Page 724 - SAIT Compendium 2016 Volume2

BGR 7 INCOME Tax aCT: BINdINg gENERaL RuLINgS BGR 7
4.3.5 ‘Small’ items
e cost of ‘small’ items such as loose tools may be written o in full in the year of assessment in which they are acquired and brought into use. A ‘small’ item in this context is one which normally functions in its own right, does not form part of a set and is acquired at a cost of less than R7 000 per item. e amount of R7 000 applies to any qualifying asset acquired on or a er 1 March 2009.
A table and six chairs which plainly form part of a set can, for example, not be divided into individual independent items costing less than the speci ed amount. e cost of such a set amounting to R7 000 or more cannot be written o in full during the year of assessment in which the set was acquired and brought into use. *
Furthermore, the ‘small items’ write-o does not apply to assets acquired by lessors for the purpose of letting. us lessors that let small items such as DVDs, clothing, machinery, pallets or gas cylinders must depreciate these assets over their useful lives.
4.3.6 Qualifying assets previously used to produce amounts that were not included in the taxpayer’s income
Paragraph (ix) of the proviso to section 11(e) applies if—
• a qualifying asset was used by the taxpayer during any previous year of assessment or years of assessment for the
purposes of any trade carried on by that taxpayer, and
• the receipts and accruals of that trade were not included in the taxpayer’s income during that year or years. is could occur, for example, when—
• an asset was used by a public bene t organisation (PBO) in a previous year of assessment during which its receipts
and accruals were fully exempt from income tax, and the PBO becomes taxable on its trading activities in the current
year of assessment because its income from such activities exceeds the threshold in section 10(1)(cN);
• an asset was used before the introduction of the residence basis of taxation for purposes of a foreign trade; or
• an asset was used in a ‘micro business’ contemplated in the Sixth Schedule to the Act and the taxpayer becomes
subject to normal tax because the turnover of the micro business has exceeded the maximum threshold for such a business.
In these circumstances the Commissioner must take into account the period of use of the relevant qualifying asset during that previous year or years in determining the amount by which its value has been diminished.
Example 3 – Asset used to produce exempt income in previous years of assessment
Facts:
A taxpayer acquires a motor vehicle with an expected useful life of ve years at a cost of R100 000. During the rst three years, the vehicle was used by the taxpayer for trade purposes to generate exempt income. As from the commencement of year 4 the taxpayer’s trade generated taxable income.
Result:
e allowance will only be allowed during the remaining two years of assessment (years 4 and 5) in which the asset was used for purposes of generating taxable income. e taxpayer will therefore only be entitled to claim an allowance of R100 000/5 = R20 000 per year during years 4 and 5.
4.3.7 Qualifying assets used for both private and business purposes
e allowance must be apportioned if an asset is used for private and business purposes, since the deduction is only allowable to the extent that the asset was used for the purposes of trade.
4.3.8 Qualifying asset not used for the whole year of assessment
e allowance must be apportioned for an asset that has not been used for the purposes of trade throughout the year of assessment. is could occur, for example, if the asset is—
• acquired and brought into use during a year of assessment;
• disposed of during the year of assessment; or
• used by a natural person in carrying on a trade in his or her own name and that person becomes insolvent or dies during the year of assessment.
e allowance must be apportioned regardless of whether the straight-line method or diminishing-value method is used.
Sequestration
Before sequestration
Under section 25C the estate of a person before sequestration and that person’s insolvent estate are deemed to be one and the same person for purposes of determining the amount of any allowance or deduction to which the insolvent estate may
* Interpretation Note 47 (Issue 1) dated 28 July 2009 did not prevent lessors from claiming the small items write-off of R7 000 for years of assessment commencing on or after 1 January 2009. Interpretation Note 47 (Issue 2) con rms that the small items write-off no longer applies to lessors and this modi cation takes effect on the date of issue of that Note, namely, 11 November 2009 and applies to any asset acquired on or after that date.
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