Capital Allowances Flashcards
S11g(C)
- No deduction if acquisition
- There is a deduction for renewal
s11(gB) for registration of trade mark
s11A pre trade expenditure
George forest timber case
- Costs incurred prior to commencement of trade not deducted s11(a)
- s11A may cause an assessed loss
- Has to be new trade
- s11A only applicable if new venture
s11(o) scrapping loss
- TP must elect it
- Applies even on cash loss
Allowance N/A if
- Never used the asset
- Disposal occurred in PY of assessment or not yet occurred
- TP originally acquired asset for no consideration
Trading stock
- If consideration < MV exclude 22(8)
- Packing material is included in TS
- Manufacture it yourself par (jA) gross income
- If a person speculates in shares, not entitled to write down value of shares held as TS to NRV establish 22(1)a. Cannot write down financial instruments to NRV
- 23F no deduction if not disposed or held so add back as deemed recoupment
- Donation PBO - At cost
- Staff donation at MV
- Only have trading stock of you have not manufactured it yourself
S24 Debtors allowances
- Only applicable if stock is sold on extended credit terms
- T/S sold under a suspended sale agreement therefore whole amount excludes finance charges deemed to be included in TP gross income
- Relief granted to TP where 25%/more is due after 12 months
N/A to:
- Transactions where ownership passes unconditionally
- Finance lease with purchase option
- Lay-buy of less than 12 months
Cash value of 920 000 sold
COS = 560000
Gross income (920*100/115) 800000
800-560/800 100 = 30%
800000 30% -240000
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It is not applicable to:
- Transactions where ownership passes unconditionally
- Finance leases with purchase option
- Lay buy < 1 year
- sold less cost/sold = %
- Balance * % = s24 allowance
Taxable income: Capital portion. Sold Interest S11(a) s24 allowance
Add back allowance next YOA
s24I
- Triggered when you see exchange rates
- s24I deferral of gain/loss only for capital assets
- If bought on credit it is debt and thus included in definition of an exchange
- Exchange differences on foreign debts
- Deferral of foreign gain or losses only applies to capital assets because if trading in smaller assets can claim loss
(Prior year)
If exercise date is after then transaction date =0
Year end rate less acquisition date
(Current Year)
- Difference in spot and exercise date
- Difference in prior year and current year
If you haven’t purchased trading stock yet:
- Debt not incurred = 0
- Exchange difference = 0
Debt ( Difference in spot)
FEC (Difference in FEC)
FEC (Initial FEC vs. Date of spot)
- There is a reversal of gains or losses upon write off (reverse what you included in income )
3 dates to be considerate of:
- Transaction
- Translation
- Realization
s24C
- Include amounts in gross income at the earlier of receipt or accrual. (Tender price)
(Service industry)
- Advanced pmt
- Future expenditure
- Contract
- Non refundable deposit
- Advance pmt under contract taxed under GI as income received
- Deductible expense will be incurred on contract in the future
- Relief granted to TP
- Gross income definition
- Amount will be added back to their income in CY
- Mention that amount received is not capital in nature
- -s24C can create an assessed loss and will increase Co’s assessed loss
- s24C is a temporary allowance and must be added back to next YoA
- Amount will be utilized to finance future deductible expenditure under a contract
- It will be allowed as a deduction or allowance
- Selling price 1200000
- GP% COS/SP 65%
- Deduction 1200000*65% (xxx)
- Amount will be added back next year
Cost/Sold
Capital Allowances general principles
- No allowances means no recoupment
- If asset has no consideration use MV s11e
- ONLY Claim allowances when BIU
- No allowances if not yet BIU
- S24I defer losses until asst is BIU
- Purchase of capital asset (recoupment and allowances)
- Plus: non-rebated customs duty and any import charges: R100 000 as it forms part of the cost the acquire the asset
- solar power generating unit is owned by Co, is capital and will get a capital allowance in terms of s 12B.
- No s 11(g) available as improvement is not obligatory.
- S13quin not available on building since it is not owned by Auto BUT used if s 12N applies
- s24M does not affect nature of receipt or accrual
- Look out for condition in s24M
- Travelling cost no s11(a) capital in nature
Under VAT: claiming capital allowances is a tax provision not a supply as defined
Travel allowance
Right of use asset
- Travel allowances
(Allowance give by ER+ Any other Cost paid by ER) - No VAT as it’s just a transfer of money no supply of goods or services
- s11(a) for a company
- Retail MV * 3,5%* 12
- Reduction for business use* business/ total
- Consideration paid (xxx)
♦️Deemed Expenditure:
Fixed cost/ Total KM * 100c*x/365
Fuel
Maintenance
♦️Actual Expenditure:
If cost of asset is 900000
Wear and tear limited to 665 000 (If EE owns vehicle) Finance cost ( given cost * 665000/ 900000) Fuel cost Maintenance cost Insurance cost
Actual cost * Business km/ Total km
(Individual) ♦️Right of use of CAR: - Output VAT s18(3) deemed supply Cost including VAT * 85%* 3.5%* 12 months xxx Cost employee pays -xxx
If records kept ROU * business/total
(Company)
: R205000100/1150.3%15/115 #months
Leases
x/12 = Brought to use to Y/E
- Lease premium xxx/25 yrs * x/12
- Lease rentals
- Leasehold improvement
initial cost/ 25yrs - start date to completion *x/12
Lessor:
N= lessee y/e to completion
FV=obligation by lessee exclude VAT, i =6% therefore PV
-s18C VAT on obligation amount15/115non tax use
-s11(h) gross income par (h)
Lessee
- Premium s11(f)
- Ex vat
- Allowance limited 25yrs
- Improvements s11(g)
- Obligation amount
- ex VAT
- Allowance is on biu to y/e of lessee
- Excess =Actual less obligation ex VAT; allowances, not apportionment
- VAT
- on obligation amount
- s8(29) Deposit *15/115 to extent of making taxable supplies
CGT: Lessee
- Enduring benefit, capital asset
- include in base cost
- BC reduced by allowances and deduction
- No disposal as not owner of asset
- BC = obligation amount less same amount so = 0
- Voluntary costs included in BC results in capital loss
- Capital loss can be set off against other capital gains
Bad Debts
Lent amount to employee that amount is your base cost and it results in capital loss. Proceeds = 0
s12E
-Subject to normal corporate tax at 28% as opposed to the preferential rates/sliding scale applicable to small business corporations
Loyalty points s24C
- A contract is concluded under which revenue is received by TP
- No revenue is received in advance on date of contract
- No obligation to incur expenditure in future
- s24C NA
Capital Allowances:
- s13sex excludes new and unused low cost residential units for mining employees
- s12C accelerated allowances NA to aircraft and ships
- No s11(d) if company was negligent as it is not an inevitable concomitant so no deduction
- SBC taxed at a lower rate
- Legal expenses
- Debt collection cost add back
- Purchase Agreement is capital in nature so no deduction
- Defending damages no deduction
Recoupment s22(8)
Trade now private
