Section 20 of the Income Tax Act, No 58 of 1962 allows a taxpayer that incurs an assessed loss to carry forward the balance of assessed loss incurred, to be set off against taxable income earned in or added to losses incurred in future years. The issues regarding the carry forward of assessed losses in terms of section 20 is complex and in terms of the said section, a company is only entitled to set off its assessed loss from the previous year against its taxable income in the current year, if the taxpayer has carried on a trade during the current year and has derived income from that trade. Under the provisions of section 20(2A), a taxpayer other than a company can utilise an assessed loss even if no trading has been conducted. Assessed losses of natural persons, may however be ring-fenced. The aim of this treatise was twofold. Firstly it was to gain clarity on the „trade‟ and „income from trade‟ issues and secondly to compare South African legislation with that of Australia, with a view to recommending a change in our rules regarding the treatment of assessed losses in the context of companies. The critical lessons to be learned from the cases presented, is that liquidators, creditors and others must ensure that the company continues trading in order to x keep the assessed losses valid. Realisation of assets (including stock), and the collection of outstanding debts during liquidation does not constitute the carrying on of a trade in terms of s 20(1). The continuity of trade is an important element in regard to the carry forward of assessed losses to be utilised in the current and future years. Therefore it is important that a company carries on some activity that falls within the definition of trade. In the landmark case of SA Bazaars, it was held that a company did not have to trade continuously throughout the year to qualify for the set-off of the assessed loss or carry forward of the assessed loss, that is, to trade for say part of the year. The court however left open the issue of whether it was necessary to derive income from that trade. In order to clarify the issues regarding assessed losses, SARS issued Interpretation Note 33 granting taxpayers a concession in certain cases where a company has traded, but not derived income from that trade. But in ITC 1830, the court ruled that a company must trade and must derive income from that trade in order to carry forward its assessed loss, which effectively means that SARS cannot apply Interpretation Note 33. SARS does not have the authority to make concession which is contrary to the wording of the Act. xi In Australia, operating losses can be carried forward indefinitely to be set-off against future income, provided a company meets the more than 50% continuity of ownership test. Where the continuity test fails, losses can be deducted if the same business is carried on in the income year (the same business test). From the research conducted and in order to solve the issues surrounding the carry forward of assessed losses it was suggested that one of the following be adopted :- The method used in Australia for the carry forward of assessed losses., or A decision of the Supreme Court of Appeal is needed for a departure from the literal meaning of the words pertaining to the requirements regarding the carry forward of assessed losses. Furthermore, to clarify the definition of „income‟, as used in the context of s20, is it gross income less exempt income or taxable income?. If section 20 relates to taxable income, then an assessed loss will never be increased, which it is submitted, is not what the legislature intended. Section 20 ought to be revisited to eliminate any uncertainty about the income requirement and in the context in which the word „income‟ is used in that section.

LL.M. / The concept of a debt defeasance transaction has recently come under scrutiny in the South African financial market. In the financial arena lower lending rates and efficient tax planning are of paramount consideration to corporate entities seeking to raise finance and to properly structure their affairs. Debt defeasance transactions recognise the time value of money. Companies with long-term borrowings obtain financial advantages if those borrowings can be retired early as the present value of the liability is less than the face value thereof. The objective of this paper is to present a comparative study of the manner in which debt defeasance transactions have been dealt with in the Australian jurisdiction and how the South African courts would view the income tax consequences of such transactions. The choice of the Australian jurisdiction finds its motivation in the similarity of the income tax regime of that country with the system applied in South Africa. Although the Australian income tax legislation allows for a wider range of income to be recognised as assessable income (hence the frequent references to "income according to ordinary concepts" in the judicial pronouncements in that country) the concept of an accrual of income is recognised and applied in the Australian legislation in a similar manner to that of the South African income tax legislation. In addition, there have been a number of recent decisions in the Australian courts on debt defeasance transactions that were implemented during the 1980's. Given that the South African courts are mindful of developments in 2 Australia and will seek guidance from that jurisdiction, the contemporary nature of the Australian decisions referred to below is insightful and useful in a comparative study. The conclusions reached in this dissertation are that the income tax benefits sought by the parties to the transaction and which are pivotal to the success of the transaction, will not be available in the South African context, just as they are not available in Australia. In certain circumstances the debt defeasance profit, as it is termed in this paper, will be fully taxable in the hands of the taxpayer to whom it accrues, particularly in regard to instantaneous defeasances and where the taxpayer is a financial institution. It is this outcome of the application of the general principles of the South African income tax legislation that leads to the failure of the transaction as a fund raising tool in the structured finance environment. Thought has been given to whether or not the South African legislation should be amended to cater specifically for the debt defeasance transaction. There are no issues that are created by these transactions, such as mismatches in the timing of accruals and deductions as is the case in the trading of financial instruments, that are not already catered for in the current income tax legislation. The main enquiry in determining the consequences of a debt defeasance transaction is in the application of the gross income definition in section 1 of The Income Tax Act 58 of 1962. The application of the gross income definition is trite law and the judicial pronouncements thereon are 3 adequate guidance and it is submitted that no amendment to the Income Tax Act is required to cater for debt defeasance transactions. The structure of this paper will be to give an overview of the mechanics of debt defeasance transactions and the defeasance transactions and the consequences thereof. A survey of the Australian examples of debt defeasances is undertaken and the judgements given by the Australian courts in response to such transactions are canvassed. An analysis will finally be undertaken on the income tax consequences of debt defeasances as they have been imported into South Africa

The primary objective of this dissertation was to identify and estimate the relative importance of factors used by the Tax Court in deciding hobby loss cases. This was accomplished in two steps. The first step was to review the Treasury Regulations, cases and literature pertaining to hobby losses to determine the relevant factors used by the Court in deciding this issue. The second step involved using probit analysis to identify which of these factors actually influenced the Court in deciding hobby loss cases and to determine the relative importance of the factors. A secondary purpose was to to explore the probit model's ability to predict decisions likely to be appealed. The probit model was based on the analysis of 219 post-1954 Tax Court cases involving determination of whether activities were or were not engaged in for profit. By application of log-likelihood techniques, it was determined that the model developed was stable over time and across lines of "business," the implication being that cases decided both before and after the passage of Section 183 and involving all types of activity should have precedential value in conflicts between taxpayers and the Internal Revenue Service. Five factors were found to be significant predictors: manner of operation, level of expertise, time expended, history of income and loss, and presence of elements of personal pleasure. It is important to note that the two factors not susceptible to tax planning--success in other activities and financial status of the taxpayer--were insignificant discriminators between business and hobby outcomes. The implication is that with careful tax planning, one can organize and operate a given activity so that it is likely to receive favorable tax treatment. The probit model proved to be unable to predict decisions likely to be appealed. The probability that a particular case would be classified by the Court as a business did not appear to be a significant predictor of whether a taxpayer would appeal an adverse decision.

Thesis (doctoral)--Universiẗat Heidelberg, 2004. / Includes bibliographical references (p. 211-225).

Thesis (Ph. D.)--University of Washington, 2003. / Vita. Includes bibliographical references (leaves 179-182).

In this dissertation, I use a unique data set to address three questions related to the timing of loss realizations by institutional investors. The data include clienteles and quarterly holdings of investment advisers, whom I classify as "tax-sensitive" if their clients are primarily high net-worth individuals and as "tax-insensitive" if their clients are primarily tax-exempt entities or individuals with tax-deferred accounts. Prior empirical studies attribute abnormal stock return patterns around calendar year-end (the "January effect") to individual investors' tax-loss-selling and to institutional investors' window-dressing. In chapter two, I examine whether investment advisers contribute to the January effect via tax-loss-selling rather than via windowdressing. I find that tax-sensitive advisers' year-end sales of loss stocks (but not those of tax-exempt client advisers whose detailed disclosures to clients provide more incentive to window-dress) are associated with abnormally low (high) returns at the end of December (beginning of January). These results suggest that investment advisers contribute to the January effect via tax-loss-selling rather than via window-dressing. In chapter three, I examine whether tax-sensitive advisers respond to holding period incentives at year-end. Under U.S. tax law, net short-term gains are taxed as ordinary income, while net long-term gains are taxed at a lower rate. Prior studies find little or no response to holding period incentives by individual investors. In contrast, tax-sensitive advisers are more likely to sell stocks with short-term losses the larger the difference between the current short-term loss deduction and what the long-term loss deduction would be. In chapter four, I examine whether, like individual investors, tax-sensitive advisers realize their losses at year-end because they exhibit the "disposition effect," or the tendency to realize gains at a quicker rate than losses, earlier in the year. I compare the likelihood of advisers' realizations of "losers" (stocks the cumulative return of which over the prior nine months is negative) to the likelihood of their realizations of "winners" (stocks the cumulative return of which over the prior nine months is positive) by calendar quarter. Tax-insensitive, but not tax-sensitive, advisers exhibit the disposition effect, suggesting that tax incentives combined with investor sophistication prevent the disposition effect. / text

This dissertation contains three chapters that examine various behavioral responses to statutory tax policies. In the first chapter, I develop a framework to estimate the impact of the marriage tax on the likelihood of marriage that incorporates into one analysis all four distinct household alternatives: single, cohabit, married, and separated. This is in contrast to previous works that consider only one of three separate choices. Using data from the March CPS from 1989-1999, I estimate a bivariate probit model and find that the marriage tax has a small, but significant, effect on the likelihood of marriage. Furthermore, my results indicate that studies that do not include all four possible alternatives can overstate by as much as 200% the effect of the marriage tax on the likelihood of marriage. The second chapter considers the net distributional impact of the federal tax deduction for charitable donations. If itemizers, who tend to have higher income than non-itemizers, give to charities that provide goods that they directly use or benefit from (egoism), the government is essentially subsidizing the activities of the high-income donors. Conversely, if itemizers donate to organizations that benefit the needy (altruism), the tax deduction aids in a form of income redistribution. I estimate this tax responsiveness of giving using the Center on Philanthropy Panel Study (COPPS) module of the PSID in 2001 and 2003 for 11 types of charities. Donations by high income individuals to charities that benefit the poor are more price elastic than donations to charities that benefit themselves. I find evidence that the current tax deduction induces itemizers to donate more to charities that benefit the poor than they would have without the deduction. The third chapter estimates the economic incidence of the excise tax on tobacco. Using historical price and tax data from 1954-2005, I estimate what portion of the tax is shifted to consumers. I experiment with controls for border crossing and indoor smoking bans. I find that a 10-cent tax increase causes price to increase by 8 cents immediately and by 13 cents in the long run.

No description available.

Thesis (MComm)--Stellenbosch University, 2004. / ENGLISH ABSTRACT: Like any other item of expenditure, interest expenditure's deductibility is determined by subjecting it to the tests laid down in the general deduction formula contained in section 11(a), together with section 23(f) and 23(g) of the Income Tax Act, as well as the special deductions applicable to interest. In this study there will be only concentrated on the tests laid down in the general deduction formula contained in section 11(a), together with section 23(f) and 23(g) of the Income Tax Act. The general test according to section 11(a) as laid down by the courts to ascertain if an expense incurred in trade is deductible, is firstly to ascertain the act entailing the expenditure. If it is performed for the purpose of earning income, the expenditure attendant upon is deductible. Secondly, the closeness of the connection between the expenditure incurred and the trade must be ascertained. If the expense incurred is so closely connected with the business operation that it may be regarded as part of the cost of performing it, the expenditure will be deductible. The courts have considered many factors to ascertain if interest expenditure complies with the statutory requirements as set out in section 11(a), read together with section 23(f) and 23(g) of the Income Tax Act. There seems to be one test which can be applied to most of the statutory requirements and can be seen as the conclusive factor in determining the deductibility of interest expenses and that is the test of the original purpose of the loan that leads to the interest expense. Firstly in this study, the factors considered by the courts to ascertain if the deductibility of an interest expenditure complies with the statutory requirements as set out in the introduction of section 11(a), together with section 23(f) and 23(g), will be examined with specific reference to the purpose of the loan. Then the possibility of a change in the original purpose of a loan and the effect on the deductibility of an interest expenditure will be examined. / AFRIKAANSE OPSOMMING: Soos enige ander uitgawe, word rente uitgawes se aftrekbaarheid bepaal deur dit te onderwerp aan die toetse soos neergele in die algemene aftrekkingsformule, vervat in artikel 11(a), saamgelees met artikel 23(f) en 23(g) van die Inkomstebelastingwet, asook die spesiale aftrekkings wat op rente van toepassing is. In hierdie studie word slegs op die algemene aftrekkingsformule, vervat in artikel 11(a), saamgelees met artikel 23(f) en 23(g) van die Inkomstebelastingwet gekonsentreer. Die algemene toets volgens artikel 11(a) wat deur die howe neergele is om te bepaal of 'n uitgawe aangegaan in 'n bedryf aftrekbaar is, is om eerstens te bepaal of die handeling waaraan die uitgawe verbind is by die voortbrenging van inkomste aangegaan is en tweedens of die uitgawe wat aangegaan is nou genoeg verwant is aan die bedryf sod at dit as deel van die koste beskou kan word om die bedryf te beoefen. Die howe het verskeie faktore oorweeg om te bepaal of die aftrekbaarheid van rente uitgawes voldoen aan die statutere vereistes soos bepaal deur artikel 11(a), saamgelees met artikel 23(f) en 23(g) van die Inkomstebelastingwet. Daar blyk een toets te wees wat op die meeste statutêre vereistes toegepas kan word en wat ook as die bepalende factor beskou kan word om die aftrekbaarheid van rente uitgawes te beoordeel en dit is die oorspronklike doel waarmee die lening aangegaan is wat die rente uitgawe tot gevolg het. In hierdie studie word eerstens ondersoek ingestel na die faktore wat die howe oorweeg om te bepaal of 'n rente uitgawe aan die vereistes, soos uiteengesit in die inleiding van artikel 11(a), saamgelees met artikel 23(f) en 23(g), voldoen met spesifieke verwysing na die doel waarmee 'n lening aangegaan word. Die moontlikheid word dan ondersoek dat die oorspronklike doel van die lening kan verander en watter effek dit op die aftreknbaarheid van ‘n rente uitgawe kan hê.

Thesis (MComm)--Stellenbosch University, 2004. / ENGLISH ABSTRACT: The aim of this study is to determine the applicability of the various South African Income Taxation Act sections on the deduction of software costs. A distinction is made between the various deduction sections in the Income Taxation Act that are applicable to software costs. By doing this an appropriate taxation deduction is recommended for the different types of software costs that the taxpayer incurs. Software assets and expenditure can be divided into various categories based on the acquisition agreement. The rights and assets that are obtained, differ for each category of software cost. In some instances a copyright is obtained and in other instances only a right of use is obtained. Furthermore the taxpayer receives intellectual property, an intangible asset, and/or a tangible asset. A literature study and an analysis of the different types of software costs and the four concerned Income Taxation Act sections serve as background for the consideration of the applicability of each specific deduction section in the Income Taxation Act on the various categories of software costs. By using the information obtained in the literature study and the analyses, a recommendation is made of the most applicable deduction article for each category of software cost. / AFRIKAANSE OPSOMMING: Hierdie studie het ten doel om die toepaslikheid van die verskillende Suid-Afrikaanse Inkomstebelastingwetsartikels, op die aftrekking van sagtewarekoste te bepaal. 'n Onderskeid word getref tussen die verskillende aftrekkingsartikels wat van toepassing is op sagtewarekoste in die Inkomstebelastingwet. Sodoende word 'n geskikte belastingaftrekking vir die verskillende tipes sagtewarekoste voorgestel wat deur elke belastingpligtige aangegaan word. Sagtewarebates of -uitgawes kan in verskillende kategoriee verdeel word na aanleiding van die verkrygingsooreenkoms wat aangegaan is. Die regte en bates wat verkry word verskil ten opsigte van elke kategorie sagtewarekoste. In sommige gevalle word 'n outeursreg verkry en in ander gevalle slegs 'n gebruiksreg. Verder kan of intellekuele eiendom, 'n ontasbare bate, en/of 'n tasbare bate verkry word. 'n Literatuurstudie en analise van die verskillende tipes sagtewarekoste en die vIer betrokke Inkomstebelastingwetsartikels dien as agtergrond vir die oorweging van die toepaslikheid van elke spesifieke aftrekkingsartikel in die Inkomstebelastingwet op die onderskeie kategoriee sagtewarekoste. Daama word die inligting wat bekom is in die literatuurstudie en analise gebruik om die mees toepaslike aftrekkingsartikel vir elke kategorieë sagtewarekoste voor te stel.