The deductibility of indirect empowerment measures relating to black economic empowerment (BEE) in terms of the income tax act

Acker, Tim (2012-12)

Thesis (MAcc)--Stellenbosch University, 2012.

Thesis

ENGLISH ABSTRACT: The requirements of broad-based black economic empowerment (‘BEE’) are set out in the BEE scorecard. When an entity incurs expenditure relating to indirect empowerment measures (i.e. the preferential procurement, enterprise development, skills development and socio-economic development categories on the BEE scorecard), it is unclear whether the expenditure will be deductible for income tax purposes (BEE Partner, 2008). The objectives of the current study are to determine whether such expenditure is deductible and to formulate best practice guidelines for the deduction of the expenditure. The best practice guidelines consist of factors that should be considered when determining whether expenditure is deductible, as well as recommendations on how to justify that such expenditure should, in fact, be deductible. The methodology used was to first consider the requirements of the BEE scorecard, the types of expenditure and the reasons for incurring expenditure towards indirect empowerment measures. The deduction of such expenditure was then considered in a general sense and specifically for each broad category of expenditure. Lastly, the best practice guidelines were formulated based on the conclusions reached. Common expenditure towards indirect empowerment measures of BEE was grouped into broad categories. The different reasons why entities incur such expenditure were identified, as the reason for incurring expenditure can influence whether it is incurred in the production of income (Van Schalkwyk, 2010b:110). It is submitted that expenditure that is excessive or that is incurred for philanthropic purposes would not be incurred in the production of income. Four issues were identified that could preclude a deduction in terms of the general deduction formula (section 11(a)) – notably, that expenditure has to be in the production of income and non-capital in nature to be deductible. In addition to section 11(a), special income tax deductions (sections 12H, 12I or 18A) and capital allowances (sections 11(e), 13sex or 15(a)) could also possibly apply, but only for certain types of expenditure and only in qualifying circumstances. The conclusions drawn as to the deductibility of expenditure are summarised as a guideline for taxpayers. The above-mentioned conclusions, along with the literature examined, were used to formulate general best practice guidelines. One such guideline is that the onus is on taxpayers to show (through one of the ways suggested) that expenditure is in the production of income. Taxpayers should also note that excessive expenditure is not in the production of income and that certain expenditure required by sector charters is more likely to be capital in nature. Furthermore, specific best practice guidelines were submitted for each broad category of expenditure and relate to, for example, the applicability of the identified special deductions and the quantification of non-monetary expenditure. The specific best practice guidelines should be considered when incurring expenditure in a specific category. In summary, even though expenditure towards indirect empowerment measures has been found to be deductible in most cases, there are exceptions of which taxpayers should be aware. The proposed best practice guidelines include guidance that could be considered before incurring expenditure towards indirect BEE measures.

AFRIKAANSE OPSOMMING: Die vereistes van breë-basis swart ekonomiese bemagtiging (‘SEB’) word in die SEB-telkaart uiteengesit. Wanneer ’n entiteit onkostes met betrekking tot indirekte bemagtigingsmaatreëls (die telkaartkategorieë vir voorkeurverkryging, besigheidsontwikkeling, vaardigheidsopleiding en sosio-ekonomiese ontwikkeling) aangaan, is dit nie duidelik of sodanige onkoste vir inkomstebelasting-doeleindes aftrekbaar sal wees nie (BEE Partner, 2008). Die doelwitte van hierdie studie was om te bepaal of sulke onkostes belastingaftrekbaar is en om bestepraktyk-riglyne te formuleer vir die aftrekking van die onkostes. Die bestepraktyk-riglyne bestaan uit faktore wat oorweeg moet word in die bepaling of onkostes belastingaftrekbaar is, sowel as aanbevelings oor hoe aftrekbaarheid geregverdig kan word. Die studiemetodologie het eerstens ’n ondersoek behels na die vereistes van die SEB-telkaart, die soorte onkostes sowel as die redes vir die aangaan van onkostes wat met indirekte bemagtigingsmaatreëls verband hou. Daarna is die belastingaftrekbaarheid van sodanige onkostes in die algemeen sowel as spesifiek vir elke breë kategorie van onkoste oorweeg. Laastens is die bestepraktyk-riglyne opgestel op grond van die gevolgtrekkings wat bereik is. Algemene onkostes wat met indirekte SEB-maatreëls verband hou, is in breë kategorieë gegroepeer. Die verskillende redes waarom entiteite die uitgawes aangaan, is bepaal, aangesien dit kan beïnvloed of die uitgawe in die voortbrenging van inkomste is of nie (Van Schalkwyk, 2010b:110). Daar word aangevoer dat onkoste wat oormatige is of onkostes met betrekking tot filantropiese doeleindes nie as deel van die voortbrenging van inkomste beskou kan word nie. Vier kwessies is geïdentifiseer wat ’n aftrekking ingevolge die algemene aftrekkingsformule (artikel 11(a)) kan verhoed – die belangrikste is dat die onkostes in die voortbrenging van inkomste aangegaan moet word en nie kapitaal moet wees om afgetrek te kan word. Benewens artikel 11(a), kan spesiale belastingaftrekkings (artikel 12H, 12I of 18A) en kapitaaltoelaes (artikel 11(e), 13sex of 15(a)) ook moontlik geld, maar slegs vir sekere soorte onkostes en in omstandighede wat daarvoor in aanmerking kom. Die gevolgtrekkings oor die belastingaftrekbaarheid van onkostes word uiteindelik as ’n riglyn vir belastingbetalers opgesom. Bogenoemde gevolgtrekkings, tesame met die bestudeerde literatuur, is gebruik om algemene bestepraktyk-riglyne te formuleer. Een so ’n riglyn is dat die bewyslas op die belastingbetaler rus om (op een van die voorgestelde maniere) aan te toon dat onkostes in die voortbrenging van inkomste aangegaan word. Belastingbetalers moet ook daarop let dat oormatige onkostes nie as deel van die voortbrenging van inkomste beskou kan word nie en dat sekere onkostes ingevolge die vereistes van sektorhandveste meer waarskynlik kapitaal van aard sal wees. Spesifieke bestepraktyk-riglyne is voorts vir elke breë kategorie van onkostes voorgestel, byvoorbeeld met betrekking tot die toepaslikheid van die geïdentifiseerde spesiale aftrekkings en die kwantifisering van nie-monetêre onkostes. Hierdie spesifieke bestepraktyk-riglyne behoort in ag geneem te word wanneer onkostes in ’n spesifieke kategorie aangegaan word. Ter samevatting behoort belastingbetalers daarop bedag te wees dat hoewel onkostes met betrekking tot indirekte bemagtigingsmaatreëls in die meeste gevalle belastingaftrekbaar is, daar wel sekere uitsonderings is. Die voorgestelde bestepraktyk-riglyne bied derhalwe leiding oor die faktore wat oorweeg kan word voordat onkostes met betrekking tot indirekte bemagtigingsmaatreëls aangegaan word.

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