CHAPTER 4: OTHER ELEMENTS OF THE BROAD-BASED BLACK ECONOMIC EMPOWERMENT SCORECARD
4.9 Conclusion
In this chapter, the tax implications of transactions and structures entered into for the purposes of earning points for the elements other than the ownership element of the B-BBEE scorecard were discussed. These elements are management control, skills development, enterprise and supplier development, and socio-economic development. The income tax implications arising from a measured entity’s efforts to meet its B-BBEE goals are varied due to the broad range of activities in which a measured entity may engage. This chapter has analysed several specific provisions of the Act that may become applicable because of a measured entity’s efforts to achieve its B-BBEE goals.
A tax allowance may be claimed by measured entities who offer learnerships to its employees, including Black persons, in terms of section 12H of the Act. Such learnerships will contribute to the entity’s skills development goals of the B-BBEE scorecard. In terms of section 12H, an additional tax deduction in respect of learnership agreements is granted in the form of an annual allowance and a completion allowance in respect of each registered learnership agreement to which an employer is party with its employee. The annual and completion allowances contemplated in section 12H are determined with reference to the NQF qualification level of
the learner who is an employee, and the value of the tax allowance is increased where learnerships are provided to persons with a disability.
Employees who receive bursaries from their employers may qualify for an exemption in terms of section 10(1)(q) and section 10(1)(qA) of the Act. Section 10(1)(q) provides for the exemption of any bona fide scholarship or bursary granted to enable or assist any person to study at a recognized educational or research institution and section 10(1)(qA) provides for a similar exemption for a bona fide scholarship or bursary which enables or assists any person with a disability to study. In order to qualify for exemption, there are certain requirements outlined in section 10(1)(q) and section 10(1)(qA) that must be met and these include certain monetary thresholds. In addition, due to abuse of this exemption by taxpayers, section 10(1)(q) and section 10(1)(qA) were amended to prevent employers from implementing a “salary sacrifice” scheme, together with the provision of a scholarship or bursary to employees or relatives of employees.
Staff training may also contribute to a measured entity’s skills development goals. Staff training is more closely linked to the income-earning operations of an entity, as opposed to its income- earning structure, as staff training is unlikely to create a long-term source of profit for an entity.
Expenditure incurred on staff training, including expenditure for which B-BBEE points may be earned for the Skills Development element of the scorecard, will thus be deductible in terms of the general deduction formula in the hands of an employer who incurs such expenditure.
Investment in a VCC is one of the ways in which a measured entity may facilitate its enterprise and supplier development for the purposes of the B-BBEE scorecard. Section 12J of the Act was introduced as a tax incentive to encourage investment in qualifying companies through VCCs by allowing a full deduction of the cost of the investment in a VCC, provided that the requirements of section 12J are met. Section 12J also includes anti-avoidance provisions to prevent misuse or abuse of the allowance.
A measured entity may qualify for a deduction in terms of section 18A of the Act, or in terms of section 11(a), read with section 23(g) of the Act, in respect of contributions made for enterprise and supplier development as well as socio-economic development. Section 18A allows a deduction for donations made to the organisations listed in subsection (1), which
includes a public benefit organisation as contemplated in section 30. The deduction is limited and section 18A also sets out other requirements that must be met in order to qualify for a deduction. Where the requirements of section 18A are not met, socio-economic development contributions may fall within the ambit of the general deduction formula. Enterprise and supplier development contributions are more likely to be made in a business context and would be considered for deduction in terms of the general deduction formula. It was concluded that B-BBEE contributions would not be capital in nature and would be incurred in the production of income. This expenditure, which does not qualify for a section 18A deduction, would thus be deductible for income tax purposes in the hands of the measured entity.
The development of residential units, including low-cost residential units, may also contribute to a measured entity’s socio-economic development goals, and the Act offers tax allowances in respect of residential units. In terms of section 13sex, a taxpayer will qualify for an allowance in respect of any new and unused residential unit (including an improvement) owned by the taxpayer, provided such unit or improvement is used by the taxpayer solely for the purposes of a trade and provided all requirements of section 13sex are met. In terms of section 13sept, a taxpayer may claim a deduction upon the disposal of a low-cost residential unit to an employee of the taxpayer, again subject to certain requirements.
Lastly, legal, consulting and professional fees may be incurred in general for the purposes of any and all elements of the B-BBEE scorecard. All legal, professional and consulting fees incurred must be considered on a case-by-case basis with regard to the specific facts and circumstances that apply. Legal fees that qualify in terms of section 11(c) of the Act are deductible, provided they are not of a capital nature. Professional and consulting fees may qualify for deduction in terms of section 11(a) of the Act, again provided they are not of a capital nature.
The next chapter will provide a summary of the income tax implications arising from B-BBEE transactions and structures in respect of all elements of the B-BBEE scorecard.
CHAPTER 5: CONCLUSION