The purpose of this study was to examine whether the general expenditure incurred by developers constructing residential units, whereby life rights are exchanged for interest free loans, are deductible in terms of the provisions of the Income Tax Act (58/1962). Furthermore to determine whether the judgement in CSARS v Brummeria Renaissance (Pty) Ltd and others, 2007 (4) All SA 1338 (SCA) 69 SATC 205, and its findings in law and of fact affects the deductibility of expenses incurred by developers, especially in relation to the “amount” and nature of the “amount” in the hands of the taxpayer. The research also sought to determine whether the accounting of amounts in life right exchange agreements, especially as relates to the quantification of such amount, assist in quantifying the amount for tax purposes. The research object was determined by critically analysing the relevant provisions of the ITA (58/1962) with reference to case law and commentators and a critical evaluation of Brummerria Renaissance case supra (2007:205) to determine its affect on the deductibility of the expenses relating to the quantum and nature of the benefit amount received under the life right. Furthermore, an evaluation was done of the relevant accounting standards in relation to the transactional facts to determine whether an alternative valuation model of the benefit is available. It was determined that firstly permissible and then prohibited deductions must be addressed in accordance with the ITA (58/1962). It was further evaluated whether the provision of the right of use, through the life right, can constitute an expense for the developer. It was concluded that incurring general expenses meet the requirements of section 11(a), subject to a single qualification, would be deductible. It was also submitted that the provision of the life right as expenditure should be permissible as deduction against income. However, in both these cases the deductibility in question was held to be subject to the amount received as envisaged in Brummeria Renaissance case supra (2007:205) being revenue in nature. The deductibility of the repair or preparation costs was also examined in terms of section 11(d). The distinction between repair and improvement was discussed and established. It was determined that the determination of when the “income is receivable” was critical in determining the deductibility. It was concluded that this requirement was met if the property was in a condition to receive such income irrespective of whether legal rights to such income had been established at such time that the expenses were incurred. The application of this section is also subject to the amount received, as envisaged in Brummeria Renaissance case supra (2007:205), being revenue in nature. The requirement of “income” is critical in the application of section 11(a) and section 11(d) of the ITA (58/1962), because if the amount is found to be capital in nature no deduction is permissible. The nature of the rights, timing of the accrual and the valuation method of the amount were not decided in the judgement in Brummeria Renaissance case supra (2007:205), and as a result, formed part of the research. The nature of the amount was analysed and it was concluded that the amount was income in nature. The various case law and commentators, including SARS’ IN 58, was also analysed to determine which valuation method of the benefit amount would be the most appropriate in the application of the provisions of the ITA (58/1962). To this extent it was submitted that three possible valuation methods could apply, namely the valuation of the benefit as arms length interest on the loan, the valuation of the benefit as the sale of a usufructuary interest or that the benefit amount could be represented as market related rentals in an arm’s length transaction. It was concluded that in order to determine the value and the timing of the benefit the most suitable valuation method would be to calculate interest on the face value of the loan using a market related interest rate. The benefit would be recognised over the term of the loan by calculating the interest on an annual basis on value of the loan. The various applicable accounting standards were evaluated to determine which best represents the measurement of the benefit as envisaged in Brummeria Renaissance case supra (2007:205). It was concluded that the most appropriate of the various possible accounting standards was IAS 32 which prescribed that the benefit should be determined and valued on a yearly basis in relation to the loan as a financial instrument. It was concluded that the basis for valuing and recognising the benefit for accounting purposes interrelates with the suggested accrual and timing thereof for tax purposes. AFRIKAANS : Die doel van die navorsing was om ondersoek in te stel of die algemene uitgawes aangegaan deur ontwikkelaars in die konstruksie van residensiële eenhede waar lewensregte geruil word vir rentevrye lenings, aftrekbaar sal wees in terme van die bepalings van die Inkomstebelastingwet (58/1962). Daar is verder ook ondersoek ingestel om vas te stel of die uitspraak in Kommisaris van die Suid Afrikaanse Inkomstediens v Brummeria Renaissance (Edms) Bpk en andere, 2007 (4) All SA 1338 (SCA) 69 SATC 205, die aftrekbaarheid van die uitgawes aangegaan deur die ontwikkelaars affekteer, veral in verband met die “bedrag” en aard van die “bedrag” in die hande van die belastingbetaler. Met die navorsing word daar bepaal of die rekeningkundige hantering van bedrae in lewensreg ruilooreenkomste, veral ten opsigte van die kwantifisering daarvan, kan bydrae tot die kwantifisering daarvan vir belastingdoeleindes. Die navorsingsdoelstelling is vasgestel deur die relevante bepalings van die Inkomstebelastingwet (58/1962) met verwysing na hofsake en kommentaar, ‘n kritiese evaluasie van Brummerria Renaissance saak supra (2007:205), om vas te stel wat die uitwerking daarvan is op die aftrekbaarheid van die uitgawes wat verband hou met die hoeveelheid en die aard van die voordeel bedrag ontvang in terme van die lewensreg, asook die evaluering van die relevante rekeningkundige standaarde ten opsigte van die feite van die transaksie om te bepaal of ‘n alternatiewe waardasie model van die voordeel beskikbaar is. Daar is besluit dat die aftrekkings wat eerstens toegelaat en dan verbied word aangespreek moet word in ooreenstemming met die Inkomstebelastingwet (58/1962). Daar is verder bepaal of die voorsiening van die reg om te gebruik deur middel van die lewensreg, ‘n uitgawe in die hande van die ontwikkelaar kan wees. Daar is tot die gevolgtrekking gekom dat die aangaan van algemene uitgawes voldoen aan die vereistes van artikel 11(a) en aftrekbaar is. Dit is ook vasgestel dat die voorsiening van die lewensreg as uitgawe aftrekbaar sal wees teen inkomste. In albei hierdie gevalle is die aftrekbaarheid onderworpe daaraan dat die bedrag ontvang soos vasgestel in Brummeria Renaissance saak supra (2007:205) inkomste van aard is. Die aftrekbaarheid van die herstel- of voorbereidingskostes is ook ondersoek in terme van artikel 11(d). Die onderskeid tussen herstel en verbetering is bespreek en bepaal. Daar is vasgestel dat die bepaling van wanneer die “inkomste ontvangbaar” is, krities is in die bepaling van die aftrekbaarheid daarvan. Daar is tot die gevolgtrekking gekom dat die vereiste nagekom is as die eiendom in ‘n toestand is om inkomste te ontvang ongeag of die reg tot die inkomste bepaal is teen die tyd dat die uitgawes aangegaan is. Die toepassing van hierdie artikel is ook onderworpe daaraan dat die bedrag ontvang soos bepaal in Brummeria Renaissance saak supra (2007:205) inkomste van aard is. Die vereiste van “inkomste” is krities in die toepassing van artikel 11(a) en artikel 11(d) van die Inkomstebelastingwet (58/1962) omrede geen aftrekking toegelaat sal word indien die bedrag kapitaal van aard is nie. Geen besluit is geneem oor die aard van die regte, die tydstip van die toevalling en die waardasiemetode van die bedrag in die uitspraak in Brummeria Renaissance saak supra (2007:205), en as gevolg daarvan vorm dit deel van die navorsing. ‘n Analise van die aard van die bedrag is gedoen en daar is tot die gevolgtrekking gekom dat die bedrag inkomste van aard is. Die verskillende hofsake en kommentaar, insluitende SARS se IN 58, is ook analiseer om te bepaal watter waardasiemetode van die voordeel mees gepas sal wees in die toepassing van die Inkomstebelastingwet (58/1962). Tot hierdie mate is dit aanvaar dat daar drie moontlike waardasiemetodes van toepassing kan wees, naamlik die waardasie van die voordeel op die lening in ‘n armslengte transaksie, die waardasie van die voordeel as die verkoop van ‘n vruggebruik of die voordeel van die bedrag kan verteenwoordig word deur die markverwante huurinkomste in ‘n armslengte transaksie. In bepaling van die waarde en die tydstip van die voordeel is die gevolgtrekking gemaak dat die mees gepaste waardasiemetode sal wees om rente op die sigwaarde van die lening te bereken deur ‘n markverwantrentekoers te gebruik. Die voordeel sal dan erken word oor die tydperk van die lening deur die die rente jaarliks te bereken op die waarde van die lening. Die verskillende rekeningkundige moontlikhede is ondersoek om die metode te bepaal wat waardasie van die voordeel soos in Brummeria Renaissance saak supra (2007:205) die beste verteenwoordig. Daar is tot die gevolgtrekking gekom dat die mees gepaste rekeningkundige standpunt IAS 32 is waarvolgens die voordeel op ‘n jaarlikse basis bepaal word in verhouding met die lening as ’n finansiële instrument. Daar is tot die gevolgtrekking gekom dat die metode van die waardasie en erkenning van die voordeel vir rekeningkundige doeleindes regstreeks verband hou met die voorgestelde toevalling en tydstip daarvan vir belastingdoeleindes. Copyright / Dissertation (MCom)--University of Pretoria, 2012. / Taxation / unrestricted
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:up/oai:repository.up.ac.za:2263/24769 |
| Date | 17 May 2012 |
| Creators | Van Woudenberg, Nicolaas Jacobus |
| Contributors | Mr P Faber, nico.van-woudenberg@za.pwc.com |
| Source Sets | South African National ETD Portal |
| Detected Language | Unknown |
| Type | Dissertation |
| Rights | © 2012, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria |
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