Page 720 - SAIT Compendium 2016 Volume2

BGR 7 INCOME Tax aCT: BINdINg gENERaL RuLINgS BGR 7
• is or was entitled under section 16(3) of the Value-Added Tax Act to a deduction of ‘input tax’ as de ned in section 1(1) of that Act.
The cost pertaining to the acquisition of an asset could, therefore, include—
• the original purchase price (excluding input tax to which the vendor is or was entitled, or including input tax in case
the vendor was not entitled to a deduction or the taxpayer is not a registered vendor);
• the shipping or delivery charges relating to the delivery of the asset;
• any costs incurred in moving the asset from one location to another; and
• the costs directly relating to the installation or erection of the asset.
Interest and nance charges should be excluded from the cost of the qualifying asset.
4.2.2 Foundations and supporting structures
Under paragraph (iiA) of the proviso to section 11(e) any concrete or other foundation or supporting structure on which a qualifying asset is mounted or a xed to is not regarded as a structure or work of a permanent nature, but is treated as part of that qualifying asset provided the Commissioner is satis ed that—
• the foundation or supporting structure is designed for the asset and constructed in such manner that it is or should be
regarded as being integrated with the asset; and
• the useful life of the foundation or supporting structure is or will be limited to the useful life of the asset mounted on
it or af xed to it.
4.2.3 Moving costs
Paragraph (v) of the proviso to section 11(e) provides that the value of the qualifying asset must be increased by the amount of any expenditure which is proved to the satisfaction of the Commissioner to have been incurred by the taxpayer in moving the asset from one location to another. Moving costs must thus be written o over the remaining estimated useful life of the asset. For example, if the asset is being written o over ve years and moving costs are incurred in year 4, those costs will be allowed as a deduction in years 4 and 5. If the asset has been written o in full the moving costs will be allowable in the year of assessment in which they are incurred.
4.2.4 Qualifying assets acquired by way of donation, inheritance or as a distribution in specie
e allowance is based on the market value of the asset acquired by a taxpayer by way of donation, inheritance or as a distribution in specie. is market value is determined under paragraph (vii) of the proviso to section 11(e) (see 4.2.1).
e Commissioner’s discretion in this regard will usually be exercised upon audit of the case. Taxpayers must ensure that they have the necessary information or documentation readily available when requested by the Commissioner to substantiate the arm’s length price of an asset and the inclusion of any amount in the determination of the value of an asset.
4.2.5 Limitation of allowance granted on a qualifying asset previously held by a connected person (section 23J)
(a) Years of assessment ending before 1 January 2008
Before paragraph (viii) of section 11(e) was deleted by section 17(1)(a) of the Revenue Laws Amendment Act 35 of 2007, it provided that when a section 11(e) deduction or a deduction under section 11B(3), 11D(2), 12B(1), 12C(1), 12E or under section 27(2)(d) prior to its deletion by section 28(b) of the Income Tax Act 129 of 1991, was previously granted to a connected person in relation to a taxpayer on any asset acquired by the taxpayer on or a er 21 June 1993, the allowance had to be calculated on an amount not exceeding the lesser of—
• the cost of the asset to the connected person; or
• its market value as determined on the date upon which it was acquired by the taxpayer.
e term ‘connected person’ is de ned in section 1(1). e market value in this context is the price which a willing buyer would pay a willing seller at the time and place and under the conditions under which the applicable assets are o ered for sale.
(b) Years of assessment ending on or a er 1 January 2008
Section 23J was inserted into the Act by section 38 of the Revenue Laws Amendment Act 35 of 2007, and replaced the connected person rule that was previously provided for under paragraph (viii) of the proviso to section 11(e).
712 SAIT CompendIum oF TAx LegISLATIon VoLume 2