Nwanda Internal News
(June 2018)

DAYS

Awesome Awards were awarded to: 

  • Rafeeah Razak for stepping up as a senior and never missing a deadline
  • Shivendran Moodley for going the extra mile and a job well done
  • Matthias Krafft for always working hard and meeting deadlines
  • Mohammed Moolla for a good job on running his first file
  • Nothando Nkosi for stepping up and being a good leader to the team

New staff member:

A warm welcome to Roberto De Almeida, Neil Sewnarian, Natasha Fogarty, Sameer Ebrahim, Uzair Saith.

Farewell to staff member:

We bid farewell to Daniel Adlam, Saul Black and Dean Elson. We wish them the best of luck in their future endeavors.

Tax allowances against assets used for purposes of trade

The Income Tax Act[1] allows for various income tax allowances to be claimed in respect of moveable assets used for purposes of a taxpayer’s trade.

Most commonly, section 11(e) provides for a deduction equal to the amount by which the value of any machinery, plant, implements, utensils and articles have diminished by reason of wear and tear during the tax year. Typically, these assets must be owned by the taxpayer, or must be in the process of being acquired. Where an asset was acquired during the year, the allowance provided for in section 11(e) is proportionally reduced according to the period of use during the year.

There are however various other specific asset allowances which may rather regulate whether a wear and tear allowance is available for tax purposes, depending on the nature of the specific asset or which specific industry the taxpayer operates in. Should the relevant requirements for these provisions rather be applicable, the section 11(e) allowance will not apply.

For example, section 12B provides for an accelerated allowance (generally split over three years on a 50/30/20 ratio) for certain plant, equipment and machinery used for farming purposes, the production of renewable energy such as bio-diesel or bio-ethanol products or the generation of electricity from wind, sunlight, etc. Section 12C again provides for a tax allowance in respect of assets used for manufacturing, co-operatives, hotels, ships and aircraft. Section 12E allows for a 100% write off of the cost of plant and machinery brought into use by a “small business corporation” in certain circumstances. Other (maybe lesser known) tax allowances include section 12F (providing for an allowance for qualifying airport and port assets) and section 12I (an additional investment and training allowance in respect of industrial policy projects). There are also various provisions in the Income Tax Act providing specifically for an allowance against which the value of buildings owned by a taxpayer and used for purposes of trade can be written down for tax purposes.

It is important to note that each of these provisions has very specific requirements regarding the type of qualifying assets that could potentially qualify for the allowance. This includes whether or not the specific asset is new and unused and if any improvements to the qualifying assets may also be taken into account. Other important considerations include who the relevant taxpayer is, when the asset was brought into use by that taxpayer for the first time and the costs to be taken into account in calculating the relevant allowance.

The take away is that taxpayers must continuously evaluate their asset registers to confirm that all assets are correctly classified for income tax purposes and that the correct tax allowances are claimed in respect of these assets. The most important consideration of all though is to ensure that available allowances provided for in the Income Tax Act are utilised where appropriate to do so.

[1] No. 58 of 1962

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

How the VAT increase affects your business

Consumers and suppliers have by now had an opportunity to familiarise themselves with the increased Value-Added Tax (VAT) rate of 15% since 1 April 2018. There are however many technical considerations related to the increase that remain unclear. One such an uncertainty is with regards to deposits paid prior to the effective date of the increase, while goods and services are only rendered thereafter.

VAT vendors often require that consumers pay a deposit to secure the future delivery of goods or services (for example, an advance payment for the manufacture of goods, bookings in advance for holidays or accommodation etc.). The deposit paid by the consumer is then off-set against the full purchase price once they eventually receive the goods or services. The question arises what VAT rate the consumer will finally be subject to, where they paid a deposit before 1 April 2018, but the actual delivery of goods or services only takes place thereafter.

The answer to this question is found in the time of supply rules contained in section 9 of the Value-Added Tax Act.[1] In terms thereof, the “time of supply” of goods and services is at the time an invoice is issued by a supplier, or the time any payment of consideration is received by the supplier, whichever is the earlier. Two important concepts stem from this rule.

Firstly, an “invoice” needs to be issued by a supplier. In terms of section 1 of the VAT Act, an “invoice” is a document notifying someone of an obligation to make payment. It is therefore not necessary that a “tax invoice” – which has very specific requirements – needs to be issued. If consumers received only a “booking confirmation”, “acknowledgment of receipt” or similar document prior to 1 April 2018 that did not demand payment (such as tax invoice or pro-forma invoice), the time of supply was not triggered, and consumers will be subject to the 15% VAT rate once the goods or services are finally delivered after 1 April 2018.

Secondly, any deposit that was paid by the consumer, would have had to be applied as “consideration” for the supply of the goods or services to constitute “payment”. In this regard, consumers are largely dependent on how VAT vendors account for deposits in their financial systems. If deposits are accounted for separately (which is often the case with refundable deposits or where there are conditions attached to the supply) and only recognised as a supply when goods or services are received by the consumer, the deposit (although a transfer of money has occurred), would not constitute “payment”. For example, the time of supply may only be triggered once a guest has completed their stay at a guest house after 1 April 2018, resulting in VAT being levied at 15%.

The take away from the time of supply rules is therefore that payment of a deposit prior to 1 April 2018 does not necessarily result in a supply at 14% VAT and the rate to be applied is dependent on the specific facts of each case. Both consumers and VAT vendors should also take note that there are a number of rate specific rules that apply during the transition phase, and are encouraged to seek advice from a tax professional when they are in doubt about the rate to be applied.

[1] 89 of 1991 (the “VAT-Act”)

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Tax deductions against salary earnings

Our clients who earn only a salary will know that very few tax deductions are available against salary income for income tax purposes and whereby they may reduce the taxable income derived ultimately from such remunerations. Section 23(m) of the Income Tax Act[1] provides that none of the deductions ordinarily available to taxpayers in terms of section 11 are allowed against salary income, other than for a limited few. We set out these deductions which are available below:

  1. Contributions made by taxpayers to a pension fund, provident fund or retirement annuity fund may be deducted against salary income in accordance with the provisions of section 11F;
  2. To the extent that an individual incurs legal fees, wear and tear-related costs or bad or doubtful debts as part of his/her employment, such expenditure will be deductible.[2] (Although it is possible that a wear and tear-related allowance may be available against a laptop or textbooks acquired as example, it is in our experience practically highly unlikely for legal fees, bad debts and doubtful debts to arise from an employment trade);
  3. Where amounts received, either as a restraint of trade payment or as ordinary remuneration for employment services rendered, are refunded by the employee, those amounts refunded may be legitimately claimed as an income tax deduction;[3] and
  4. Expenses incurred towards rent of, cost of repairs[4] of or expenses in connection with any dwelling, house or domestic premises, those costs may be claimed as deductions, to the extent that it is incurred as part of the individual’s employment and on condition that it does not offend the provisions of section 23(b) which deal with “home office” expenses.

Other than for the above, very few other deductions are available for individual taxpayers earning only a salary. Outside the ambit of section 11, the only other deductions which we typically encounter are medical aid contributions incurred, amounts claimed against travel allowances received or donations made to qualifying public benefit organisations. Of late, investments in section 12J “venture capital companies” may also be claimed as income tax deductions against salary income.

The above limitations only apply to salaried income received from employment though. Where an individual is also engaged in another trade (such as the renting out of an apartment), the above limitations do not apply to that separate trade. In such case, section 23(m) will not make the deductions in section 11 unavailable, although this is only as relates to the separate (rental) trade.

[1] No. 58 of 1962.

[2] Sections 11(a), (c), (i) and (j) respectively.

[3] Sections 11(nA) and (nB) respectively.

[4] In terms of section 11(d).

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)