law
Section 11 (d)
4. Application of the law
Section 11 (d) provides for the deduction of expenditure actually incurred during the year of assessment on repairs of –
• property occupied for the purposes of trade or from which income is receivable, including the treatment against attack
by beetles of timber which forms part of such property; or
• machinery, implements, utensils and other articles employed by the taxpayer for the purposes of trade.
The rst category mentioned above refers to repairs effected to immovable property and the second category to repairs pertaining to movable property. No deduction for expenditure incurred on repairs will be permissible if the expenditure is recoverable.§
4.1 The meaning of ‘repairs’
In order to determine whether an expense will constitute a repair it is necessary to establish the meaning of the word ‘repairs’ as used in section 11 (d). The Act does not contain a de nition of the word ‘repairs’ and it must, therefore, be given its ordinary grammatical meaning.
The New Shorter Oxford English Dictionary¶ de nes a ‘repair’ as follows:
‘Restore (a structure, machine, etc) to unimpaired condition by replacing or xing worn or damaged parts; mend.’
Collins English Dictionary** de nes a ‘repair’ as –
‘[t]o restore (something damaged or broken) to good condition or working order’.
* In Rhodesia Railways Ltd v Collector of Income Tax Bechuanaland 1935 AC 368, 6 SATC 225 the court held that the periodic replacement of railway lines was not of a capital nature.
† ITC 849 (1957) 22 SATC 82 (C).
‡ Flemming v KBI 1995 (1) SA 574 (A), 57 SATC 73 at 75 and 79. § Section 23 (c).
¶ Clarendon Press Oxford, fourth edition, 1993, volume 2.
** Harper Collins Publishers, fth edition, 2000.
11. General deductions allowed in determination of taxable income.—For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person so derived—
(d) expenditure actually incurred during the year of assessment on repairs of property occupied for the purpose of trade or in respect of which income is receivable, including any expenditure so incurred on the treatment against attack by beetles of any timber forming part of such property and sums expended for the repair of machinery, implements, utensils and other articles employed by the taxpayer for the purposes of his trade;
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