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Income Tax Act, 1962 (Act No. 58 of 1962)

Department of Finance

Practice Note No. 30

Farming Operations: Equalised Rates of Tax


Date: 22 August 1994


1) As a result of incorrect methods sometimes applied in the calculation of the rating amount of farmers who elected that their tax be calculated at equalised rates of tax in terms of paragraph 19(5) of the First Schedule to the Income Tax Act, the method prescribed by Inland Revenue is explained below.


2) Symbol "C" in the formula:


contained in section 5(10) of the Income Tax Act, represents the following: Taxable income derived from farming for the current year of assessment [that is, taxable income derived from farming for the period of assessment (the relevant period)), less the average taxable income from farming in relation to the relevant period as determined in terms of paragraph 19(2) of the First Schedule to the Act. The amount represented by "B - C" may not be less than R1.


3) It follows, therefore, that for the purpose of determining symbol "C" the balance of an assessed loss incurred in any previous year must not be deducted from the taxable income derived from farming in the current year of assessment. Support for the practice is derived from the judgment handed down in CIR v Zamoyski (47 SATC 50) where the court attached an interpretation to the words "taxable income ... derived from farming operations" for the purposes of paragraph 12(3) of the First Schedule to the Act.


4) Example.

Taxable income from farming for the past five years:


Year 1:

R 20 000

Year 2:

R 15 000

Year 3:

R 50 000

Year 4:

(R 20 000) (loss)

Year 5:

R 35 000 (excluding R20 000 loss from year 4)


R 100 000


Average taxable income from farming:



R 1 000 000



R 20 000


Other income (salary) amounts to R2 000 and the following allowable deductions are claimed:


Medical expenses

R   2 000

Retirement annuity fund contributions

R   1 000

Assessed loss brought forward from the previous year of assessment

R 15 000

R 18 000


Calculation of rating amount (''B" - "C")

"B" = Taxable income in respect of year 5

(R35 000 + R2 000) - R18 000

R 19 000

"C" = Taxable income from farming for the current year (relevant period)

R 35 000

Less: Average taxable income from farming

R 20 000


R 15 000


Rating amount = "B" (R19000) - "C" (R15000) =  R 4 000