Author: admin_kmos

Section 22A (ITA) – Schemes of arrangement involving trading stock

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22A.    Schemes of arrangement involving trading stock

 

(1)     If, under any scheme of arrangement or reconstruction of any company or its affairs (including any scheme for the amalgamation of two or more companies and any other scheme) which is sanctioned by any order of court on or after the first day of April, 1971, any company (hereinafter referred to as the transferee company) has before 1 October 2001, acquired from any other company (hereinafter referred to as the transferor company) any asset which was trading stock of the transferor company, and in respect of such acquisition –

 

(a)     no consideration measurable in terms of money accrued from the transferee company to the transferor company; or


(b)     a consideration accrued from the transferee company to the transferor company the money value of which was less than the market value of such asset on the date on which the transferee company acquired such asset,


such asset shall for the purposes of this Act be deemed to be trading stock of the transferee company, and, where paragraph (a) is applicable –

 

(i)      the transferee company shall be deemed to have acquired such asset at a price equal to the cost price thereof to the transferor company; and


(ii)     notwithstanding the provisions of section 22(2), no deduction shall, in the determination of the taxable income of the transferor company for the year of assessment of that company during which the transferee company acquired such asset, be made in respect of the value of such asset as trading stock.

 

(2)     Any amount which is received by or accrues to the transferee company from the disposal of the said asset (or of any interest therein) shall be included in that company’s income, whether such amount is derived in carrying on any trade or otherwise or is derived from a source within or outside the Republic.

Section 22 (ITA) – Amounts to be taken into account in respect of values of trading stocks

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22.  Amounts to be taken into account in respect of values of trading stocks

(1)     The amount which shall, in the determination of the taxable income derived by any person during any year of assessment from carrying on any trade (other than farming), be taken into account in respect of the value of any trading stock held and not disposed of by him at the end of such year of assessment, shall be –

(a)     in the case of trading stock other than trading stock contemplated in paragraph (b), the cost price to such person of such trading stock, less such amount as the Commissioner may think just and reasonable as representing the amount by which the value of such trading stock, not being any financial instrument, has been diminished by reason of damage, deterioration, change of fashion, decrease in the market value or for any other reason satisfactory to the Commissioner: Provided that for the purposes of this subsection-

(i)       the amount of trading stock must be taken into account in determining taxable income by including such amount in gross income; and

(ii)      in determining any diminution in the value of trading stock, no account must be taken of the fact that the value of some items of trading stock held and not disposed of by the taxpayer may exceed their cost price; and

[Paragraph (a) substituted by section 39(1)(a) of Act 7 of 2010 and amended by section 24(1) of Act 34 of 2019 effective on 1 January, 2020 and applicable in respect of years of assessment commencing on or after that date]

(b)     in the case of any trading stock which consists of any instrument, interest rate agreement or option contract in respect of which a company has made an election which has taken effect as contemplated in section 24J(9), the market value of such trading stock as contemplated in such section.

(1A)  Where in respect of any year of assessment ending after the commencement date defined in section 1 of the Value–Added Tax Act any amount of sales tax referred to in section 23C(2) which was included in the cost price to the taxpayer of any trading stock is deemed by that section to have been recovered or recouped for the purposes of section 8(4)(a), the cost of such trading stock held and not disposed of by the taxpayer at the end of such year shall be deemed to have been reduced by the said amount.

(2)     The amount which shall in the determination of the taxable income derived by any person during any year of assessment from carrying on any trade (other than farming), be taken into account in respect of the value of any trading stock held and not disposed of by him at the beginning of any year of assessment, shall –

(a)     if such trading stock formed part of the trading stock of such person at the end of the immediately preceding year of assessment be the amount which was, in the determination of the taxable income of such person for such preceding year of assessment, taken into account in respect of the value of such trading stock at the end of such preceding year of assessment; or

 

(b)     if such trading stock did not form part of the trading stock of such person at the end of the immediately preceding year of assessment, be the cost price to such person of such trading stock.

(2A)

(a)     Where any person carries on any construction, building, engineering or other tradein the course of which improvements are effected by him to fixed property owned by any other person, any such improvements effected by him and any materials delivered by him to such fixed property which are no longer owned by him shall, until the contract under which such improvements are effected has been completed, be deemed for the purposes of this section to be trading stock held and not disposed of by him.

 

(b)     For the purposes of paragraph (a), a contract shall 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.

(3)

(a)     For the purposes of this section the cost price at any date of any trading stock in relation to any person shall –

 

(i)      subject to subparagraphs (iA) and (ii), be the cost incurred by such person, whether in the current or any previous year of assessment in acquiring such trading stock, plus any further costs incurred by such person, in terms of IFRS (in the case of a company), up to and including the said date in getting such trading stock into its then existing condition and location, but excluding any exchange difference as defined in section 24I(1) relating to the acquisition of such trading stock;

 [Subparagraph (i) substituted by section 36 of Act 60 of 2008 and section 32 of Act 43 of 2014 effective on 20 January 2015]

 

(iA)   include an amount that has been included in that person’s income in terms of section 8(5), which was applied in reduction or towards settlement of the purchase price of that trading stock;

 

(ii)     in the case of any trading stock which is in terms of paragraph 12(2)(c) of the Eighth Schedule treated as having been acquired at a cost equal to the market value, be that market value; or

 

(iii)    in the case of-

 

(aa)   a right in a controlled foreign company held directly by a resident, include an amount equal to the proportional amount of the net income (without having regard to the percentage adjustments contemplated in paragraph 10 of the Eighth Schedule) of that company and of any other controlled foreign company in which that controlled foreign company and that resident directly or indirectly have an interest, which was included in the income of that resident in terms of section 9D during any year of assessment, reduced by the amount of any foreign dividend distributed by that company to that resident during any year of assessment which was exempt from tax in terms of section 10B(2)(a) or (c); or

 

(bb)   a right in a controlled foreign company held directly by another controlled foreign company, include an amount equal to the proportional amount of the net income (without having regard to the percentage adjustments contemplated in paragraph 10 of the Eighth Schedule) of that first-mentioned controlled foreign company and of any other controlled foreign company in which both the first- and second-mentioned controlled foreign companies directly or indirectly have an interest, which during any year of assessment would have been included in the income of that second-mentioned controlled foreign company in terms of section 9D had it been a resident, reduced by the amount of any foreign dividend distributed by that first-mentioned controlled foreign company to the second-mentioned controlled foreign company if that dividend would have been exempt from tax in terms of section 10B(2)(a) or (c) had that second-mentioned controlled foreign company been a resident;

[Subparagraph (iii) inserted by section 36 of Act 60 of 2008, amended by section 45 of Act 24 of 2011, substituted by section 37 of Act 25 of 2015 effective on 8 January 2016]

(b)     ……….

[Paragraph (b) substituted by section 12 of Act 5 of 2001, deleted by section 32 of Act 43 of 2014 effective on 20 January 2015]

(3A)   For the purposes of this section the cost price of trading stock referred to in subsection (2A) shall be the sum of the cost to the taxpayer of material used by the taxpayer in effecting the relevant improvements, and such further costs incurred by the taxpayer as in accordance with IFRS are to be regarded as having been incurred directly in connection with the relevant contract, and such portion of any other costs incurred by the taxpayer in connection with the relevant contract and other contracts as in accordance with IFRS are to be regarded as having been incurred in connection with the relevant contract, less a deduction of so much of-

[Words preceding paragraph (a) substituted by section 33 of Act 17 of 2017 effective on 18 December 2017]

(a)     any income received by or accrued to the taxpayer in respect of the relevant contract;

 

(b)     any portion of an amount payable to the taxpayer under the relevant contract (but not exceeding 15 per cent of the total amount payable to him under such contract) the payment of which has been withheld as a retention; and

 

(c)     any of the said costs included under this subsection as exceed that portion of the contract price which relates to the improvements actually effected by him,

 

as does not exceed the said sum.

(4)     If any trading stock has been acquired by any person for no consideration or for a consideration which is not measurable in terms of money, other than a government grant in kind, such person shall for the purposes of subsection (3), unless subsection (3)(a)(iA) applies, be deemed to have acquired such trading stock at a cost equal to the current market price of such trading stock on the date on which it was acquired by such person.

[Subsection (4) amended by section 14 of Act 90 of 1964, section 23 of Act 85 of 1974 and section 17 of Act 113 of 1993 and substituted by section 36 of Act 60 of 2008, section 36 of Act 60 of 2008 and section 33 of Act 17 of 2017 effective on 18 December 2017]

(4A)  For the purposes of subsection (4), where –

(a)     any security has been lent by a lender to a borrower in terms of a securities lending arrangement, such security shall be deemed not to have been acquired by such borrower; or

 

(b)     another security that is an identical security has been returned by such borrower to such lender, such other security shall be deemed not to have been acquired by such lender.

[Paragraph (b) substituted by section 37 of Act 45 of 2003 and section 37 of Act 25 of 2015 effective on 1 January 2016]

 

(4B)  For the purposes of subsection (4), where-

(a)     any share has been transferred by a transferor to a transferee in terms of a collateral arrangement, that share shall be deemed not to have been acquired by that transferee; or

 

(b)     a share that is an identical share to the share contemplated in paragraph (a) has been returned by that transferee to that transferor in terms of that collateral arrangement, the share so returned shall be deemed not to have been acquired by that transferor.

[Subsection (4B) inserted by section 37 of Act 25 of 2015 effective on 1 January 2016]

(5)     No person may for the purpose of determining the cost price of any trading stock, adopt the basis of trading stock valuation whereunder the last item of any class of trading stock acquired by him on any date is deemed to be the first item of that class of trading stock disposed of by him on or after that date.

(5A)  ……….

[Subsection (5A) inserted by section 1 of Act 168 of 1993, amended by section 27 of Act 30 of 2000 and deleted by section 37 of Act 25 of 2015 effective on 8 January 2016]

(6)     Any reference in this section to the beginning or end of a year of assessment includes-

(a)     where the period assessed is less than twelve months, a reference to the beginning or end, as the case may be, of the period assessed;

 

(b)     where accounts are accepted under section 66(13A) or (13C) to a date agreed to by the Commissioner, a reference to the beginning or end, as the case may be, of the period covered by the accounts.

(7)    ……….

(8)     If during any year of assessment –

(a)     any taxpayer has applied trading stock to his private or domestic use or consumption; or

 

(b)     any –

 

(i)      taxpayer has applied trading stock for the purpose of making any donation thereof;

 

(ii)     taxpayer has disposed of trading stock, other than in the ordinary course of his or her trade for a consideration less than the market value thereof;

[Subparagraph (ii) substituted by section 37 of Act 25 of 2015 and section 40 of Act 15 of 2016 effective on 1 January 2016, applies in respect of any person who dies on or after that date]

 

(iii)    trading stock of any company has on or after 21 June 1993 been distributed in specie to any holder of shares in that company;

 

(iv)    taxpayer has applied any trading stock for any other purpose other than the disposal thereof in the ordinary course of his trade and under circumstances other than those contemplated in paragraph (a) or subparagraph (i), (ii) or (iii) of this paragraph; or

(v)     assets which were held as trading stock by any taxpayer cease to be held as trading stock by such taxpayer,

and the cost price of such trading stock has been taken into account in the determination of the taxable income of the taxpayer for any year of assessment, the taxpayer shall be deemed to have recovered or recouped –

 

(A)    where such trading stock has been applied in a manner contemplated in paragraph (a), an amount equal to the cost price to him of such trading stock (less any sum which has been deducted therefrom under the provisions of subsection (1)) or where the cost price cannot be readily determined, the market value of such trading stock; or

 

(B)     where such trading stock has been applied, disposed of or distributed in a manner contemplated in paragraph (b) (otherwise than in the manner contemplated in paragraph (C)) or ceases to be held as trading stock, an amount equal to the market value of such trading stock; or

and such amount shall be included in the income of the taxpayer for the year of assessment during which such trading stock was so applied, disposed of, distributed or ceased to be held as trading stock: Provided that where –

 

(a)     an asset consisting of trading stock so applied is used or consumed by the taxpayer in carrying on his trade, the amount included in his income under this subsection shall for the purposes of this Act be deemed to be expenditure incurred in respect of the acquisition by him of such asset;

 

(b)     the provisions of paragraph (b) (ii) apply and any consideration contemplated in that paragraph has been received by or accrued to the taxpayer, the amount included in his income in terms of this subsection shall be reduced by such consideration;

 

(c)     such trading stock consists of livestock or produce in respect of which the provisions of paragraph 11 of the First Schedule are applicable, the provisions of this subsection shall not apply; or

 

(d)     such trading stock consists of assets in respect of which any amount received or accrued from the disposal thereof is or will be included in the gross income of the taxpayer in terms of paragraph (iA) of the definition of “gross income”, the provisions of paragraph (b)(iv) shall not apply.

(C)     where such trading stock has been applied for the purpose of making a donation in respect of which the provisions of section 18A apply, an amount equal to the amount which was taken into account for that year of assessment in respect of the value of that trading stock

(9)     Where –

(a)

(i)      the trading stock of any person during any year of assessment includes any-

(aa)   security or any bond issued by the government of the Republic in the national or local sphere; or

(bb)   bond issued by any sphere of government of any country other than the Republic,

if that bond is listed on a recognised exchange as defined in paragraph 1 of the Eighth Schedule;

[Subparagraph (i) substituted by section 33 of Act 17 of 2017 effective on 1 January 2018 and applies in respect of collateral arrangements and lending arrangements entered into on or after that date]

(ii)     such person has, during such year of assessment, lent such security or such bond to a borrower in terms of a securities lending arrangement; and

(iii)    a security or a bond that is an identical security or such same bond has not been returned by the borrower to such person at the end of such year of assessment,

such security or such bond shall, for the purposes of this section, be deemed to be trading stock held and not disposed of by such person at the end of such year of assessment;

[Paragraph (a) amended by section 37 of Act 25 of 2015, substituted by section 40 of Act 15 of 2016 effective on 1 January 2017, applies in respect of any collateral arrangement entered into on or after that date]

(b)

(i)      the trading stock of any other person during any year of assessment includes any-

(aa)   security or any bond issued by the government of the Republic in the national or local sphere; or

(bb)   bond issued by any sphere of government of any country other than the Republic,

if that bond is listed on a recognised exchange as defined in paragraph 1 of the Eighth Schedule;

[Subparagraph (i) substituted by section 33 of Act 17 of 2017 effective on 1 January 2018 and applies in respect of collateral arrangements and lending arrangements entered into on or after that date]

(ii)     such other person has, during such year of assessment, borrowed such security or such bond from a lender in terms of a securities lending arrangement; and

(iii)    a security that is an identical security or that same bond has not been returned by such other person to such lender at the end of such year of assessment,

such security or such bond shall, for the purposes of this section, be deemed not to be trading stock held and not disposed of, by such other person at the end of such year of assessment; or

[Paragraph (b) amended by section 37 of Act 25 of 2015, substituted by section 40 of Act 15 of 2016 effective on1 January 2017, applies in respect of any collateral arrangement entered into on or after that date]

(c)

(i)      the trading stock of any person during any year of assessment includes any-

(aa)   share or any bond issued by the government of the Republic in the national or local sphere; or

(bb)   bond issued by any sphere of government of any country other than the Republic,

if that bond is listed on a recognised exchange as defined in paragraph 1 of the Eighth Schedule;

[Subparagraph (i) substituted by section 33 of Act 17 of 2017 effective on 1 January 2018 and applies in respect of collateral arrangements and lending arrangements entered into on or after that date]

(ii)     that person has, during that year of assessment, transferred that share or that bond to a transferee in terms of a collateral arrangement; and

(iii)    a share that is an identical share to the share contemplated in subparagraph (ii) or that same bond has not been returned by the transferee to that person at the end of that year of assessment,

such share or such bond shall, for the purposes of this section, be deemed to be trading stock held and not disposed of by that person at the end of that year of assessment; or

[Paragraph (c) added by section 37 of Act 25 of 2015 and substituted by section 40 of Act 15 of 2016 effective on 1 January 2017, applies in respect of any collateral arrangement entered into on or after that date]

(d)

(i)      the trading stock of any transferee during any year of assessment includes any-

(aa)   share or any bond issued by the government of the Republic in the national or local sphere; or

(bb)   bond issued by any sphere of government of any country other than the Republic,

if that bond is listed on a recognised exchange as defined in paragraph 1 of the Eighth Schedule;

[Subparagraph (i) substituted by section 33 of Act 17 of 2017 effective on 1 January 2018 and applies in respect of collateral arrangements and lending arrangements entered into on or after that date]

(ii)     that transferee has, during such year of assessment, acquired such share or such bond from a transferor in terms of a collateral arrangement; and

(iii)    a share that is an identical share to the share contemplated in subparagraph (ii) or that same bond has not been returned by such transferee to such transferor at the end of such year of assessment,

such share or such bond shall, for the purposes of this section, be deemed not to be trading stock held and not disposed of, by such transferee at the end of such year of assessment.

[Paragraph (d) added by section 37 of Act 25 of 2015, substituted by section 40 of Act 15 of 2016 effective on 1 January 2017, applies in respect of any collateral arrangement entered into on or after that date]

Section 21 (ITA) – Deduction of alimony, allowance or maintenance

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21.    Deduction of alimony, allowance or maintenance

 

The taxpayer shall have his taxable income reduced by so much of any amount payable by him to or on behalf of his spouse or former spouse under any order of divorce or judicial separation granted in consequence of proceedings instituted not later than the twenty–first day of March, 1962, or under any written agreement of separation entered into not later than that date, by way of alimony or allowance or maintenance of his spouse or former spouse and any children, as the Commissioner is satisfied has been or will in respect of the year or period of assessment in question be paid out of the taxable income of the taxpayer: Provided that for the purposes of this section any order of divorce or judicial separation (hereinafter referred to as the subsequent order) which in effect supersedes any such first–mentioned order of judicial separation or written agreement of separation and does not vary the amount of alimony, allowance or maintenance payable thereunder, shall not affect the rights which any person may have under this section, and in the case of any such person and the spouse or former spouse of such person the subsequent order shall, for the purposes of this section and the provisions of section 10(1)(u), be deemed to have been granted in consequence of proceedings instituted on or before the said date.

Subsections 2, 2A and 3 of section 20C of ITA

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(2)     Where a headquarter company has during any year of assessment incurred any interest in respect of any financial assistance granted to that headquarter company by a person-

 

(a)     that is not a resident; and

 

(b)     if that person is a company, that directly or indirectly (and whether alone or together with any other company forming part of the same group of companies as that person) holds at least 10 per cent of the equity shares and voting rights in that headquarter company,

 

the amount of that interest in respect of which a deduction is allowable to that headquarter company in that year of assessment is limited to so much of the amount of interest received by or accrued to the headquarter company as relates to any portion of that financial assistance that is directly applied as financial assistance to any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights.

 

(2A)   Where a headquarter company has during any year of assessment incurred any amount that constitutes a royalty payable to a person-

 

(a)     that is not a resident; and

 

(b)     if that person is a company, that directly or indirectly (and whether alone or together with any other company forming part of the same group of companies as that person) holds at least 10 per cent of the equity shares and voting rights in that headquarter company,

 

the amount of that royalty in respect of which a deduction is allowable to that headquarter company in that year of assessment is limited to so much of any amounts received by or accrued to the headquarter company in respect of-

 

(i)      the use or right of use of or permission to use any intellectual property as defined in section 23I; or

 

(ii)     the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information, or the rendering of or the undertaking to render, any assistance or service in connection with the application or utilisation of such knowledge or information,

 

from any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights.

 

(3)     Any amount that is disallowed as a deduction in any year of assessment of a headquarter company in terms of subsection (2) or (2A) must-

   

(a)     be carried forward to the immediately succeeding year of assessment of the headquarter company; and

  

(b)     where that amount is disallowed as a deduction-

 

(i)      in terms of subsection (2), be deemed to be an amount of interest actually incurred by the headquarter company during that succeeding year in respect of financial assistance granted to that headquarter company by a person that is not a resident; or

 

(ii)     in terms of subsection (2A), be deemed to be an amount actually incurred by the headquarter company during that succeeding year that constitutes a royalty payable to a person that is not a resident.

Section 23F (ITA) – Acquisition or disposal of trading stock

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23F.     Acquisition or disposal of trading stock

 

(1)     Where any taxpayer has during any year of assessment incurred expenditure for the acquisition of trading stock which was neither disposed of by him during such year nor held by him at the end of such year, any deduction which may be allowed to him under the provisions of section 11(a) in respect of such expenditure shall not be allowed in such year, but such expenditure shall for the purposes of such provisions be deemed to have been incurred by him in the first subsequent year of assessment in which –

 

(a)     such trading stock is disposed of by him;

 

(b)     the value of such trading stock falls to be included in his income under the provisions of section 22(1); or

 

(c)     it is shown by him that by reason of the loss or destruction of such trading stock or the termination of the agreement in terms of which such trading stock was acquired by him or for any other reason, such trading stock will neither be disposed of nor held by him, to the extent that such expenditure was actually paid.

 

(2)     Where a taxpayer has during any year of assessment disposed of any trading stock in the ordinary course of his or her trade for any consideration the full amount of which will not accrue to him or her during that year of assessment and any expenditure incurred in respect of the acquisition of that trading stock was allowed as a deduction under the provisions of section 11(a) during that year or any previous year of assessment, any amount which would otherwise be deducted must, to the extent that it exceeds any amount received or accrued from the disposal of that trading stock be disregarded during that year of assessment.

 

(2A)  So much of any amount disregarded in terms of subsection (2) may be deducted from the income of that person in any subsequent year of assessment to the extent that any amount which is received by or accrued to that person in that subsequent year from that disposal is included in the income of that person,

 

(2B)   If during any year of assessment a person contemplated in subsection (2) proves that no further amounts will accrue to him or her in that year and any subsequent year as contemplated in subsection (2A), so much of the amount which was disregarded in terms of subsection (2) as has not been allowed as a deduction in any year, must be allowed as a deduction from thejncome of that person in that year of assessment.

  

(3)     Where –

 

(a)     any taxpayer has during any year of assessment in the ordinary course of his trade disposed of any right or interest in any asset which constitutes trading stock which has the effect that the remaining right or interest in such asset held and not disposed of will not be included in trading stock at the end of such year; and

 

(b)     any expenditure incurred in respect of the acquisition of such asset was allowed as a deduction under the provisions of section 11(a) or was otherwise taken into account during such year or any previous year of assessment,

 

there shall be deemed to have been recovered or recouped by such taxpayer and be included in the income of such taxpayer for such year of assessment, so much of such expenditure as relates to the remaining right or interest contemplated in paragraph (a).

Section 23D (ITA) – Limitation of allowances granted in respect of certain assets

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23D.    Limitation of allowances granted in respect of certain assets

 

(1)     ……….

 

(2)     Where any depreciable asset which is let or licensed by a taxpayer to a lessee or licensee was held within a period of two years preceding the commencement of the lease or licence-

 

(a)     by the lessee or licensee, or by any sublessee or sublicensee in relation to the asset; or


(b)     by a person who was at any time during that period a connected person in relation to the lessee, licensee, sublessee or sublicense,


the cost or value of the depreciable asset for the purpose of this section and any deduction or allowance claimed by the taxpayer in respect of the asset shall not exceed the amount determined in accordance with subsection (2A).

 

(2A)  The amount to be determined for purposes of subsection (2) is the sum of-

 

(a)     the cost of the asset to the most recent lessee, licensee, sublessee, sublicensee or connected person contemplated in subsection (2) that previously held that asset, less the sum of-


(i)      all deductions which have been allowed to the lessee, licensee, sublessee, sublicensee or connected person in respect of the asset; and


(ii)     all deductions that are deemed to have been allowed to the lessee, licensee, sublessee, sublicensee or connected person in respect of the asset in terms of section 11(e)(ix), 12B(4B), 12C(4A), 12D(3A), 12DA(4), 12F(3A), 13(1A), 13bis(3A), 13ter(6A), 13quin(3) or 37B(4);


(b)     any amount contemplated in paragraph (n) of the definition of ‘gross income’ in section 1 that is required to be included in the income of the lessee, licensee, sublessee, sublicensee or connected person that arises as a result of the disposal of the asset; and

 

(c)     the applicable percentage in paragraph 10 of the Eighth Schedule, of the capital gain of the lessee, licensee, sublessee, sublicensee or connected person that arises as a result of the disposal.

Section 23C (ITA) – Reduction of cost or market value of certain assets

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23C.    Reduction of cost or market value of certain assets

(1)     Notwithstanding the Seventh Schedule, where regard is to be had to the cost to the taxpayer or the market value of any asset acquired by him or her or to the amount of any expenditure incurred by him or her, and—

(a)     the taxpayer is a vendor as defined in section 1 of the Value–Added Tax Act; and

(b)     the taxpayer is or was in any previous year of assessment entitled under section 16(3) of the last–mentioned Act to a deduction of input tax as defined in section 1 of that Act,

the amount of such input tax shall be excluded from the cost or the market value of such asset or the amount of such expenditure: Provided that in the case of any lease as contemplated in paragraph (b) of the definition of “instalment credit agreement” in section 1 of that Act, there shall be excluded by the lessee from each rental payment made by him in respect of such lease, an amount which bears to such input tax the same ratio as such rental payment bears to the sum of all rental payments in connection with such lease.

[Sub­section (1) substituted by section 21(1) of Act 141 of 1992 and amended by section 33(1)(b) and (c) of Act 60 of 2001 and by section 26 of Act 34 of 2019]

(2)     Where a taxpayer (being a vendor as defined in section 1 of the Value-Added Tax Act) has in respect of any tax period applicable to the vendor under that Act which has ended during the vendor’s year of assessment, included in input tax deducted by the vendor under section 16(3) of that Act an amount of sales tax, as permitted by section 78 of that Act so to be included-

(a)     that amount shall, if it was included in capital expenditure taken into account for the purposes of any deduction in respect of any mine under section 15(a) of this Act, be deemed for the purposes of paragraph (j) of the definition of “gross income” in section 1 of this Act to be an amount received by or accrued to the taxpayer during the said year of assessment in respect of a disposal of assets referred to in the said paragraph; or

(b)     that amount (not being an amount accounted for under paragraph (a)), shall for the purposes of section 8(4)(a) of this Act be deemed to be an amount which has been recovered or recouped by the taxpayer during the said year of assessment.