Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

23E. Provisions relating to leave pay

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The Income Tax Act, 1962, is hereby amended by the repeal of section 23E [Deleted by the Taxation Laws Amendment Act, 2012 (Act No. 22 of 2012)]

 

1)For the purposes of this section--

"employee" includes the holder of any office;

"leave pay" means any amount which a taxpayer has during any year of assessment become liable to pay to his employee in consequence of the employee.having during such year become entitled to any period of leave which had not been taken by him during that year;

"leave pay provision" means an amount equal to the lesser of--

a)the amount included in the taxpayer's income in terms of the provisions of subsection (5); and
b)an amount determined in relation to all periods of leave to which the taxpayer's employees were entitled as at the end of the last year of assessment of the taxpayer ending before 1 January 1994, and calculated by applying, in the case of each such employee, the employee's rate of earnings as at the end of such year to the period of leave to which such employee was so entitled.

 

2)For the purposes of this Act, where in consequence of any leave to which an employee of the taxpayer became entitled during any year of assessment of the taxpayer ending on or after 1 January 1994, the taxpayer has become liable to pay any amount of leave pay--
a)the taxpayer shall be deemed not to have incurred expenditure in respect of such leave pay until it is actually paid by him or becomes due and payable by him; and
b)such leave pay shall be deemed to accrue to the employee concerned on the date upon which such expenditure is deemed to have been incurred by the taxpayer.

 

3)Where any taxpayer has in any return of income submitted by him to the Commissioner before 1 March 1993 claimed a deduction of an amount determined in accordance with a practice consistently applied by him and in the bona fide belief that such amount constituted leave pay which was lawfully allowable as a deduction in the determination of his taxable income (whether such amount exceeds or is less than the amount which was lawfully deductible), there shall be allowed as a deduction in the determination of his taxable income for such year and for each subsequent year of assessment ending before 1 January 1994 an amount determined in accordance with the said practice: Provided that where in his return of income for any year of assessment ending before 1 January 1994 the taxpayer has amended such practice and the deduction determined in accordance with such amended practice is less than the deduction which would have been determined in accordance with his previous practice, the amount to be allowed as a deduction under this subsection in that year of assessment and in each subsequent year of assessment ending before 1 January 1994 shall be determined in accordance with such amended practice.

 

4)Where in respect of any year of assessment of a taxpayer ending before 1 January 1994, the Commissioner has not prior to the date of commencement of the Income Tax Act, 1993, issued an assessment, a deduction in respect of leave pay shall not be granted for such year otherwise than as may be permitted under the provisions of subsection (3).

 

5)There shall be included in the income of any taxpayer in his first year of assessment ending on or after 1 January 1994 the sum of all amounts allowed to be deducted in the determination of his taxable income in all years of assessment ending before that date in respect of leave pay relating to all periods of leave to which his employees were entitled at the end of the last year of assessment ending before the said date.

 

6)Where an amount has under the provisions of subsection (5) been included in the income of any taxpayer, any amount of leave pay which becomes due and payable by him to an employee in respect of any period of leave taken into account in the determination of such amount shall, notwithstanding the provisions of subsection (3), be allowed to be deducted from his income in the year of assessment during which such leave pay becomes due and payable.

 

7)There shall in the case of any taxpayer to whom the provisions of subsection (5) are applicable, be allowed to be deducted in the determination of his taxable income for his first year of assessment ending on or after 1 January 1994 and for each of the four succeeding years of assessment (such succeeding years of assessment hereinafter being referred to as the second to fifth years, in chronological order) a deduction equal to--
a)in the said first year, 100 per cent;
b)in the second year, 85 per cent;
c)in the third year, 70 per cent;
d)in the fourth year, 50 per cent; and
e)in the fifth year, 25 per cent,

of the amount of the leave pay provision determined in relation to the taxpayer,

: Provided that--

i)the deduction so allowed in any year of assessment shall be included in the taxpayer's taxable income in the following year of assessment; and
ii)no deduction shall be allowed under this subsection if the taxpayer has during the current or any previous year of assessment commencing on or after 1 January 1994 ceased to carry on trade.

 

8)Where--
a)any commercial or industrial undertaking has been acquired by one company From another company;
b)both such companies are managed, controlled or owned by substantially the same persons; and
c)the last-mentioned company contemplated in paragraph (a) is entitled to a deduction as contemplated in subsection (7),

the Commissioner may direct that, subject to such conditions as he may impose, the said two companies shall for the purposes of subsections (1), (3), (4), (5), (6) and (7) be regarded as being one company.