Taxation (TAX4861/2) Ferdinand Mokete 11 May 2015

Transcription

1 Taxation (TAX4861/2) Ferdinand Mokete 11 May 2015

2 Trading Stock

3 Trading Stock Trading stock is defined in section 1 and includes: Anything produced, manufactured, constructed, assembled, purchased or in any manner acquired by a taxpayer to use in manufacturing, to be sold or exchanged by the taxpayer or on the taxpayer s behalf. Anything the proceeds from the disposal of which forms or will form part of the taxpayer s gross income; excluding Proceeds from the disposal of capital asset by a mine Proceeds from the disposal of a plantation by a farmer Amount received in terms of a key-man policy Recoupments referred to in s8(4) Any consumable stores and spare parts that the taxpayer acquired for use in the course of his trade Excludes: Foreign currency option contract; or Forward exchange contracts

4 Trading Stock - Expenses incurred to acquire trading stock will be allowed as a deduction under s11(a). - The proceeds from the sale of trading stock fall within the gross income definition and will therefore be included in taxable income. - Section 22 provides for the tax treatment of trading stock on hand at the beginning and end of the year of assessment.

5 Closing Stock - S22(1) requires that any person carrying on a trade during a YOA must add the value of trading stock held and not disposed of by him at the end of YOA in their taxable income - The value of the closing stock is the: Cost price to the taxpayer; Less any amount considered by the Commissioner as representing the amount by which the value of trading stock has diminished due to damage, deterioration, change in fashion, decrease in market value or any other reason satisfactory to the Commissioner Instruments, interest rate agreements or option contracts that are held as trading stock may be included in the closing stock at market value if the taxpayer elected that the provisions of s24j do not apply.

6 Cost - S22(3) provides that the cost price of trading stock is: Cost incurred by the taxpayer Plus any further costs incurred by him in getting the trading stock into its existing condition and location (excl. foreign exchange differences) Plus amount that has been included in his income in terms of s8(5), which was applied in reduction of the purchase price of the stock S22(4) provides that the cost price of trading stock for a person who acquires trading stock for no consideration or for a consideration not measurable in terms of money will be deemed to be its current market value.

7 Opening Stock - S22(2) provides that any person carrying on a trade during a YOA can deduct the value of trading stock held and not disposed of by him at the beginning of the YOA from their taxable income - The value of the closing stock is determined as follows: If that trading stock was included in the taxpayer s closing stock, the value of the opening stock is the same as the closing stock; If the trading stock did not form part of the taxpayer s closing stock in the previous YOA, the value will equal the cost of the stock However, if for CGT purposes, the asset is deemed to have been disposed and acquired at market value, the value for the purpose of s22 will be deemed to be market value. - LIFO method cannot be used for inventory valuation purposes (s22(5))

8 Anti-avoidance provisions s23f - Taxpayers engaged in schemes in which they would acquire stock (s11(a)) but arrange that it does not get delivered to their premises ( s22(1)). - S23F(1) was introduced to prevent a taxpayer from claiming a deduction in respect of the acquisition of stock if the stock: Was not disposed of by the taxpayer during the year; nor Was not held by the taxpayer at the end of the year - Such cost of stock will be deemed to be incurred in the first subsequent year in which the stock is disposed of by the taxpayer or the value of the stock is included in closing stock or the taxpayer can prove that the stock was neither disposed of by him or held by him at year-end due to it being lost.

9 Anti-avoidance provisions s23f - S23F(2) provides that where: A taxpayer has disposed of trading stock for a consideration that will not accrue to him in full during that YOA; AND He could claim s11(a) on the cost of such stock - The deduction will be limited to the amount received or accrued from that disposal during that YOA. - Excess deductions will be disregarded, but may be deducted from income in any subsequent year when the remaining disposal proceeds accrue/are received by him (s23f(2a)). - If any disregarded deductions still exist once no further proceeds will accrue, these remaining deductions may be claimed at that time (s23f(2b)).

10 Anti-avoidance provisions s23f - S23F(3) creates a deemed recoupment in situation where a taxpayer has disposed of a right or interest in trading stock with the effect that his remaining right in stock will not be included in closing stock. - Any expenditure in respect of the remaining right in stock subject to a previous deduction is deemed to be recouped.

11 Change in use s22(8) - S22(8) provides for recoupments in cases were a deduction for trading stock has been granted and the stock has been: a) Applied to the private, domestic or consumption of the taxpayer b) Other instances: Applied for the purposes of making any donation Disposed of, other than in the ordinary course of trade and for a consideration less than the market value Distributed as a dividend in specie to shareholders Applied for a purpose other than disposal in the ordinary course of trade and under circumstances other than those referred to above Ceased to be held as trading stock by the taxpayer - Recoupment in the case of s22(8)(a) is cost - Recoupment in all other cases (s22(8)(b) is the market value. - Recoupment during a donation which qualifies for s18a deduction, shall be the deduction granted in terms of s11(a) or s22(2). Therefore, the recoupment at market value is not applicable.

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