chapter 12: special deductions

why they exist

section 11(a) is the general deduction formula but there are specific types of expenditure that either don’t fit or government want to govern more precisely

company tax format

Start with accounting profit before tax

make adjustments in any order

section 18A donation-2nd last

Section 20 Assessed loss- final adjustment

end with: taxable income

restraint of trade payments- S11(cA)

when an employer pays employee to not compete, employee is taxed on receipt of the gross income

the employer gets a deduction spread over time

employer deducts the lessor of payment/number of years of restraint or payment/3 years

employer contribution to retirement funds- S11(l)

all contributions by an employer to an approved SA retirement funds and deductible with no cap but their is a cap for the employees contributions

Annuities to former employees- S11(m)

where an employer pays an annuity to a former employee it is deductible in full in the year they paid but only if retirement due to old age, illness or infirmity

Limitation is that it S11(m) only applies to annuities only

variable remuneration- S7B

includes bonuses, commisions and OT- it is included in employees gross income and only deductible by employer when paid

Learnership agreement- S12H

provides employees with additional deductions over and above normal salary deduction, designed to incentivise the registration of learnership agreements

deduction is claimed every year the employee is a party to the learnership agreement

legal expenses- S11©

requirements: legal expense actually incurred in YoA, incurred as a result of or due to ordinary operations, not of capital nature- case must not be protecting capital asset

provisos: legal fees must not be of capital nature, legal fees must not be recoverable, amount must constitute income in the taxpayers hands

repairs- S11(f)

requirements: expenditure incurred during YoA, incurred for the restoration of property that is occupied for the purpose of trade or in respect of which income will be receiveable, not an improvement

Bad debts- S11(i)

requirements: debt due to taxpayer-enforceable claim, became bad during YoA and previously included in gross income

doubtful debts-S11(j)

debts have not yet become bad yet but their is reasonable basis to believe it may not be recovered.

60-119 days in arrers then it is 25% deductible

120-149 is 40%

150+ is 40% if not yet bad

repayments of employee benefits- S11(nA)

employee repays previously included in taxable income- where an employee repays an amount that was previously included in their taxable income(bursary), the employee gets a deduction in the year of repayment

employees side: employee paid the bursary, it was deductible. when the employee repays the employer, the employer has recoupment under par(n) og gross income

employee repays a restraint of trade payment-S11(nB)

if an employee was taxed on a restraint of trade payment and subsequently repays it, the repayment is deductible in employees hands and recoupment for employer

donations- S18A

cash donations to approved public benefit organisationsthat have valid receipots are deductible, limited to 10% of taxable income. excess carried to next year

assessed loss- S20

an assessed loss arises when a taxpayer’s admisable deductions exceed their income in a year of assessment resulting loss is carried forward and deducted from future income

balance of assessed loss is limited to higer of R1 000 000 or 80% of taxable income