Capital Allowances And Recoupments

Question 1

S11cA restraint of trade payments

Answer 1

Amount actually incurred in carrying on a trade for payment for restraint of trade, to extent it will be income of that person.
Over period or one third. Lesser. Not apportion for part of year

Question 2

S11gC intellectual property

Answer 2

Deduction of 5% for patent and copy right and 10% for a design.
If less than 5000 claim in full. Allowed year brought in use

Question 3

S11i bad debts

Answer 3

Due debts which have become bad and which was included in income.
Ceased active recovery and written out of books.
Cannot claim for debt given to employee as it was never income.
Recovered amount will be recouped

Question 4

S11j doubtful debt

Answer 4

Only if would have been allowed if had gone bad. Add back previous years allowance.

Question 5

S11l contributions by employer to provident, pension and benefit funds

Answer 5

If lump sum, may allow annual deductions

Question 6

S11lA shares issued in terms of s8B

Answer 6

Allow deduction if shares issued for broad based share scheme to value of mv of shares, less consideration paid by employees, limited to R10000 per employee per year. Carried unalloyed portion forward.

Question 7

S11m annuities paid to former employees on retirement

Answer 7

Deduct in full if paid to employee retired due to old age or sickness, dependent so of employees if dependent so was dependent on that employee prior to death. Former partners

Question 8

S11 nA and nB refunds of salary and restraint of trade

Answer 8

Amount refunded for services rendered by employee and was included in his income

Question 9

S11x other deductions

Answer 9

S11 includes all deductions from s5-37H of the act. Thus that section creates the allowance and s11x brings it into income.

Question 10

S11d repairs

Answer 10

Expenditure actually incurred during year on property or machinery producing income or used for trade.
Materials need not be the same as replaced. Repair is not an improvement. The intention of the tax payer should be to restore the asset to its original condition.

Question 11

S11 e wear and tear allowance

Answer 11

Don’t have to have cost as act use term value.
No allowance for assets of permanent nature.
Apportion for part of the year. Include moving cost, over remainder of life. If change of use occur or becomes trade asset, allowance will be as if allowance from purchase of asset.
If unquantifiable cost, 24M applies and allowance will be allowed in year quantified together with previous allowances of years.
Installment credit agreement, seller legally owns the asset but cannot claim 11e, buyer can.
Assets must be brought into use
Allowance granted to lessor is based on cost less any residual value.
Lessor must write of asset over longer of lease or period set out.
If lessee contributes to cost, this amount must decrease amount lessor can claim allowance on if not included in income of lessor.
If change from diminishing value to straight line method, when change, calculate wear and tear as tax value over remaining useful life.
Small assets, functions on own not part of set, R7000 written off in full.
Can elect 11e rather than 12E, for example if less than R7000.
Reduce wear and tear proportionally if used partly for exempt tax purposes.
Items affixed to ground are permanent in nature, if fixed to building it will lose its nature and become permanent, thus no wear and tear.

Question 12

S11o allowances in respect of disposal of assets

Answer 12

Depreciable asset is disposed of, 11e,12C,12E
Deduction only if disposed of not held. Not for assets which has a useful life of more than 10 years.
Cost( actual cast plus moving less recoupments) less sum of allowances and proceeds

Not allowed if sold to connected person, never used, not in current year,acquired asset for no consideration.
Use is treated as a deemed allowance even if amount was not allowed.

S20B limits this allowance. Only claim if no amount outstanding. Claim to extent proceeds received.

Question 13

S12C deductions in respect of assets used by manufacturers

Answer 13

New or used. Brought into use for the first time. Lessor can claim if lessee uses asset for manufacturing and income is taxable (not if used in another country or exempt) or operating lease. No apportionment for part of year.
Must be owned. Can include assets of permanent nature.
Cost will exclude amount not quantifiable.
Deemed to have claimed allowance when determining period when become resident or asset now used for trade.
New or unused plant gets 40 20 20 20 write off. Second hand would be 20 for five years.

Question 14

Process of manufacturing

Answer 14

Complete process, continuous without break. Change of material to end product.thus undergo process. Process must contribute to end product. As long as the machine was used in process it will qualify.

Question 15

S12E small business corporations

Answer 15

100% new and unused manufacturing plant and machinery.
50,30,20 other assets which could have gotten 11e.
Used in process of manufacturing.
No apportionment for part of year.
If non manufacturing assets, claim 50 30 20.
Can choose 11e rather.

Question 16

S13 deductions for building used in manufacturing

Answer 16

5% on cost and improvements. Lessor can claim if lessee uses it for manufacturing.
Can claim even if not own land as long as tax payer incurred the cost of the building. Used wholly to mainly for manufacturing, thus more than half.
Can be purchased if previous owner used for manufacturing or it is new, can claim on cost to purchaser. Not claim on land.
Claim on leasehold improvements only if spend more than agreed amount.
Recoupment may be set of against cost of replacement building, allowance on new building will be net of recoupment set off.

Question 17

S13quin commercial buildings

Answer 17

5% on new and spun used buildings owned and used wholly or mainly in year for purpose of predicting income in course of trade. Can let it. Based on lower of cost and mv. Not apportioned for year.
If acquires part: 55%x5% of cost
Acquires an improvement 30%x5% of cost at arms length.
Improvement is a new and unused building, even if rest of building not new and unused.

Question 18

S13sex deduction for certain residential units

Answer 18

5% on new and unused residential units or improvements, is SA and used solely for trade. Tax payer must at least own five in SA.
Extra 5% for low cost units.
Not apportioned. Exclude hotels.
On lesser of actual cost or arms length mv.
Buys unit of part of building or improvement. 55% or 30% of cost.

Question 19

S13sept deductions in respect of low cost residential units on loan account

Answer 19

Sell to employee, get deduction of 10% of amount owing to him at year end for ten years.
Not allowed if have to sell back at cost, only allowed if have to sell back on termination of employment. Employee should not pay interest or buy for more than cost.

If employee repays part of loan, tax payer deemed to recoup lesser of repayment or amount deducted in current and previous years.

Question 20

S12N deductions in respect of improvement on property not owned by tax payer

Answer 20

Lessee can claim allowance (not under 11e) as if owned land and buildings. Deemed owner of improvements for eighth schedule.
In terms of public private partnership or land and buildings owned by government.
Tax payer incur expenditure and completes improvements. Must use it for production of income.

Deemed disposal on earlier of right of use terminated or actual use terminated. Can renew right. Cannot sub lease unless of same group or repair still borne by tax payer as well as risk of destruction. Not apply to financial institutions.

Question 21

S8(4)a general recoupment

Answer 21

Sale of capital asset, difference between selling price and tax value up to cost is recouped
If debt reduced of allowance asset held, first reduce cost of asset and rest is s8(4)a recoupment.

Question 22

S8(4)e recoupment deferment

Answer 22

Set of recoupment against cost of new replacement asset. This will occur if para 65/66 of eighth schedule was selected, involuntary disposal, or investment in replacement depreciable asset where capital gain is deferred. Apportion amount if more than one asset acquired.

Deferred recoupment must be added to income in proportion of wear and tear. If ceases to use in trade or sells, remaining recoupment added to income. Full proceeds must be invested

Question 23

S11c legal expenses

Answer 23

Legal expenses not allowed under 11a because not on production of income.
Allows legal costs actually incurred in ordinary operations of carrying on trade and not af capital nature.
Cost of eliminating competition is capital
Freedom from imprisonment is not capital