Also in the case of a company, when income is channeled into it solely for the utilization of the estimated loss. In South Africa (RSA) this relief extends beyond the year in which the assessed loss occurs. The assessed loss will continue indefinitely to be offset against income earned in the coming years, until the loss is fully utilized.
Circumstances/events that prevent a taxpayer from the utilisation of an assessed loss
The focus of this report remains on events and non-events that may jeopardize the use of an estimated loss incurred by a taxpayer. It is generally said that debtors and other compensation falling outside sections 11 to 19 'cannot create or increase an assessable loss'. It dictates that a person whose property is seized is not entitled to any assessed loss incurred prior to the seizure.
Aggregating of income and losses of different trades
Section 20(2A) of the Act allows him to carry forward his assessed loss to the years in which he had no income or any trading activities. For a person to carry forward and ascertain an assessed loss, section 20(1) of the Act requires the person to carry on a trade. However, section 20(2A)(a) of the Act allows an individual who has not carried on a business to determine his taxable income in terms of section 20(1) of the Act even though he has not carried on a trade.
Introduction
Section 103(2) provides that set-off of a previously assessed loss must be refused where the Secretary is satisfied on three essential grounds; (1) that there has been a change in the shareholding in the company; 2) that, as a direct or indirect result, the company in question has been received or has accrued during the assessment year, and 3) that the change in the shareholding has taken place solely or mainly with the aim of exploiting the company's assessed loss in order to evade the company's or liability of any other person to tax on such income'. (My underling). It was admitted on behalf of the company that the income was diverted to the taxpayer from associated companies (ie the CIR was of the view that the income was received as a direct result of a change in the shareholding of the company which occurred solely or mainly for the purpose of to utilize the assessed loss.
Introduction
Timberfellers (Pty) Ltd vs CIR 1994 NP
From the liquidation until the sale, the company was involved in the collection of the outstanding debts. The Special Court ruled that collecting debts in the taxpayer's case did not constitute 'the exercise of a profession'. He further claimed that the evidence showed that McCarthy had collected some of the debts himself.
He sharply distinguished the generality of the words "incurred by the taxpayer in any previous year" (sentence one) from the expression "that has been carried forward from the previous assessment year" (sentence two). The discount was achieved by using the total purchasing power of the taxpayer members. During 1996, however, the taxpayers did not exercise their normal business activity of recovering a portion of the discount for their own account.
They also received interest on the investment of a portion of the sale price (R placed with ABSA. Counsel for the taxpayers did not attempt to link the taxpayers' activities aimed at developing the new business with the interest -income It was submitted on behalf of the taxpayers that they carried on the trade of an investment company by investing the proceeds from the sale of businesses and drawing interest from them.
It has been settled that income in the form of interest from an investment under ordinary circumstances is not income arising from trading within the meaning of the Act.
Onus of proof
These considerations coupled with Cohen's inability to identify any purchasers of the equipment cast doubt on the credibility of Cohen's evidence. Finally, Cohen's evidence regarding travel and telephone expenses was vague and speculative. Eksteen JA, holding that the taxpayer had failed to prove the existence of business activities and commission profit, said that Venter was available to testify and would have helped clarify the inconsistencies as he was involved in the sale.
In addition, he knew SA Pneumatics and could verify the payment of the commission and confirm the decision taken. According to Silke (1997:84), the key lesson to be learned from the above is that liquidators, creditors and others should exercise caution in continuing to trade in order to preserve the estimated loss. The liquidation of assets (including shares) by the managers does not constitute a transaction.
Introduction
Is it the opening or closing balance of the estimated loss that needs to be reduced? The benefit mentioned in the law lies in the reduction or cancellation of the company's debts. In the event that a creditor waives a claim, the amount specified is the amount of the payment to the debtor.
But when the creditor accepts the debtor's equity instead, the value of the benefit to the debtor is not immediately apparent. The non-determination of the value of the benefit Wunsh P, in the Special Court, has postponed the appeal of the taxpayer. It is suggested that in the context of the part the plural does not include the singular.
For the application of the provision, the relevant obligations must have arisen in the context of normal commercial transactions. That the nature of the claims and the size of their nominal value are not changed by the subordination; And. If the obligation in respect of expenditure [incurred and resulting in an assessed loss in a previous tax year] remains intact, as in the case of subordination [of creditors' claims against the company], that would be the case.
However, Burt maintains that the total amount of claims settled is the amount of the benefit.
Introduction
In a recent court case, the court considered the taxpayer's intent, which is a subjective test. This aspect of the threshold ensures that the section 20A ring-fence is aimed exclusively at higher incomes. For example, many of the activities described will only be suspicious if they are carried out by the taxpayer or a relative.
The rental of accommodation is included, unless at least 80% of the accommodation is used by persons who are not relatives of the taxpayer for at least half of the assessment year. Holiday homes that are used by the taxpayer and not used by persons who are not relatives for at least half of the accounting year will also be suspect. iv). Leasing of vehicles, aircraft or boats by a taxpayer constitutes a suspicious activity unless at least 80% of the assets are used by persons who are not his relatives for at least half of the assessment year. v) The taxpayer's (or relatives) display of animals in competitions is suspicious and includes e.g. display of horses, dogs and cats. vi) The taxpayer's farming or animal husbandry, other than on a full-time basis, is suspect, for example, weekend or casual farming.
Since the trade in collectables is specifically identified as a suspicious trade, the trade in collectible cars will be a suspicious trade in the application of the provisions of section 20A(2)(b) to examples 1 and 2 in 4.3.2.1 (above here). from the 2005 year. Section 20A(3) is referred to as the escape hatch and provides an escape route that enables the taxpayer to avoid the enclosure of the assessed loss suffered through a legitimate trade. Section 20A(3)(b) states that must be taken into account. whether that trade is carried on in a commercial manner, having regard to—. i) the number of full-time employees employed for the purposes of that trade (except persons who are partially or wholly employed to provide services of a domestic or private nature);. ii) the commercial environment of the premises where the trade is carried on;. iii) the extent of the equipment used exclusively for the purposes of the operation; and. iv) the time the person spends at the premises carrying on that business'.
The explanatory note (under 28) provides details of the indicators: i) The number of full-time employees employed in the activity (as opposed to part-time help (as distinguished from employees limited to the high season), which may also involve family members ). The quantity and value of equipment used exclusively for the business (i.e. mixed-use properties, for example yachts, are excluded from qualifying as a favorable factor). IV). This ring-fenced treatment of the estimated loss of R12,000 will continue for all subsequent years after the 2005 assessment year.
CHAPTER SEVEN CONCLUSION
This report presented the conflicting views that exist on the issue of subrogation agreements and its impact on the balance sheet of an assessed loss. As noted by Bob Williams (above), the enactment of section 20A of the Act appears to target and harm individuals whose income is subject to tax at the maximum marginal tax rate. It is claimed that these are not the only ones who abuse the provisions of the Act in the way that Section 20A is supposed to prevent.
Although these individuals are not taxed at the top marginal rate, they contribute a significant percentage of their income as taxation. It is therefore discriminatory to prevent one group of individuals while others can continue the same abuses with impunity. Given the ever-changing tax laws, it is very possible that more provisions will be introduced that will limit taxpayers' use of an estimated loss.
Decided cases
