Q: One of my
clients has paid a licence fee to a petrochemical company for the operation of
a petrol station for an indefinite period. How do I handle a transaction like
this? Am I able to write this amount off over a period of time?
A: There is in
our view not a capital allowance for this licence fee and it will only be
deductible if it is revenue rather than capital in nature and deductible per
s11(a) ITA. In CSARS v BP SA Pty Ltd 2006 ZASCA 61 (25 May 2006) the court held
that a prepaid rental payment which was incurred to secure petrol stations
selling its petrol for 20 years, which in our view sounds similar to the
purpose of the license fee paid, was connected to the capital structure and not
income operations, thus being capital in nature.
As noted you would have to apply the various capital v
revenue test to conclude on this matter after determining exact purpose and
intention for the payment.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.
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