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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

23O. Limitation of deductions by small, medium or micro-sized enterprises in respect of amounts received or accrued from small business funding entities

 

 

(1)        For the purposes of this section—

 

‘allowance asset’

means an asset as defined in paragraph 1 of the Eighth Schedule, other than trading stock, in respect of which a deduction or allowance is allowable in terms of this Act for purposes other than the determination of any capital gain or capital loss;

 

‘base cost’

means base cost as defined in paragraph 1 of the Eighth Schedule.

[Definition inserted by section 41(a) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)]

(2) Where during any year of assessment any amount is received by or accrues to a small, medium or micro-sized enterprise from a small business funding entity for the acquisition, creation or improvement, or as a reimbursement for expenditure incurred in respect of the acquisition, creation or improvement of trading stock, any expenditure incurred in respect of that trading stock allowed as a deduction in terms of section 11(a) or any amount taken into account in respect of the value of trading stock as contemplated in section 22(1) or (2) must be reduced to the extent that the amount received or accrued from the small business funding entity is applied for that purpose.

 

(3) Where during any year of assessment any amount is received by or accrues to a small, medium or micro-sized enterprise from a small business funding entity for the acquisition, creation or improvement, or as a reimbursement for expenditure incurred in respect of the acquisition, creation or improvement of an allowance asset, the base cost of that allowance asset must be reduced to the extent that the amount received or accrued from the small business funding entity is applied for that purpose.

 

(4) Where during any year of assessment any amount is received by or accrues to a small, medium or micro-sized enterprise from a small business funding entity for the acquisition, creation or improvement of an allowance asset or as a reimbursement for expenditure incurred in respect of that acquisition, creation or improvement, the aggregate amount of the deductions or allowances allowable to that person in respect of that allowance asset may not exceed an amount equal to the aggregate of the expenditure incurred in the acquisition, creation or improvement of that allowance asset, reduced by an amount equal to the sum of—
(a) the amount received by or accrued to from a small business funding entity that is applied for that purpose; and
(b) the aggregate amount of all deductions and allowances previously allowed to that person in respect of that allowance asset.

 

(5) Where during any year of assessment any amount is received by or accrues to a small, medium or micro-sized enterprise from a small business funding entity—
(a) for the purpose of the acquisition, creation or improvement of an asset other than an asset contemplated in subsection (2) or (3); or
(b) as a reimbursement for expenditure incurred for the acquisition, creation or improvement of an asset other than an asset contemplated in subsection (2) or (3),

the base cost of that asset must be reduced to the extent that the amount received by or accrued from the small business funding entity is applied for that acquisition, creation or improvement.

 

(6)        

(a) Where during any year of assessment—
(i) any amount is received by or accrues to a small, medium or micro-sized enterprise from a small business funding entity; and
(ii) subsection (2), (3), (4) or (5) does not apply to that amount,

[Subsection (6)(a)(ii) substituted by section 43(1)(b) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016 - effective 1 March 2015]

any amount allowed to be deducted from the income of that small, medium or micro-sized enterprise in terms of section 11 for that year of assessment must be reduced to the extent of the amount received or accrued from a small business funding entity.

(b) To the extent that the amount received or accrued from a small business funding entity exceeds the amount allowed to be deducted as contemplated in paragraph (a), that excess is deemed to be an amount received or accrued from a small business funding entity during the following year of assessment for the purposes of paragraph (a).

 

[Section 23O inserted by section 39(1) of Act No. 43 of 2014]

[Section 23O to be commenced: 1 March 2015]