The Short And Unhappy Life Of The Farmer, Dr Van Tonder
Dr Van Tonder was a very successful surgeon living in Jo’burg in the latter years of the previous century.In fact, so profitable was his private practice that he had to pay the Receiver of Revenue buckets full of taxes every year.This made Dr Van Tonder extremely unhappy – as these things tend to do.
One day, Dr Van Tonder’s tax consultant said to him: "Jan, I have a suggestion.Why don’t you buy yourself a small farm? You can then conduct more than one trade (that of surgeon and of farmer) and set off the losses incurred in your farming business against your taxable income as a surgeon.Your final tax liability will be based on the net amount of your taxable income.”
Dr Van Tonder was delighted.Not only would he save a huge amount on tax, he would also have a small piece of land where he could potter over weekends and bring his family close to their roots.
Dr Van Tonder bought the farm and stocked it with a flock of prize merino sheep. He couldn’t believe his luck when he could write off the sheep (that cost him in the region of R800 a piece) to R40 each.In the same way he got tax concessions on seed, fertilizer, the wages he paid his workers and even the powerful Land Cruiser he bought to drive around his piece of paradise.But sadly, this blissful state of affairs was short-lived. The first rumblings that farming was not for the feint-hearted came when Dr Van Tonder’s sheep started dying. He drove past them standing with their little heads together under a lone tree in the veld.It seemed as if they were conspiring.He was sure that they said to each other: "Let’s die!”
Then Dr Van Tonder also found that he was losing tools, implements, fertilizer and seed at an alarming rate, as he was not around to oversee his farming practice. It did not help at all when his wife and teenagers told him that it was much more fun to hang around in the city over weekends than to plough through the dust while Dad was counting his losses.
Although Dr Van Tonder saved a packet on taxes, he was a very unhappy man.Dying sheep, pilfering workers, sulking family – where were the joys of being a farmer?
Luckily SARS came to the rescue with the introduction of ring-fencing.A new provision, section 20A, was introduced into the Income Tax Act in December 2003 which brought Dr Van Tonder’s tax saving measures to an end.This section disallowed the setting off of assessed loss against taxable income under certain circumstances.
Farming was listed as a suspect trade and the ring-fencing provisions applied immediately to farmers, unless they farmed on a full-time basis.
Section 20A was not made retrospective and as the provision would only be effective from 1 March 2004, any assessed loss carried forward from a year of assessment ended on or before 29 February 2004 would be ignored.
Consequently, the period under review would start from 1 March 2004 for five years, ending on 29 February 2009.But Dr Van Tonder did not want to wait that long. His mind was made up. Let the farm go and pay the Receiver his dues. He sold off the remaining few sheep, the last of the seed and fertilizer and put the farm on the market. When the next tax assessment came around, Dr Van Tonder paid up gladly. Two things are certain: death - of the doctor’s sheep and farming venture; and taxes.
Farming was not for sissies.
Source: By TaxTalk