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No “halfway-house” for Government Grants

Tuesday, 04 October 2016   (0 Comments)
Posted by: Author: Esther van Schalkwyk
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Author: Esther van Schalkwyk (BDO SA)

In terms of a proposed amendment contained in the Draft Taxation Laws Amendment Bill of 2016 (‘Draft TLAB’), the taxation of government grants will likely change. National Treasury proposed a special inclusion in taxpayers’ “gross income” of “any amount received by or accrued to a person by way of a government grant as contemplated in section 12P”.

Due to the proposed inclusion of government grants in gross income, the question of whether a government grant is of a capital or revenue nature will likely become irrelevant. If the proposed amendment is enacted, all government grants, whether of a capital or revenue nature, should be included in a taxpayer’s gross income, except if they are specifically listed as exempt. Taxpayers who receive government grants are advised to take note of this significant change.

The Income Tax Act defines a “government grant” as “a grant-in-aid, subsidy or contribution by the government of the Republic in the national or provincial sphere”. The definition of government grant is very wide although the possibilities for exemption are limited. Government grants may be exempt from normal tax in the hands of the recipient only if that government grant is specifically listed in the Income Tax Act or published by the Minister in the Government Gazette.

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