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

Chapter II : The Taxes

Part I : Normal Tax

12E. Deductions in respect of small business corporations

[Section 12E heading substituted by section 31(1)(a) of the Revenue Laws Amendment Act, 2003 (Act No. 45 of 2003)]

 

(1) Where any plant or machinery (hereinafter referred to as an asset) owned by a taxpayer which qualifies as a small business corporation or acquired by such a taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of "instalment credit agreement" in section 1 of the Value-Added Tax Act—

[Words preceding section 12E(1)(a) substituted by section 35(a) of the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013)]

(a) is brought into use for the first time by that taxpayer on or after 1 April 2001 for the purpose of that taxpayer’s trade (other than mining or farming); and
(b) is used by that taxpayer directly in a process of manufacture (or any other process which is of a similar nature) carried on by that taxpayer,

[Section 12E(1)(b) substituted by section 21 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]

a deduction equal to the cost of such asset shall be allowed in the year that such asset is so brought into use.

 

(1A) Subject to subsection (1), where any machinery, plant, implement, utensil, article, aircraft or ship in respect of which a deduction is allowable under section 11(e) ("the asset") is acquired by a small business corporation under an agreement formally and finally signed by every party to the agreement on or after 1 April 2005, the amount allowed to be deducted in respect of the asset must, at the election of the small business corporation and subject to the provisions of that section, be either—
(a) the amount allowable in terms of and subject to that section; or
(b) an amount equal to 50 per cent of the cost of the asset in the year of assessment during which it was first brought into use, 30 per cent in the first succeeding year and 20 per cent in the second succeeding year.

[Section 12E(1A) substituted by section 13 of the Taxation Laws Amendment Act, 2008 (Act No. 3 of 2008)]

 

(2) For the purposes of this section the cost to a taxpayer of any asset shall be deemed to be the lesser of the actual cost to the taxpayer to acquire that asset or the cost which a person would, if he had acquired the said asset under a cash transaction concluded at arm’s length on the date on which the transaction for the acquisition of the said asset was in fact concluded, have incurred in respect of the direct cost of acquisition of the asset, including the direct cost of the installation or erection thereof.

[Section 12E(2) substituted by section 26(a) of  the Taxation Laws Amendment Act, 2017 (Act No. 17 of 2017)]

 

(3) Any expenditure (other than expenditure referred to in section 11(a)) incurred by a taxpayer during any year of assessment in moving an asset in respect of which a deduction was allowed or is allowable under this section from one location to another must—
(a) where the taxpayer is or was entitled to a deduction in respect of that asset under subsection (1A) in that year and one or more succeeding years, be allowed to be deducted from his or her income in equal instalments in that year and each succeeding year in which that deduction is allowable; or
(b) in any other case, be allowed to be deducted from that taxpayer’s income in that year.

[Section 12B(3) substituted by section 9(1)(b) of the Taxation Laws Amendment Act, 2005 (Act No. 9 of 2005)]

 

(3A) [Section 12E(3A) deleted by section 9(1)(c) of the Taxation Laws Amendment Act, 2005 (Act No. 9 of 2005)];

 

(3B) No deduction shall be allowed under this section in respect of any asset in respect of which an allowance has been granted to the taxpayer under section 12BA.

[Section 12E(3B) inserted by section 17(1) of the Taxation Laws Amendment Act, 2023 (Act No. 17 of 2023), Notice No. 4226, GG49894, dated 22 December 2023 - deemed to have come into operation on 1 March 2023 and applies in respect of assets brought into use on or after that date (section 17(2))]

 

(4)        For the purposes of this section—

(a) "small business corporation" means any close corporation or co-operative or any private company as defined in section 1 of the Companies Act or a personal liability company as contemplated in section 8(2)(c) of the Companies Act if at all times during the year of assessment all the holders of shares in that company, co-operative, close corporation or personal liability company are natural persons, where—

[Words preceding subsection (4)(a)(i) substituted by section 29(1) of the Taxation Laws Administration Act, 2016 (Act No. 15 of 2016) - effective 1 May 2011]

(i) the gross income for the year of assessment does not exceed an amount equal to R20 million:

[Section 12E(4)(a)(i) substituted by section 7(1) of the Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2013 (Act No. 23 of 2013) - deemed to have come into operation on 1 April 2013]

Provided that where the close corporation, co-operative or company during the relevant year of assessment carries on any trade, for a period which is less than 12 months, that amount shall be reduced to an amount which bears to that amount, the same ratio as the number of months (in the determination of which a part of a month shall be reckoned as a full month), during which that company, co-operative or close corporation carried on that trade bears to 12 months:

[Proviso substituted by section 26(b) of  the Taxation Laws Amendment Act, 2017 (Act No. 17 of 2017)]

(ii) at any time during the year of assessment, no holder of shares in the company or member of the close corporation or co-operative holds any shares or has any interest in the equity of any other company as defined in section 1 (other than—

[Section 12E(4)(a)(ii) substituted by section 20 of the Taxation Laws Amendment Act, 2014 (Act No. 43 of 2014)]

(aa) a company contemplated in paragraph (a) of the definition of "listed company"; or
(bb) any portfolio in a collective investment scheme contemplated in paragraph (e) of the definition of "company");

[Section 12E(4)(a)(ii)(bb) substituted by section 23(1)(c) of the Taxation Laws Amendment Act, 2010 (Act No. 7 of 2010)]

(cc) a company contemplated in section 10(1)(e)(i)(aa), (bb) or (cc);
(dd) less than 5 per cent of the interest in a social or consumer co-operative or a co-operative burial society as defined in section 1 of the Co-operatives Act, 2005 (Act No. 14 of 2005), or any other similar co-operative if all of the income derived from the trade of that co-operative during any year of assessment is solely derived from its members;

[Section 12E(4)(a)(ii)(dd) substituted by section 25(b) of the Revenue Laws Amendment Act, 2007 (Act No. 35 of 2007)]

(ee) any friendly society as defined in section 1 of the Friendly Societies Act, 1956 (Act No. 25 of 1956);

[Section 12E(4)(a)(ii)(ee) substituted by section 23(1)(c) of the Revenue Laws Amendment Act, 2008 (Act No. 60 of 2008) - effective 1 July 2009]

(ff) less than 5 per cent of the interest in a primary savings co-operative bank or a primary savings and loans co-operative bank as defined in the Co-operative Banks Act, 2007, that may provide, participate in or undertake only the following—
(A) in the case of a primary savings co-operative bank, banking services contemplated in section 14(1)(a) to (d) of that Act; and
(B) in the case of a primary savings and loans co-operative bank, banking services contemplated in section 14(2)(a) or (b) of that Act;

[Section 12E(4)(a)(ii)(ff) substituted by section 23(1)(d) of the Taxation Laws Amendment Act, 2010 (Act No. 7 of 2010)]

(gg) a venture capital company as defined in section 12J;

[Section 12E(4)(a)(ii)(gg) inserted by section 23(1)(e) of the Revenue Laws Amendment Act, 2008 (Act No. 60 of 2008) - effective 1 July 2009]

(hh) any company, close corporation or co-operative if the company, close corporation or co-operative—
(A) has not during any year of assessment carried on any trade; and
(B) has not during any year of assessment owned assets, the total market value of which exceeds R5 000; or

[Section 12E(4)(a)(ii)(hh) substituted by section 23(1)(e) of the Taxation Laws Amendment Act, 2010 (Act No. 7 of 2010)]

(ii) any company, co-operative or close corporation if the company, co-operative or close corporation has taken the steps contemplated in section 41(4) to liquidate, wind up or deregister: Provided that this item ceases to apply if the company, co-operative or close corporation has at any stage withdrawn any step so taken or does anything to invalidate any step so taken, with the result that the company, co-operative or close corporation will not be liquidated, wound up or deregistered;

[Section 12E(4)(a)(ii)(ii) substituted by section 25 of the Taxation Laws Amendment Act, 2012 (Act No. 22 of 2012)]

(iii) not more than 20 percent of the total of all receipts and accruals (other than those of a capital nature) and all the capital gains of the company, close corporation or co-operative consists collectively of investment income and income from the rendering of a personal service; and

[Section 12E(4)(a)(iii) substituted by section 25(e) of the Revenue Laws Amendment Act, 2007 (Act No. 35 of 2007)]

(iv) such company is not a personal service provider as defined in the Fourth Schedule;

[Section 12E(4)(a)(iv) substituted by section 23(1)(f) of the Revenue Laws Amendment Act, 2008 (Act No. 60 of 2008) - effective 1 March 2009]

(b) [Section 12E(4)(b) deleted by section 23(1)(g) of the Revenue Laws Amendment Act No. 60 of 2008 (Act No. 60 of 2008) - effective 1 March 2009];
(c) "investment income" means—
(i) any income in the form of dividends, foreign dividends, royalties, rental derived in respect of immovable property, annuities or income of a similar nature;

[Section 12E(4)(c)(i) substituted by section 34(1)(a) of the Taxation Laws Amendment Act, 2011 (Act No. 24 of 2011) - effective 1 April 2012)]

(ii) any interest as contemplated in section 24J (other than any interest received by or accrued to any co-operative bank as contemplated in paragraph (a)(ii)(ff)), any amount contemplated in section 24K and any other income which, by the laws of the Republic administered by the Commissioner, is subject to the same treatment as income from money lent; and

[Section 12E(4)(c)(ii) substituted by section 25(f) of the Revenue Laws Amendment Act, 2007 (Act No. 35 of 2007)]

(iii) any proceeds derived from investment or trading in financial instruments (including futures, options and other derivatives), marketable securities or immovable property;
(d) "personal service", in relation to a company, co-operative or close corporation, means any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science, if—
(i) that service is performed personally by any person who holds an interest in that company, co-operative or close corporation or by any person that is a connected person in relation to any person holding such an interest; and

[Section 12E(4)(d)(i) substituted by section 26(c) of  the Taxation Laws Amendment Act, 2017 (Act No. 17 of 2017)]

(ii) that company, co-operative or close corporation does not throughout the year of assessment employ three or more full-time employees (other than any employee who is a holder of a share in the company or a member of the co-operative or close corporation, as the case may be, or who is a connected person in relation to a holder of a share in the company or a member), who are on a full-time basis engaged in the business of that company, co-operative or close corporation of rendering that service.

[Section 12E(4)(d)(ii) substituted by section 35(c) of  the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013)]

[Section 12E(4)(d) substituted by section 34(1)(B) of the Taxation Laws Amendment Act, 2011 (Act No. 24 of 2011)]

 

[Section 12E inserted by section 12 of the Revenue Laws Amendment Act, 2001 (Act No. 19 of 2001)]