Monthly Archives: June 2018

Omheining van verliese (artikel 20A) vir natuurlike persone

Artikel 20A het met ingang van 1 Maart 2004 in werking getree. Hierdie artikel handel oor die omheiningsbepalings wat verhoed dat natuurlike persone hul belasbare inkomste verminder deur verliese uit sekondêre handel te gebruik.

Artikel 20A vervang altans nie artikels 11(a) en 23(g) nie. Alle uitgawes wat nie volgens artikel 11(a) kwalifiseer nie of wat as ’n aftrekking ingevolge artikel 23(g) geweier word, sal permanent verlore gaan. Artikel 20A is dus in teenstelling met artikel 11(a) en 23(g) aangesien uitgawes nie permanent geweier word nie, maar slegs omhein word deur dit as ’n aftrekking toe te laat teen toekomstige belasbare inkomste van die primêre bedryf.

Artikel 20A(2) stel die onderstaande vereistes waarvolgens aangeslane verliese omhein sal word:

  1. Indien ’n belastingbetaler teen die maksimum belastingkoers belas word, voor inagneming van enige aangeslane verliese en balanse van vasgestelde verliese van die vorige jare van aanslag, moet onderstaande punte 2 tot 4 oorweeg word.
  1. Artikel 20A(2) vereis dat die “3-uit-5-jaar”-toets toegepas word vir 2 kategorieë nl. wildsboerdery-aktiwiteite en die handel dryf in “verdagte aktiwiteite” –

2.1 Aangeslane verliese wat ontstaan uit wildsboerdery-aktiwiteite vir 3 van die voorafgaande 5 jare kan moontlik omhein word.

2.2 Artikel 20A(2)(b) verskaf ’n lys van “verdagte aktiwiteite” en indien aangeslane verliese gegenereer word uit een van die onderstaande aktiwiteite vir ten minste 3 van die voorafgaande 5 jare sal sodanige verliese moontlik omhein word:

  • enige sportaktiwiteite beoefen deur die belastingbetaler;
  • enige handel in versamelstukke;
  • die verhuur van residensiële eiendom, tensy ten minste 80% van die akkommodasie gebruik word deur die persone wat nie verwant is aan die belastingbetaler nie, vir ten minste helfte van die jaar van aanslag;
  • die verhuur van voertuie, vliegtuie of bote soos gedefinieer in die Agtste Bylae, tensy ten minste 80% van die voertuie, vliegtuie of bote gebruik word deur nie verwante persone, vir ten minste helfte van die jaar van aanslag nie;
  • diere skou beoefen deur die belastingbetaler;
  • boedery of stoetery, tensy die belastingbetaler hierdie aktiwiteite beoefen op ’n voltydse basis;
  • enige vorm van beeldende of uitvoerende kunste beoefen deur die belastingbetaler; en
  • enige vorm van dobbelary of weddery beoefen deur die belastingbetaler.
  1. Bogenoemde bepalings is nie van toepassing in die geval waar ’n verlies gely word vir die jaar van aanslag, uit ’n bedryf wat ’n redelike kans het om ’n belasbare inkomste (uitgesluit kapitaalwins) te genereer binne ’n redelike periode en ook voldoen aan sekere kriteria soos gelys onder artikel 20A(3) nie.
  1. Alhoewel omheining vrygespring kan word onder punt 3 kan verliese steeds omhein word as daar vir ten minste 6 van die voorafgaande 10 jare verliese gely word. Die onus is dan op die belastingbetaler om die SAID te oortuig dat besigheid bedryf word met ’n redelike vooruitsig om belasbare inkomste te genereer binne ’n redelike tydberk.

Hierdie artikel is ʼn algemene inligtingsblad en moet nie as professionele advies beskou word nie. Geen verantwoordelikheid word aanvaar vir enige foute, verlies of skade wat ondervind word as gevolg  van die gebruik van enige inligting vervat in hierdie artikel nie. Kontak altyd ʼn finansiële raadgewer vir spesifieke en gedetailleerde advies. (E&OE)

“Booking” capital losses on shares is not that easy

There is a number of techniques that taxpayers use to reduce their capital gains tax (CGT) exposure on long-term share investments. A common practice is to utilise the annual exclusion of R40 000 provided for in paragraph 5 of the Eighth Schedule of the Income Tax Act[1] by selling shares that have been bought at a low base cost, at a higher market value and then immediately reacquiring those shares at the same higher value, thereby ensuring that the investments’ base cost is increased by as much as R40 000 per year. If the gain on those shares is managed and kept below the annual R40 000 exclusion, taxpayers receive the benefit of a ‘step-up’ in the base cost of the shares to the higher value for future CGT purposes, without having incurred any tax cost.

A reverse scenario is to build up capital losses for off-set against any future capital gains and taxpayers are often advised, especially during times of market volatility, to ‘lock-in’ capital losses created by the expected temporary reduction in share prices. This involves selling shares at a loss and then immediately reacquiring the same shares at the lower base cost, but with the advantage of having created a capital loss – a technique known as ‘bed-and-breakfasting’.

Without placing an absolute restriction on ‘bed-and-breakfasting’, paragraph 42 of the Eighth Schedule limits the benefit that could have been obtained from the ‘locked-in’ capital loss. The limitations of paragraph 42 apply if, during a 45-day period either before or after the sale of the shares, a taxpayer acquires shares (or enters into a contract to acquire shares) of the same kind and of the same or equivalent quality. ‘Same kind’ and ‘same or equivalent quality’ includes the company in which the shares are held, the nature of the shares (ordinary shares vs preference shares) and the rights attached thereto.

The effect of paragraph 42 is twofold. Firstly, the seller is treated as having sold the shares at the same amount as its base cost, effectively disregarding any loss that it would otherwise have been able to book on the sale of the shares and utilise against other capital gains. Secondly, the purchaser must add the seller’s realised capital loss to the purchase price of the reacquired shares. The loss is therefore not totally foregone, but the benefit thereof (being an increased base cost of the shares acquired) is postponed to a future date when paragraph 42-time limitations do not apply.

Unfortunately, taxpayers do not receive guidance on complex matters such as these on yearly IT3C certificates or broker notes, since these are generally very generic. Therefore, taxpayers wishing to fully capitalise CGT exposure on market fluctuations are advised to consult with their tax practitioners prior to the sale of shares.

[1] No. 58 of 1962

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Tax allowances against assets used for purposes of trade

The Income Tax Act[1] allows for various income tax allowances to be claimed in respect of moveable assets used for purposes of a taxpayer’s trade.

Most commonly, section 11(e) provides for a deduction equal to the amount by which the value of any machinery, plant, implements, utensils and articles have diminished by reason of wear and tear during the tax year. Typically, these assets must be owned by the taxpayer, or must be in the process of being acquired. Where an asset was acquired during the year, the allowance provided for in section 11(e) is proportionally reduced according to the period of use during the year.

There are however various other specific asset allowances which may rather regulate whether a wear and tear allowance is available for tax purposes, depending on the nature of the specific asset or which specific industry the taxpayer operates in. Should the relevant requirements for these provisions rather be applicable, the section 11(e) allowance will not apply.

For example, section 12B provides for an accelerated allowance (generally split over three years on a 50/30/20 ratio) for certain plant, equipment and machinery used for farming purposes, the production of renewable energy such as bio-diesel or bio-ethanol products or the generation of electricity from wind, sunlight, etc. Section 12C again provides for a tax allowance in respect of assets used for manufacturing, co-operatives, hotels, ships and aircraft. Section 12E allows for a 100% write off of the cost of plant and machinery brought into use by a “small business corporation” in certain circumstances. Other (maybe lesser known) tax allowances include section 12F (providing for an allowance for qualifying airport and port assets) and section 12I (an additional investment and training allowance in respect of industrial policy projects). There are also various provisions in the Income Tax Act providing specifically for an allowance against which the value of buildings owned by a taxpayer and used for purposes of trade can be written down for tax purposes.

It is important to note that each of these provisions has very specific requirements regarding the type of qualifying assets that could potentially qualify for the allowance. This includes whether or not the specific asset is new and unused and if any improvements to the qualifying assets may also be taken into account. Other important considerations include who the relevant taxpayer is, when the asset was brought into use by that taxpayer for the first time and the costs to be taken into account in calculating the relevant allowance.

The take away is that taxpayers must continuously evaluate their asset registers to confirm that all assets are correctly classified for income tax purposes and that the correct tax allowances are claimed in respect of these assets. The most important consideration of all though is to ensure that available allowances provided for in the Income Tax Act are utilised where appropriate to do so.

[1] No. 58 of 1962

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)