07 May 2012
Posted by: SAIT Technical
by Michael Stein (Friday Page)
While s11(a) of the Income Tax Act (and certain other provisions) allow the immediate deduction of qualifying expenditure when it is incurred, s23H provides for the carrying forward of the deduction of the whole or part of expenditure in certain circumstances.
It provides that when a person has during a year of assessment actually incurred expenditure (other than for trading stock):
- that is deductible under the provisions of s11(a), s11(c) (legal expenses), s11(d) (repairs), s11(w) (certain long-term insurance premiums), s11A (pre-trading expenditure), s11D(1) (certain expenditure on research and development) or s28(2)(a) (certain long-term reinsurance premiums); and
- for goods, services or another benefit, all of which will not be supplied or rendered to him or her, or another benefit the period to which the expenditure relates extends beyond the year of assessment.
The amount of the expenditure that is deductible in a year of assessment is then limited to, for expenditure incurred on:
- goods to be supplied, so much of the expenditure as relates to the goods actually supplied to him or her in the year of assessment; or
- services to be rendered, an amount that bears to the total amount of the expenditure the same ratio as the number ofmonths in the year during which the services are rendered bears to the total number ofmonths during which the services will be rendered or, when the period during which the services will be rendered is not determinable, the period during which the services are likely to be rendered; or
- another benefit to which the expenditure relates, an amount that bears to the total amount of the expenditure the same ratio as the number ofmonths in the year during which he or she will enjoy the benefit bears to the total number of months during which he or she will enjoy the benefit or when the period of the benefit is not determinable, the period during which the benefit is likely to be enjoyed.
These provisions will, however, not apply in certain circumstances, that is
- when all the goods or services are to be supplied or rendered within sixmonths after the end of the year of assessment during which the expenditure was incurred, or the person will have the full enjoyment of the benefit for which the expenditure was incurred within this period, unless the expenditure is deductible under s11D(1) (see above); or
- when the aggregate of all amounts of expenditure incurred by the person that would otherwise be limited by this provision does not exceed R100000 (proposed to be increased from R80000 with effect from 1March 2012 by the Rates and Monetary Amounts and Amendment of Revenue Laws Amendment Bill 2012) ); or
- to expenditure to which the provisions of s24K (interest rate agreements) or s24L (option contracts) apply; or
- to expenditure actually paid for an unconditional liability to pay an amount imposed by legislation.
The Commissioner for sars has a discretion, which is subject to objectionand appeal, to determine that if the apportionment of the expenditure in accordance with the provisiondoes not reasonably represent a fair apportionment of the expenditure for the goods, services or benefits to which it relates, he may direct that the apportionment be made in another manner that appears fair and reasonable to him.
If it is during a year of assessment shown by a person that
- the goods or services for which the expenditure is incurred will never be received by or be rendered to him or her; or
- he or she will never become entitled to any other benefit for which the expenditure is incurred,
the expenditure will be deductible in that year, to the extent that the expenditure has actually been paid by him or her.