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The repeal of the s 11(bA) deduction

09 March 2012   (0 Comments)
Posted by: SAIT Technical
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The repeal of the s 11(bA) deduction

PWC Synopsis - RC Williams

Section 11(bA), which has been part of the fiscal landscape in SouthAfrica since 1 January 1982, has abruptly and without official explanation been repealed with effect from years of assessment commencing on or after 1 January 2012.

Prior to its repeal, s 11(bA) allowed a deduction from income of interest, including ‘related finance charges’, actually incurred by a taxpayer on any loan, advance or credit used by him for the acquisition, installation, erection or construction of any machinery, plant, building, improvements to a building, or any pipeline, transmission line or cable or railway line or any airport infrastructure to be used by him for the purposes of his trade that had been so incurred for a period prior to the asset’s being brought into use for the purposes of the taxpayer’s trade.

The accumulated amount of the s 11(bA) deduction was then allowed in a lump-sum in the tax year during which the asset was brought into use for the purposes of the taxpayer’s trade, but was restricted to qualifying interest and finance charges that were not otherwise deductible under the Act.

The deduction did not extend to expenditure such as administration costs, rates and taxes and rent. Such interest was commonly referred to as ‘pre-production’ interest, a useful shorthand term connoting that the interest was incurred before the asset in question was brought into use in the taxpayer’s trade.

Since the general deduction provision of s 11(a) permits a deduction of expenditure only in relation to a trade being carried on by the taxpayer, pre-production interest does not qualify for deduction under that provision. Moreover, pre-production interest is of a capital nature, and on that account too does not qualify for deduction under s 11(a).


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