11 June 2007


Client News Flash

Income Tax Amendment – 7 June 2007

S11D. Deductions in respect of scientific or technological research and development.-  (1) For the purposes of determining the taxable income derived by a taxpayer from carrying on any trade there shall be allowed as a deduction from the income of such taxpayer so derived, an amount equal to 150 per cent of so much of any expenditure actually incurred by that taxpayer directly in respect of activities undertaken in the Republic directly for purposes of—

(a) the discovery of novel, practical and non obvious information; or

(b) the devising, developing or creation of any—

(i) invention as defined in section 1 of the Patents Act, 1978 (Act No. 57 of 1978);

(ii) design as defined in section 1 of the Designs Act, 1993 (Act No. 195 of 1993) that qualifies for registration under section 15 of that Act;

(iii) computer program as defined in section 1 of the Copyright Act, 1978 (Act No. 98 of 1978); or

(iv) knowledge essential to the use of such invention, design or computer program,

if that information, invention, design, computer program or knowledge is of a scientific or technological nature and is intended to be used by the taxpayer in the production of his or her income.’

(2) There shall be allowed as a deduction by a taxpayer in respect of any building or part thereof, machinery, plant, implement, utensil or article which—

(a) is owned by that taxpayer, or acquired by that 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, 1991 (Act No. 89 of 1991);

(b) is first brought into use by that taxpayer solely and directly for purposes contemplated in subsection (1);

(c) prior to first being brought into use by that taxpayer solely and directly for purposes contemplated in subsection (1), was not used by any person for any purpose; and

(d) is brought into use for purposes contemplated in subsection (1) and the information, invention, design, computer program or knowledge is intended to be used by the taxpayer in the production of his or her income,

an amount equal to 50 per cent of the cost to that taxpayer of that building, part, machinery, plant, implement, utensil or article in the year of assessment that it is bought into use for the first time by that taxpayer and 30 per cent in the first succeeding year of assessment and 20 per cent in the second succeeding year of assessment: Provided that no deduction shall be allowed to a taxpayer under this section in respect of any building, part, machinery, plant, implement, utensil or article if that taxpayer ceased to use that building, part, machinery, plant, implement, utensil or article, solely and directly for purposes contemplated in subsection (1) during any previous year of assessment.

(3) For the purposes of this section, the cost to the taxpayer of any building, machinery, plant, implement, utensil or article shall be deemed to be the lesser of—

(a) the actual cost to the taxpayer in respect of the acquisition, installation and erection thereof;

(b) the cost which a person would, if he or she had acquired, installed or erected that building, machinery, plant, implement, utensil or article under a cash transaction concluded at arm’s length on the date on which the transaction for the acquisition, installation or erection thereof was in fact concluded, have incurred in respect of the cost of such acquisition, installation or erection;

(c) where the building, machinery, plant, implement, utensil or article was acquired by the taxpayer from any other person who is a connected person in relation to the taxpayer, the cost (as contemplated in this subsection) to that connected person in respect of the acquisition, installation or erection of that building, machinery, plant, implement, utensil or article; or

(d) where the building, machinery, plant, implement, utensil or article has been acquired to replace an asset which has been damaged or destroyed, such cost less any amount which has been recovered or recouped in respect of the damaged or destroyed asset and has been excluded from the taxpayer’s income in terms of section 8(4)(e), whether in the current or any previous year of assessment.

(4) Notwithstanding any other provision of this section, any building or any part thereof shall be deemed not to have been used for purposes contemplated in subsection (2) unless such building or part is regularly used for those purposes and is specifically equipped for such use.

(5) Notwithstanding any other provision of this section, no deduction shall be allowed in terms of subsection (1) or (2) in respect of expenditure or costs relating to—

(a) exploration or prospecting;

(b) management or internal business processes;

(c) trade marks;

(d) the social sciences or humanities; or

(e) market research, sales or marketing promotion.

(5A) Notwithstanding any other provision of this section, no deduction shall be allowed in terms of subsection (1) in so far as that deduction is claimed in respect of expenditure incurred to acquire, install, erect, improve or add to any building, machinery, plant, implement, utensil, article, or to acquire, or for the right of use of, any invention, design, copyright or knowledge.

(5B) Notwithstanding the provisions of subsection (1), the deduction to be allowed to a taxpayer in terms of that subsection in respect of expenditure incurred by that taxpayer shall, in so far as that expenditure is incurred to defray expenditure of any other person who is a connected person in relation to that taxpayer, be limited to the amount of that expenditure.

(6) The deductions contemplated in this section shall apply in lieu of any other deduction or allowance granted under any other provision of this Act, unless the taxpayer elects in the year of assessment that any deduction contemplated in subsection (2) is first allowable in respect of any building or part thereof, or any machinery, plant, implement, utensil or article, that the deduction or allowance granted under that other provision shall apply in respect of that building, part, machinery, plant, implement, utensil or article, in which case subsection (2) shall not apply in respect of that building, part, machinery, plant, implement, utensil or article, as the case may be.

(7) Where any amount (other than a government grant) is received by, or accrues to, a taxpayer to fund expenditure that is otherwise eligible for deduction under subsection (1), the deduction for that expenditure shall be limited to 100 per cent in lieu of 150 per cent to the extent of that amount;

(8) Where any government grant is received by, or accrues to, a taxpayer to fund expenditure that is otherwise eligible for a deduction under subsection (1), the deduction for that expenditure shall be limited to 100 per cent in lieu of 150 per cent to the extent of twice that amount (except to the extent that expenditure is disallowed in terms of section 23(n)).

(9) Where a taxpayer during any year of assessment recovers or recoups any expenditure in respect of which a deduction was allowed in terms of subsection (1) during that year or any previous year, such deduction shall be included in the income of that taxpayer.

(10) The provisions of section 8(4)(a) and 11(o) shall not apply to so much of the amount of any allowance contemplated in subsection (2) as has been included in the taxpayer’s income under the provisions of subsection (9), whether in the current or any previous year of assessment.

(11) In respect of each year of assessment during which any taxpayer is eligible for any deduction contemplated in subsection (1) or (2), whether or not that deduction is limited in terms of this section, that taxpayer must submit to the Minister of Science and Technology such information as that Minister may require in such form and manner (including electronically) and at such place and within such time as that Minister may from time to time prescribe.

(12) The Minister of Science and Technology shall annually and in anonymous form submit to Parliament a report advising Parliament of the direct benefits of the activities contemplated in subsection (1) in terms of economic growth, employment and other broader government objectives and the aggregate expenditure in respect of such activities.

(13) Other than as may be required by subsection (12), the Minister of Science and Technology and every person employed or engaged by him or her in carrying out the provisions of this section shall preserve and aid in preserving secrecy with regard to all matters that may come to his or her knowledge in the performance of his or her duties in connection with those provisions, and shall not communicate any such matter to any person whatsoever other than the Commissioner or the taxpayer concerned or his or her lawful representative nor suffer of permit any such person to have access to any records in the possession of that Minister or person except in the performance of his or her duties as required by the laws of the Republic or by order of a competent court.

(14) Every person employed or engaged as contemplated in subsection (13) shall, before acting under this section, take and subscribe before a magistrate or justice of the peace or a commissioner of oaths, such oath or solemn declaration, as the case may be, of fidelity or secrecy as may be prescribed as contemplated in section 4(2)(a).

(15) The provisions of subsection (13) shall not apply in respect of information relating to any person, where that person has consented in writing that such information may be published or made known to any other person.

(16) Any person who contravenes the provisions of subsection (11) shall be guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding 24 months and any person who has been so convicted shall, if he or she fails within any period deemed by the Minister of Science and Technology to be reasonable and of which notice has been given to him or her by that Minister, to submit the information in respect of which the offence was committed, be guilty of an offence and liable on conviction to a fine of R50 for each day during which such default continues or to imprisonment without the option of a fine for a period not exceeding 12 months.

(17) Any person who contravenes the provisions of subsection (13) shall be guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding 24 months.

(18) Any person employed or engaged as contemplated in subsection (13) who carries out any of the provisions of this section before he or she has taken the prescribed oath or solemn declaration shall be guilty of an offence and liable on conviction to a fine not exceeding R500.

S11D (as amended in June 2007) shall be deemed to have come into operation on 2 November 2006 and shall apply in respect of any activities undertaken, or any building, machinery, plant, implement, utensil or article first brought into use on or after that date.