Page 719 - SAIT Compendium 2016 Volume2

BGR 7
INCOME Tax aCT: BINdINg gENERaL RuLINgS
BINDING GENERAL RULINGS BINDING GENERAL RULING (INCOME TAX): BGR 7
2 November 2012
INCOME TAX ACT 58 OF 1962 (the Act)
SECTION 11 (e)
WEAR-AND-TEAR OR DEPRECIATION ALLOWANCE
BGR 7
DATE: ACT: SECTION: SUBJECT:
Preamble
For the purposes of this ruling—
• ‘allowance’ means the wear-and-tear or depreciation allowance granted under section 11(e);
• ‘BGR’ means a binding general ruling issued under section 89 of the Tax Administration Act 28 of 2011; • ‘qualifying asset’ means machinery, plant, implements, utensils and articles qualifying for the allowance; • ‘section’ means a section of the Act unless otherwise stated;
• ‘the Note’ means Interpretation Note 47 (Issue 3); and
• any word or expression bears the meaning ascribed to it in the Act.
1. Purpose
is BGR reproduces the parts of Interpretation Note 47 (Issue 3) ‘Wear-and-Tear or Depreciation Allowance’ dated 2 November 2012 that comprise a BGR under section 89 of the Tax Administration Act No. 28 of 2011.
2. Background
e Note is a BGR on section 11(e) in as far as it relates to—
• the determination of the value of an asset for purposes of section 11(e) (paragraph 4.2 of the Note); and
• the determination of the amount that will qualify as an allowance (paragraph 4.3 and Annexure A of the Note).
3. Ruling
e following parts of the Note, which comprise a BGR, are reproduced in the Annexure: • Paragraph 4.2 – Value of an asset for purposes of section 11(e).
• Paragraph 4.3 – Policies on the determination of the amount of the allowance.
• Annexure A – Schedule of write-o periods acceptable to SARS.
4. Period for which this ruling is valid
is BGR applies to any asset brought into use during any year of assessment commencing on or a er 1 March 2009.
Group Executive: Interpretation and Rulings Legal and Policy Division South African Revenue Service
ANNEXURE – PARAGRAPHS 4.2 AND 4.3, AND ANNEXURE A OF INTERPRETATION NOTE 47 (ISSUE 2)
4.2 Value of a qualifying asset for purposes of section 11(e)
4.2.1 General rule
Although the word ‘value’ is not de ned in section 11(e), it has always been the policy of SARS to, unless otherwise prescribed, regard the value of a qualifying asset for purposes of determining the amount of the allowance as the taxpayer’s cost of acquisition of the asset, that is, the cash cost excluding nance charges. e revaluation of an asset would, for example, have no e ect on the value of that asset for purposes of determining the amount of the allowance.* Examples of exceptions to this general rule are assets acquired by the taxpayer by way of donation, inheritance, distribution in specie or from a connected person.
Under paragraph (vii) of the proviso to section 11(e), the acquisition cost of qualifying assets, shall be deemed to be the cost which, in the opinion of the Commissioner, a person would incur if that person had acquired that asset under a cash transaction concluded at arm’s length (also known as the market value), including the direct installation and erection costs.
Under section 23C(1), any value-added tax payable (input tax) on acquisition of an asset must be excluded from the cost for purposes of calculating the allowance if the taxpayer is—
• registered vendor; and
* In ITC 1546 (1992) 54 SATC 477 (C) a landlord acquired second-hand furniture and ttings at a bargain price from the liquidator of its tenant. e landlord attempted to claim the wear-and-tear allowance on a revalued amount, based on paragraph (vii) of the proviso to section 11(e). is was rejected by the court which held that the allowance was properly claimable on the cost of the articles.
SAIT CompendIum oF TAx LegISLATIon VoLume 2 711