5.4 Additional incentives for SBCs announced in the
or gain you make on such a disposal must be used to buy a new moveable asset, which in turn can be depreciated, providing you with further tax relief in that the profit or gain is not taxed.
Losses incurred on the sale of depreciable business assets are now deductible.
Currently you can only claim these losses where the business asset is scrapped (scrapping allowance), while in any other case the loss incurred will be of a capital nature, making it non-deductible from your income. It is proposed to delete the scrapping provisions and allow for losses incurred from the sale of devalued depreciable business assets with short useful lives. Thus, it is no longer necessary an asset first becomes 'obsolete' or you scrap the asset before becoming entitled to any loss incurred.
5.4.1 Allowances and advances to employees and office-holders (e.g. directors).
It is important for employers to be aware of the following amendments for purposes of ensuring that the correct "pay as you earn" ("PAYE") is deducted from their employees' salaries. Previously, entertainment allowances were excluded from an employee's gross income. Since the 2002 amendments, entertainment allowances must be included in an employee's gross income, except where the employee can prove that the amount received is reimbursive in nature and was bona fide for the purposes of entertaining clients on behalf of his or her employer.
5.4.2 Subsistence allowances
In terms of the amendments, certain amounts are deemed to be actually expended by an employee or the holder of an office ("the recipient") in respect of expenses incurred or to be incurred on accommodation, meals or incidental costs while, by reason of his/her duties of office or employment, he/she is obliged to spend at least one night away from his/her usual place of residence in the Republic. The amendments further permit an employer to grant to an employee, in addition to a salary, a fixed allowance of R3 600, (three thousand six hundred rand) per year to meet expenses incurred while travelling on business. Should it turn out that, for example, only R2 400 (two thousand four hundred rand) was actually laid out by the employee to meet the expenditure, the employee will suffer an inclusion of R1 200 (one thousand two hundred rand) (R3 600 (three thousand six hundred rand) less R2 400 (two thousand four hundred rand)) in his or her taxable income. The full subsistence allowance must be reflected on the employee's tax certificate.
5.4.3 Bursary - exempt from gross income
Section 10(1)(q) of the ITA exempts from normal tax any bona fide bursaries and scholarships granted to enable a person to study at a recognised educational or research institution. Special rules apply to awards granted by employers to employees or their relatives. A bursary or scholarship granted was not exempt if the remuneration derived by the relevant employee during a relevant year of assessment exceeded R50 000 (fifty thousand rand). In terms of the amendment, this amount
has been increased to R60 000 (sixty thousand rand). Another circumstance restricting the exemption for a bursary is where the award exceeded R1 600 (one thousand six hundred rand) during the year of assessment. In terms of the amendment the amount has been increased from R1 600 (one thousand six hundred rand) to R2 000 (two thousand rand) per year.
5.4.4 Intellectual Property Deduction
Section 11 (gA) of the ITA allows as a deduction from income, any expense incurred on the development or acquisition of certain incorporeal properties, such as expenses incurred in devising or developing an invention, a design, a trade mark, copyright, or property of similar nature. The amendment introduced increases the limit of the deduction of such expense from R3 000 (three thousand rand) to R5 000 (five thousand rand).
5.4.5 Learnership Agreements
A new section 12H of the ITA was introduced by the TLAA, which permits a deduction by an employer of a so-called "Learnership allowance" from income derived during any year of assessment. The deduction is available when, during a year of assessment, an employer or an associated institution, in the course of any trade carried on by him or her, enters into a registered learnership agreement with a learner, or a learner completes a registered learnership agreement entered into between the employer and the learner during the same
year or any previous year, in the course of any trade carried on by the employer.
5.4.6 Secondary Tax on Companies (STC)
The amendment to section 64B(5)(c) of the ITA exempts a company from STC on capital profits distributed in the course of or in anticipation of the liquidation, winding-up or deregistration of the company. In order to qualify, a company must, within a period of 6 (six) months, take certain steps as may be prescribed by the Minister of Finance by regulation to liquidate, wind up or deregister itself. It expressly states in the amendment, however, that where a dividend is distributed in these circumstances and the company has not within 6 (six) months after the date on which the dividend was distributed taken steps prescribed by the Minister of Finance to liquidate, wind up or deregister, the exemption will not apply.
5.4.7 South African Revenue Service Amendment Act 46 of 2002
Expansion of SARS's objectives
Section 2 of the Act expands the objectives of the South African Revenue Service (hereafter "SARS") to include "control over the import, export, manufacture, movement, storage, or use of certain goods".
This extension of the objectives of SARS may have an impact on
manufacture, movement, storage, or use of certain goods. Any changes to the controlling function of SARS in relation to these sectors should be carefully monitored by SMMEs engaging in business in these sectors.
5.4.8. Revenue Laws Amendment Act 74 of 2002
Transfer Duty
Insofar as SMMEs are involved in purchasing property held in a trust, company or closed corporation after 13 December 2002, section 2 of the Act will apply to the transaction and the SMME will not be able to avoid paying transfer duty on the acquisition of such property.
5.4.9 Disposal of Active Business Assets
The Eighth Schedule of the ITA paragraph 57 was introduced as a concession granted, subject to certain limitations, to small business persons who, on their retirement, dispose of "active business assets".
The requirements are that the active business assets are used wholly and exclusively for business purposes.
This restriction precludes small business persons from enjoying any concessions in respect of immovable property used for business purposes on which that person resides. The amendment has relaxed this limitation in that any gain on property used partly for business and partly as residential purposes will, to the extent that that person uses the property for business, now qualify for the concession.
5.4.10 The impact of the 2003 Budget on SMMEs
• A double deduction has been proposed for the first R20 000,00 (twenty thousand rand) of costs incurred in the start-up of new businesses;
• The turnover limit of small businesses will be raised from R3 000 000,00 (three million rand) to R5 000 000,00 (five million rand);
• Small businesses will be subject to a 15% (fifteen percent) tax rate for the first R150 000,00 (one hundred and fifty thousand rand) of taxable income;
• Small businesses will be eligible for accelerated tax depreciation benefits;
• The tax law governing the deductibility of start-up expenses, including pre-production interest, will be amended to create a unified statutory regime. Start-up expenses generally will be allowed if incurred during a set period before business operations begin. These start-up expenses will further be ring- fenced against future income from the businesses in which they arise;
• Changes will be made to the tax treatment of pre-incorporation expenses as VAT input credits during the start-up period;
• Tax relief will be provided where business asset sale proceeds are reinvested within 18 (eighteen) months;
• An accelerated 4 (four) year write-off period will be provided for capital expenditure relating to research and development in the field of natural and applied science;
• A 20% (twenty percent) straight-line depreciation allowance will be provided over a 5 (five) year period for taxpayers engaged in refurbishing buildings within designated zones, and a 20%
(twenty percent) write-off in the first year and a further 5% (five percent) a year for a further 16 (sixteen) years will be provided to taxpayers that engage in the construction of new buildings within a designated zone;
• The ad valorem excise duty on computer equipment will be abolished from 1 April 2003 in order to encourage technological advancement and improved competitiveness;
• The Siyaka administrative reforms that were implemented in KwaZulu-Natal in 2002 will be extended to the Western Cape and Gauteng .
• Given that the deductibility of start-up expenses affects the liquidity of small businesses.Government has taken the view that small businesses should not generate taxable income until their costs have been recovered.