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Special Deductions, R40,000 or R20,000 for learnerships with NQF…
Special Deductions
Legal Expenses
- Section 11(c) provides for deduction of certain legal expenditure not deductible under s11(a)
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- Qualifications for deduction under 11(c):
In respect of claim, dispute or action at law
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- 11(c) only applies if expenses incurred in respect of claim, dispute or action at law relating to taxable amount
Legal costs incurred to prevent conviction and imprisonment not of a capital nature and deductible under 11(c) (Smith v SIR)
Legal costs incurred to eliminate competition of a capital nature and not deductible under 11(c) (CIR v Cadac Engineering Works)
- Legal expenses not incurred in production of income disallowed by s11(a)
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Patents, Copyrights, Designs & TM's
- Section 11(gB) does not cover the cost of acquiring the intellectual property, which is covered in section 11(gC)
- Deductions can only be claimed if the intellectual property is used to generate income
- 100% of the expenses incurred during the year of assessment are deductible.
- Section 11(gB) allows deductions for the cost of obtaining patents, design registration, and trademark registration or renew
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Bad Debts
If the amount previously written off as bad debt is recovered by the taxpayer, it must be included in gross income in terms of section 8(4)(a).
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A debt is considered bad when the taxpayer has ceased active recovery collection or has handed the debt over to an attorney or debt collector and has written the debt off in its books.
If the taxpayer is a VAT vendor, the section 11(i) allowance is based on the amount excluding VAT.
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The section 11(i) allowance must be claimed in the year the debt becomes bad, and the taxpayer may not claim a bad debt in a later year of assessment.
An employer is not entitled to a s 11(i) deduction if they make a loan to an employee, and the employee fails to repay the loan as the amount is not previously included in gross income
Doubtful Debts
If a company uses IFRS 9 accounting standards, the amount of money set aside for doubtful debts is calculated as 40% of the expected loss due to credit default, plus an additional 25% of the estimated loss for other types of impaired debts.
If IFRS 9 not applied
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PLUS 25% of face value of doubtful debts arrears for 60 days or more, subject to certain conditions.
Amount of allowance for doubtful debts depends on whether taxpayer applies IFRS 9 to the debt or not
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The amount of the doubtful debt must be reduced by any available security before applying the 25% and 40% deductions.
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Leanership Allowance
About
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Section 12H of the Income Tax Act offers an incentive for employers who offer learnership programs to promote skills development and job creation.
Annual Allowance
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If the learner is party to a registered learnership for less than 12 months, the annual allowance is reduced proportionately based on full months.
To claim the allowance, the learner must hold a qualification with an NQF level from 1 up to and including 6, and the agreement must have been entered into 'pursuant' to a trade carried on by the employer.
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Completion Allowance
Annual allowance of R40,000 or R20,000 for NQF levels 1-6 or 7-10, respectively
Completion allowance of R40,000 multiplied by the number of consecutive 12-month periods for NQF levels 1-6 and R20,000 for NQF levels 7-10
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Learners with disabilities eligible for R60,000 or R50,000 for NQF levels 1-6 or 7-10, respectively, in addition to normal allowance
Completion allowance available for learnership agreements less than 24 months and learnerships of 24 months or longer
Learners with disabilities eligible for R60,000 or R50,000 for NQF levels 1-6 or 7-10, respectively, in addition to normal allowance
Circumstances
If the learnership is terminated during the year, the employer deducts a pro-rata portion of the annual allowance for that year.
The employer will not receive the completion allowance, only the annual allowance.
If the learnership agreement changes between employers in a year, each employer will claim a pro-rata portion of the annual allowance for that year.
If a learner fails the learnership with an employer, no allowances may be claimed by the employer on a new learnership agreement with that learner if the new learnership contains the same education and training component as the failed learnership.
Learnership allowance is available to employers who enter into a learnership agreement with a learner.
Donations
Section 18A allows a deduction of the sum of bona fide donations of cash or property in kind made by a taxpayer during the year of assessment to certain approved beneficiaries, subject to a 10% limit of taxable income.
The approved beneficiaries include certain public benefit organizations approved by the Commissioner under section 30
Any public benefit organization approved by the Commissioner under section 30 which provides funds or assets to any other (s 18A) approved public benefit organization,
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any institution, board, or body contemplated in s 10(1)(cA)(i)
The donation deduction is available to all taxpayers, including individuals, trusts, companies, and close corporations.
A deduction for a donation cannot be claimed unless it is supported by a receipt issued by the recipient (the "donee"). Section 18A certificate
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Lease Premiums
The deduction is apportioned for part of a year, based on the number of months it was used or occupied and is calculated from the commencement of the lease.
The deduction is calculated as the total lease premium DIVIDED by the number of years the lessee is entitled to use, limited to 25 years.
If the lease terminates before the time envisaged by the Commissioner, the balance of lease premium not deducted falls away i.e. it is not deductible.
Section 11(f) allows a lessee to deduct a lease premium paid for the right of use or occupation of land, buildings, plant or machinery used or occupied to produce income or from which income is derived.
The lessor has a corresponding inclusion of the lease premium in its income in terms of paragraph (g) of the gross income definition, and it is taxed in the year it accrues to the lessor.
A lease premium is a consideration having an ascertainable money value paid by a lessee to a lessor in addition to or in lieu of rent.
No allowance is granted to the lessee unless the lease premium is income (as defined in section 1) of the lessor.
Leasehold Improvements
If the lessee spends more than the stipulated amount, the deduction is limited to the stipulated amount, and if they spend less, the deduction is limited to the actual amount.
The first allowance is only in the year in which the improvements are completed and brought into use and is apportioned for part of the year.
Section 11(h) provides for special relief to lessors and allows them to deduct the value of improvements to the leasehold property included in their income, calculated as the amount stipulated in the agreement (or a fair/reasonable amount) LESS the amount stipulated (or fair/reasonable) capitalised at 6% over the period of the lease.
The allowance for both lease premium and leasehold improvement is calculated pro rata for the period the asset was in use during the year of assessment.
The stipulated value of the improvements is DIVIED by the number of years (calculated from the date of completion of the improvements), limited to 25 years, MULTIPLIED by the period used in the production of income for the year of assessment.
If the lease agreement is terminated, the lessee may deduct the balance of the cost of improvements not previously deducted.
Section 11(g) provides for the deduction of expenditure incurred for leasehold improvements on land or buildings used or occupied for the production of income or from which income is derived.
R40,000 or R20,000 for learnerships with NQF qualifications from levels 1 to 6 and levels 7 to 10