Under s 22(2A) of the Income Tax Act, when a person carries on a construction, building, engineering or other trade in the course of which improvements are effected by him to fixed property owned by another person, any improvements effected by him and any materials delivered by him to the fixed property that are no longer owned by him will, until the contract under which the improvements are effected has been completed, be deemed to be his trading stock.
This means that he must account for his ‘deemed’ closing stock at the end of each year of assessment by including the cost (or, when appropriate, written-down value) in his taxable income for that year. This rule represents a partial deviation from the general principle that materials affixed to fixed property become a part of that fixed property and belong to the owner of that fixed property.
For this purpose, a contract will be deemed to have been completed when the taxpayer has carried out all the obligations imposed upon him under the contract and has become entitled to claim payment of all amounts due to him under the contract. Until then the builder or engineer must treat the relevant improvements and materials as his own trading stock.
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.