Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Tax > Farming > Flashcards

Farming Flashcards

1
Q

What does the term farming operations includes?

A

Only those activities carried on by a farmer on his own land and from which he derives income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Does the farmer has to be owner of the land he farms on?

A

No, the farmer need not to be the owner of the land but he must have the right to use the land and enjoy its yield.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How to you determine the taxable income derived from farming?

A

The taxable income of any person carrying on pastoral, agricultural or other farming operations shall in so far as it is derived from such operations be determined in accordance with the provisions of the Act but subject to the provisions of First Schedule.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

List some of the case laws and its principles in farming.

A
  1. ITC 1319
    • genuine intention to farm
    • ultimate profit
  2. H v COT
    • hobby is not farming
  3. ITC 1548
    • farming operations include only activities connected with what a farmer derives from his land
    • he needs not be the owner but must enjoy the right to property and its yield
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is livestock?

A

It refers to the animals farmer farms with

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is produce?

A

Is what the farmer grows or what is produced by the livestock (milk, wool, etc)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is included in livestock?

A

All animals used by a farmer in his farming operations are included in livestock.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is not included in produce?

A

The court have held that the term produce does not include farming products which have not been harvested.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What does the paragraph 2 of First Schedule provide in terms of opening and closing stock for farmers?

A

A farmer must include the opening and closing stock of livestock and produce in his income tax return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What does paragraph 3 of First Schedule provide for treatment if opening and closing stock?

A

Closing stock is added to income

Opening stock is deducted from income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What does paragraph 4 of First Schedule provide for what should be included in the value of opening stock?

A

The value of stock at the beginning of the year us equal to the sum of:

- value of closing stock at the end of previous tax year
- market value of livestock or produce acquired during the year otherwise than by purchase natural increase or in the ordinary course of farming operation (includes donation)
- the market value of livestock or produce held otherwise than for purpose of farming activities with such farmer commences to hold for farming purpose during the year.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What does paragraph 5 of First Schedule provide for value of closing stock?

A

All closing stock of livestock is valued at standard values.

Standard values are lower than market value and they are fixed by regulations in the Act.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What does paragraph 6 of First Schedule provide where there is no standard value for livestock?

A

Where livestock does not have a standard value, a farmer may elect his own standard values but these may not differ more than 20% from standard value set by regulations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What does paragraph 7 of First Schedule provide about the treatment of standard value?

A

Once a standard value is chosen it must be used consistently and may not varied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the limit on expenditures in respect of acquisition of livestock?

A

Expenditure in respect of the acquisition of livestock is limited to the farmer’s income for the year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What does paragraph 8 of First Schedule provide on the effect if using standard value for closing stock?

A

Because of the effect of using standard value for closing stock of livestock, a farmer could create a large farming loss in a tax year by making large purchases of livestock. The purchases would be deducted at cost under s11(a) and closing stock would then be reflected at standard value.
Any amount that is disallowed shall be carried forward and be deemed to be expenditure incurred by the farmer in respect of acquisition of livestock during the year.

17
Q

To calculate the amount that is allowed as a deduction for livestock use the following tests:

A 
Test 1: limit the amount that is allowed as a deduction to
Farming income before closing stock
Add: closing stock at standard value
Less: opening stock at standard value 
= expenditure deductible
If there is access that is not deductible from test 1, perform test 2.
Test 2: 
Take excess after test 1
Plus: opening stock at standard value
Less: closing stock at market value
= further deduction
18
Q

What does paragraph 9 of First Schedule provide in terms of what is included in produce?

A

Produce includes any product of farming operations once it has been picked, harvested or reaped.
In terms of paragraph 4, produce acquired by farmer otherwise than by purchase (donation) shall be included in opening stock at market value, it is submitted that such produce will also be included in the closing stock at market value if it is still on hand at the end of the year.

19
Q

What is considered as domestic consumption?

A

If livestock or produce has been applied by a farmer for domestic or private use or consumption there shall be included in his income for the year of assessment an amount equal to the cost price to the farmer of such livestock or produce, if cost price is not available use market value.

20
Q

What is considered as other forms of non-trade disposal?

A

If a farmer has donated livestock or produce, disposed of other than in the ordinary course of farming operations for consideration less than market value, distributed as an in specie dividend, or has applied livestock or produce in any other manner other than disposal thereof in the ordinary course of farming activities, the market value of such stock shall be included in his income.(staff ration)

21
Q

Where livestock or produce has been disposed of other than in the course of farming operations for a consideration less than market value,what needs to be included in income?

A

Only the difference between market value and consideration received.

22
Q

What value is used in the determination of closing stock of produce?

A

Used only harvested and lower of average cost or market value.

23
Q

What are some allowable deductions for a farmer?

A
  1. Purchase of livestock
  2. Hiring of farming land
  3. Animal feeds
  4. Fertilizer
  5. Wages and salaries
  6. Employee rations
  7. Seeds, plants,trees
  8. Expenses for clearing land (not Pre-trade)
  9. Veterinary expenses
  10. Rates and taxes
  11. Packing materials
  12. Interest related to farming operations
24
Q

What of a capital expenditure for a farmer?

A

A farmer’s capital expenditure is deducted either in full (subjected to certain limits) under the provisions of paragraph 12 of First Schedule or as a special depreciation allowance under s12B or as wear and tear allowance under s11(e)

25
Q

What does paragraph 12 of First Schedule provide for allowable deductions?

A

The following expenditure is allowed as a deduction:
1. The eradication of noxious plants and alien invasive vegetation (full)
2. The prevention of soil erosion (full)
3. Dipping tanks (limited to farming income, cannot create loss)
4. Dams, irrigation schemes, boreholes and pumping plants (limited to farming income, cannot create loss)
5. Fences (limited to farming income, cannot create loss)
6. The erection of, or extensions, additions, or improvement (not repair) to, buildings used in connection with farming operations other than those used for domestic purposes. (limited to farming income, cannot create loss)
7. The planting of trees, shrubs or perennial plants for the production of grapes or other fruits, nuts, tea, coffee, hops, sugar, vegetable oils or fibers and the establishment of any area used for the planting of such trees, shrubs or plants. (limited to farming income, cannot create loss)
8. The building of roads and bridges used in connection with farming operations. (limited to farming income, cannot create loss)
9. The carrying of electric power from the main transmission lines to the farm apparatus. (limited to farming income, cannot create loss)
The excess from 3 - 9 must carried forward to the following year (unredeemed capital development expenditure)

26
Q

What did paragraph 12(3B) state on the recoupment of movable asset?

A

The recoupment on movable assets in the year must first be set off against the amount brought forward from the previous year which would have been deducted in terms of paragraph 12, and the difference must then either be added or subtract form the farmer’s income.

27
Q

In terms of unredeemed capital expenditure, what happens to it when the asset is disposed off?

A

These unredeemed expenditure may be added to the base cost.

28
Q

What does s12B special depreciation allowances provide?

A

At machinery, implements, utensils or articles (other than livestock) acquired by a farmer (new or second hand) and brought into use by him for the first time, are subject to a depreciation allowance on the cash cost of the asset (owned and used in farming operation)
50%, 30%, 20%
No apportionment!

29
Q

If assets do not fall into paragraph 12 or s12B then it is a movable asset, what allowance does it qualify?

A

S11(e) wear and tear allowance

30
Q

Does capital development expenditure deducted in terms of paragraph 12 subject to general recoupment provision?

A

No, only movable assets are subject to general recoupment.
Scrapping and wear and tear allowances are not allowed.
Infrastructure establishment is deducted in full in first year.

31
Q

How do you calculate the CGT for farming operations?

A
  1. Recoupment = selling price - tax value
    Tax value = cost - allowances
  2. Proceed = selling price - recoupment
  3. Base cost = cost - allowance (including scrapping allowance)
  4. Capital gain = proceed - base cost
  5. Use applicable inclusion rate
    NB. Do CGT for farmer as part of farming taxable income
    Do CGT for other income as part of other income calculation.
32
Q

Farming income is subject to provision of First Schedule of the Income Tax Act. Because of a farmer’s income can fluctuate form year to year, he may elect to be taxed in accordance with a rating formula. What is the formula?

A 
Y= [A/(B+D-C)] x B
B= total taxable income (farming + other)
C= the amount by which his actual farming taxable income exceed average farming taxable income (first year farmer use 2/3 of actual taxable farming income)
D= 0
A= normal tax on (taxable income - amount of actual exceeds average taxable income)
33
Q

What is the treatment of assessed loss for farmers?

A

Being in assessed loss from previous year after:
Capital development expenditure
Rating formula

34
Q

In terms of CGT, what is the primary residence exclusion for farmers?

A 
2 heaters of the property 
CGT calculation:
Proceed 
Less base cost 
= capital gain
Less exclusion for farmer
Less annual exclusion (R20 000)
Include inclusion rate in taxable income
35
Q

What is the farming framework?

A 
Income:
Sales: produce
\+ Sales: livestock
\+ Private consumption @ cost
\+ donations of produce or livestock @ MV
\+ employees rations @ MV
\+ recoupment
\+ closing stock:
   Produce @ lower of cost or MV
   Livestock @ standard value
= total farming income
Less: farming expenses
Expenses
- Opening stock:
   Produce @ MV
   Livestock @ standard value
- Inheritance / donations / dividends in specie @ MV
- purchases:
   Test 1: deduction limited to
   Total farming income (excluding closing stock)
   \+ closing stock @ standard value 
   - opening stock @ standard value
   = deduction
   Carry excess to test 2: additional deduction
   Excess after test 1 
   \+ opening stock @ standard value
   - closing stock @ MV
   = further deduction
General farming expenses
- feed purchased
- seeds and fertilizer 
- veterinary expenses 
- wages
- salaries
- employees rations @ MV
Capital allowances:
- wear and tear allowances s11(e)
- special allowances s12B: 50, 30, 20
= net farming income
\+ capital gain from farming assets
- capital development expenses
   Soil erosion (full)
   Noxious plants (full)
- capital development expenses (limited to income)
   Balance brought forward from previous year
   Less: recoupment in current year
   Current year expenditures
       Fences
       Irrigation scheme
       Roads
       Dipping tanks
       Trees
       Electric power
   Carry excess to next year
= total taxable farming income
\+ Other income
   Salaries
   Pension
   Lump sum
   Interest
   Rent
- deductions 
   Pension contribution
   Retirement annuity fund contribution 
\+ capital gain on non-farming assets
- deduction on medical aid
= total taxable income

Tax (19 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions