Masters Degrees (School of Accountancy)

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Browsing Masters Degrees (School of Accountancy) by Author "Acker, Tim"

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    The deductibility of indirect empowerment measures relating to black economic empowerment (BEE) in terms of the income tax act
    (2012-12) Acker, Tim; Nel, R.; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Accountancy.
    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.