(1) For the purposes of this section –
‘dependant’, in relation to a former employee, means a spouse or any dependant (as defined in section 1 of the Medical Schemes Act);
Category: CHAPTER II – The Taxes (ITA)
“Insurer” definition of section 12M of ITA
‘insurer’ means an insurer as defined in section 29A.
“Manufacturing asset” definition of section 12I of ITA
‘manufacturing asset’ means any building, plant or machinery acquired, contracted for or brought into use by a company, which –
(a) will mainly be used by that company in the Republic for the purposes of carrying on an industrial project of that company within the Republic; and
(b) will qualify for a deduction in terms of section 12C(1)(a), 13 or 13 quat;
and includes any improvement to such building, plant or machinery.
Section 12N (ITA) – Deductions in respect of improvements not owned by taxpayer
12N. Deductions in respect of improvements not owned by taxpayer
(1) If a taxpayer-
(a) holds a right of use or occupation of land or a building;
(b) effects an improvement on the land or to the building in terms of-
(i) a Public Private Partnership;
(ii) an agreement in terms of which the right of use or occupation is granted, if the land or building is owned by-
(aa) the government of the Republic in the national, provincial or local sphere; or
(bb) any entity of which the receipts and accruals are exempt from tax in terms of section 10(1)(cA) or (t); or
(iii) the Independent Power Producer Procurement Programme administered by the Department of Energy;
(c) incurs expenditure to effect the improvement contemplated in paragraph (b); and
(d) ……….
(e) uses or occupies the land or building for the production of income or derives income from the land or building,
the taxpayer must for purposes of any deduction contemplated in section 11D, 12B, 12BA, 12C, 12D, 12F, 12I, 12S, 13, 13ter, 13quat, 13quin, 13sex, or 36, and for the purposes of the Eighth Schedule, be deemed to be the owner of the improvement so completed.
[Subsection (1) amended by section 31(1)(d) of Act 22 of 2012, by section 40(1)(d) of Act 31 of 2013, by section 24(1) of Act 43 of 2014 and by section 30 of Act 23 of 2018. Para (e) amended by section 18(1) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of assets brought into use on or after that date]
(2)
(a) When the right of use or occupation terminates, the taxpayer must be deemed to have disposed of the improvement to the owner of the land or building on the later of the date when-
(i) the right of use or occupation terminated; or
(ii) the use or occupation ended.
(b) If the right of use or occupation terminates and the taxpayer-
(i) continues to use or occupy the land or building; or
(ii) renews the right of use or occupation,
the renewed right of use or occupation must be deemed to be the same right of use or occupation as the right of use or occupation previously held by the taxpayer.
(3) This section does not apply if the taxpayer-
(a) is a person carrying on any banking, financial services or insurance business; or
(b) enters into an agreement whereby the right of use or occupation of the land or building is granted to any other person, unless-
(i) the land or building is occupied by that other person and that other person is a company that is a member of the same group of companies as that taxpayer in terms of such an agreement;
(ii) the cost of maintaining the land or building and of carrying out repairs thereto required in consequence of normal wear and tear is borne by the taxpayer; and
(iii) subject to any claim that the taxpayer may have against the other person by reason of the other person’s failure to take proper care of the land or building, the risk of destruction or loss of or other disadvantage to the land or building is not assumed by that other person.
Section 12O (ITA) – Exemption in respect of films
12O. Exemption in respect of films
Section 13 (ITA) – Deductions in respect of buildings used in the process of manufacture
13. Deductions in respect of buildings used in a process of manufacture
(1) Notwithstanding anything to the contrary contained in paragraph (ii) of the proviso to section 11(e), there shall be allowed to be deducted from the income of the taxpayer an allowance equal to two per cent of the cost (after the deduction of any amount referred to in subsection (3) or (7) or the corresponding provisions of any previous Income Tax Act) to the taxpayer of –
(a) ……….
(b) any building the erection of which was commenced by the taxpayer on or after the fifteenth day of March, 1961, if such building was wholly or mainly used by the taxpayer during the year of assessment for the purpose of carrying on therein in the course of his trade (other than mining or farming) any process of manufacture, research and development or any other process which is of a similar nature, or such building was let by the taxpayer and was wholly or mainly used by a tenant or subtenant for the purpose of carrying on therein any process as aforesaid in the course of any trade (other than mining or farming); or;
[Paragraph (b) substituted by section 40 of Act 24 of 2011 and section 30 of Act 25 of 2015 effective on 8 January 2016]
(c) ………..
(d) any building the erection of which was commenced on or after the fifteenth day of March, 1961, if such building has been acquired by the taxpayer by purchase from any other person who was entitled to an allowance in respect thereof under paragraph (b) or this paragraph or the corresponding provisions of any previous Income Tax Act, and such building was wholly or mainly used during the year of assessment by the taxpayer for the purpose of carrying on therein in the course of his trade (other than mining or farming) a process of manufacture, research and development or any other process which is of a similar nature, or such building was let by the taxpayer and was wholly or mainly used by a tenant or subtenant for the purpose of carrying on therein in the course of any trade (other than mining or farming) any process as aforesaid; or
[Paragraph (d) substituted by section 40 of Act 24 of 2011 and section 30 of Act 25 of 2015 effective on 8 January 2016]
(dA) any building that has never been used, if such building has been acquired by the taxpayer by purchase from any other person and such building was wholly or mainly used during the year of assessment by the taxpayer for the purpose of carrying on therein in the course of his trade (other than mining or farming) a process of manufacture, research and development or any other process which is of a similar nature, or such building was let by the taxpayer and was wholly or mainly used by a tenant or subtenant for the purpose of carrying on therein in the course of any trade (other than mining or farming) any process as aforesaid; or
[Paragraph (dA) inserted by section 13 of Act 19 of 2001 and substituted by section 40 of Act 24 of 2011 and section 30 of Act 25 of 2015 effective on 8 January 2016]
(e) any improvements (other than repairs) to any building referred to in paragraph (a), (b), (c) or (d) which is during the year of assessment used as contemplated in that paragraph, if such improvements were commenced not later than the thirty–first day of March, 1971; or
(f) any improvements (other than repairs) to any building, if such improvements were commenced on or after the first day of April, 1971, and such building was wholly or mainly used by the taxpayer during the year of assessment for the purpose of carrying on therein in the course of his trade (other than mining or farming) any process of manufacture or any other process which is of a similar nature, or such building was let by the taxpayer and was wholly or mainly used by a tenant or subtenant for the purpose of carrying on therein any process as aforesaid in the course of any trade (other than mining or farming):
[Paragraph (f) substituted by section 37 of Act 15 of 2016 effective on 19 January 2017]
Provided that –
(a) no allowance shall be made under this subsection in respect of such portion of the cost of any building the erection of which was commenced on or after 1 July 1961, or any improvements effected thereto as has been taken into account in the calculation of any allowance to the taxpayer under section 11(g) whether in the current or any previous year of assessment;
(b) in the case of any such building the erection of which has or is commenced on or after 1 January 1989 and any such improvements which have or are commenced on or after that date, other than any building or improvements in respect of which the increased allowance contemplated in paragraph (c) of this proviso applies, the allowance under this subsection shall be increased to 5 per cent of the cost (after the deduction of any amount as provided in subsection (3)) to the taxpayer of such building or improvements; and
(c) ……….
(d) in the case of an improvement completed by a taxpayer as contemplated in section 12N, the expenditure incurred by the taxpayer to complete the improvement shall for the purposes of this section be deemed to be the cost to the taxpayer of any building or improvement contemplated in this subsection.
(1A) Where any building in respect of which any deduction of an allowance is claimed in terms of this section was during any previous financial year or years used by the taxpayer for the purposes of any trade carried on by such taxpayer, the receipts and accruals of which were not included in the income of such taxpayer during such year or years, any deduction which could have been allowed during such previous year or years in terms of this section shall for the purposes of this section be deemed to have been allowed during such previous year or years as if the receipts and accruals of such trade had been included in the income of such taxpayer.
(2) The aggregate of the allowances allowed under subsection (1) or the corresponding provisions of any previous Income Tax Act, or deemed to have been allowed in terms of subsection (1A), in respect of any building or improvements shall not exceed the cost (after the deduction of any amount referred to in subsection (3) or the corresponding provisions of any previous Income Tax Act) of such building or improvements, as the case may be, less the aggregate of any allowances made to the taxpayer in respect of such building or improvements, as the case may be, under subsection (7) or section 11(g) or the corresponding provisions of any previous Income Tax Act.
(3) If in any year of assessment there falls to be included in a taxpayer’s income in terms of paragraph (a) of section 8(4) an amount which has been recovered or recouped in respect of any allowance made under subsection (1) or the corresponding provisions of any previous Income Tax Act in respect of any building or improvements, such portion of the amount so recovered or recouped as is set off against the cost of a further building as hereinafter provided shall, notwithstanding the provisions of the said paragraph, at the option of the taxpayer and provided the taxpayer purchases or erects within twelve months or such further period as the Commissioner may allow from the date on which the event giving rise to the recovery or recoupment occurred, any other building to which the provisions of subsection (1) apply, not be included in the taxpayer’s income for that year of assessment, but shall be set off against so much of the cost to the taxpayer of that further building purchased or erected by the taxpayer as remains after the deduction of any portion of such cost in respect of which an allowance has been granted to the taxpayer under section 11(g), whether in the current or any previous year of assessment.
(4) ……….
(5) ……….
(6) ……….
(7) ……….
(8) The provisions of this section shall mutatis mutandis apply with reference to any permanent shipbuilding structure the erection of which was commenced by the taxpayer on or after the first day of January, 1966, and the cost of improvements (other than repairs) effected thereto if such structure was wholly or mainly used during the year of assessment for the purposes of the shipbuilding trade, and for the purposes of this subsection any reference in the said provisions to a building shall be construed as a reference to a shipbuilding structure and any reference therein to improvements to a building shall be construed as a reference to improvements to a shipbuilding structure.
Section 13sept (ITA) – Deduction in respect of sale of low-cost residential units on loan account
13sept. Deduction in respect of sale of low-cost residential units on loan account
(1) Subject to section 36, there must be allowed as a deduction from the income of the taxpayer, in respect of any year of assessment ending on or before 28 February 2022, an amount determined in terms of subsection (2) in respect of the disposal of any low-cost residential unit by the taxpayer to an employee of the taxpayer (or an associated institution as defined in the Seventh Schedule in relation to the taxpayer).
[Subsection (1) substituted by section 21 of Act 23 of 2020]
(2) The deduction contemplated in subsection (1) is an amount equal to 10 per cent of any amount owing to the taxpayer by the employee in respect of the unit at the end of the taxpayer s year of assessment: Provided that no such deduction shall be allowed in the eleventh and subsequent years of assessment after the disposal of that low-cost residential unit, as contemplated in subsection (1).
(3) No deduction is allowed in terms of this section in respect of any disposal by the taxpayer if-
(a) the disposal is subject to any condition other than a condition in terms of which the employee is required-
(i) on termination of employment; or
(ii) in the case of consistent failure for a period of three months on the part of the employee to pay an amount owing to the taxpayer (or an associated institution, as defined in the Seventh Schedule, in relation to the taxpayer) in respect of a low-cost residential unit,
to dispose of the low-cost residential unit to the taxpayer (or an associated institution, as defined in the Seventh Schedule, in relation to the taxpayer) for an amount equal to the actual cost (other than borrowing or finance costs) to the employee of the unit and the land on which the unit is erected;
(b) the employee must pay interest to the taxpayer in respect of the amount owing to the taxpayer by the employee in respect of the unit; or
(c) the disposal is for an amount that exceeds the actual cost (other than borrowing or finance costs) to the taxpayer of the unit and the land on which the unit is erected.
(4) If the amount owing contemplated in subsection (2) or any part thereof is paid to the taxpayer, the taxpayer is deemed to have recovered or recouped an amount equal to the lesser of-
(a) the amount so paid; or
(b) the amount allowed as a deduction in terms of this section in the current and any previous year of assessment.
“Assessed loss” definition of section 20 of ITA
(2) For the purposes of this section “assessed loss” means any amount by which the deductions admissible under section 11 exceeded the income in respect of which they are so admissible.
Section 15 (ITA) – Deductions from income derived from mining operations
15. Deductions from income derived from mining operations
There shall be allowed to be deducted from the income derived by the taxpayer from mining operations –
(a) an amount to be ascertained under the provisions of section 36, in lieu of the allowances in sections 11(e), (f), (gA), (gC), (o), 12B, 12BA, 12D, 12DA, 12F and 13quin;
[Paragraph (a) substituted by section 20 of Act 55 of 1966, by section 18 of Act 129 of 1991, by section 24 of Act 31 of 2005, by section 29 of Act 35 of 2007 and by section 22(1) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of assets brought into use on or after that date]
(b) any expenditure incurred by the taxpayer during the year of assessment on prospecting operations (including surveys, boreholes, trenches, pits and other prospecting work preliminary to the establishment of a mine) in respect of any area within the Republic together with any other expenditure which is incidental to such operations:
Provided that –
(i) except in the case of any person who derives income from mining for diamonds in the Republic, the Commissioner may determine that any expenditure referred to in this paragraph shall be deducted in a series of annual instalments, so that only a portion of such expenditure is deducted in the year of assessment in which it is incurred, and the residue in such subsequent years of assessment and in such proportions as the Commissioner may determine, until the expenditure is extinguished;
(ii) in the case of any company which derives income from different classes of mining operations, the deduction under this paragraph shall be made from the income derived from such class or classes of mining operations and in such proportions as the Commissioner may determine;
(iii) any expenditure which has been allowed to be deducted from the income of any person in terms of this paragraph shall not be included in such person’s capital expenditure as defined in subsection (11) of section 36.
Section 20A (ITA) – Ring-fencing of assessed losses of certain trades
20A. Ring-fencing of assessed losses of certain trades
(1) Subject to subsection (3), where the circumstances in subsection (2) apply during any year of assessment in respect of any trade carried on by a natural person, any assessed loss incurred during that year in carrying on that trade may not be set off against any income of that person derived during that year otherwise than from carrying on that trade, notwithstanding section 20(1)(b).
(2) Subsection (1) applies where the sum of the taxable income of a person for a year of assessment (determined without having regard to the other provisions of this section) and any assessed loss and balance of assessed loss which were set off in terms of section 20 in determining that taxable income, equals or exceeds the amount at which the maximum marginal rate of tax chargeable in respect of the taxable income of individuals becomes applicable, and where-
(a) that person has, during the five year period ending on the last day of that year of assessment, incurred an assessed loss in at least three years of assessment in carrying on the trade contemplated in subsection (1) (before taking into account any balance of assessed loss carried forward); or
(b) the trade contemplated in subsection (1), in respect of which the assessed loss was incurred constitutes-
(i) any sport practised by that person or any relative;
(ii) any dealing in collectibles by that person or any relative;
(iii) the rental of residential accommodation, unless at least 80 per cent of the residential accommodation is used by persons who are not relatives of that person for at least half of the year of assessment;
(iv) the rental of vehicles, aircraft or boats as defined in the Eighth Schedule, unless at least 80 per cent of the vehicles, aircraft or boats are used by persons who are not relatives of that person for at least half of the year of assessment;
(v) animal showing by that person or any relative;
(vi) farming or animal breeding, unless that person carries on farming, animal breeding or activities of a similar nature on a full-time basis;
(vii) any form of performing or creative arts practised by that person or any relative;
[Subparagraph (vii) amended by section 37 of Act 23 of 2018 effective on 17 January 2019]
(viii) any form of gambling or betting practised by that person or any relative; or
[Subparagraph (viii) amended by section 37 of Act 23 of 2018 effective on 17 January 2019]
(ix) the acquisition or disposal of any crypto asset.
[Subparagraph (ix) added by section 37 of Act 23 of 2018 and substituted by section 23 of Act 23 of 2020]
(3) The provisions of subsection (1) do not apply in respect of an assessed loss incurred by a person during any year of assessment from carrying on any trade contemplated in subsection (2)(a) or (b), where that trade constitutes a business in respect of which there is a reasonable prospect of deriving taxable income (other than taxable capital gain) within a reasonable period having special regard to-
(a) the proportion of the gross income derived from that trade in that year of assessment in relation to the amount of the allowable deductions incurred in carrying on that trade during that year;
(b) the level of activities carried on by that person or the amount of expenses incurred by that person in respect of advertising, promoting or selling in carrying on that trade;
(c) whether that trade is carried on in a commercial manner, taking into account-
(i) the number of full-time employees appointed for purposes of that trade (other than persons partly or wholly employed to provide services of a domestic or private nature);
(ii) the commercial setting of the premises where the trade is carried on;
(iii) the extent of the equipment used exclusively for purposes of carrying on that trade; and
(iv) the time that the person spends at the premises conducting that business;
(d) the number of years of assessment during which assessed losses were incurred in carrying on that trade in relation to the period from the date when that person commenced carrying on that trade and taking into account-
(i) any unexpected events giving rise to any of those assessed losses; and
(ii) the nature of the business involved;
(e) the business plans of that person and any changes thereto to ensure that taxable income is derived in future from carrying on that trade; and
(f) the extent to which any asset attributable to that trade is used, or is available for use, by that person or any relative of that person for recreational purposes or personal consumption.
(4) Subsection (3) does not apply in respect of a trade contemplated in subsection (2)(b) (other than farming) carried on by a person during any year of assessment where that person has, during the 10 year period ending on the last day of that year of assessment, incurred an assessed loss in at least six years of assessment in carrying on that trade (before taking into account any balance of assessed loss carried forward).
[Subsection (4) substituted by section 23 of Act 34 of 2019]
(5) Notwithstanding section 20(1)(a), any balance of assessed loss carried forward from the preceding year of assessment, which is attributable to an assessed loss in respect of which subsection (1) applied in that preceding year or any prior year of assessment, may not be set off against any income derived by that person otherwise than from carrying on the trade contemplated in subsection (1).
(6) For the purposes of this section and section 20, the income derived from any trade referred to in subsections (1) or (5), includes any amount-
(a) which is included in the income of that person in terms of section 8 in respect of an amount deducted in any year of assessment in carrying on that trade; or
(b) derived from the disposal after cessation of that trade of any assets used in carrying on that trade.
(7) Notwithstanding anything to the contrary contained in this Act, all farming activities carried on by a person shall be deemed to constitute a single trade carried on by that person for the purposes of this section.
(8) Where the provisions of subsection (2) apply during any year of assessment in respect of any trade carried on by a person, that person must indicate the nature of the business in his or her return contemplated in section 66 for that year of assessment.
(9) For the purposes of subsections (2)(a) and (4), any assessed loss incurred in any year of assessment ending on or before 29 February 2004 shall not be taken into account.