We got a new client, a Close Corporation, which conduct only farming operation producing flowers. The CC has build hot houses during the years, some more than three years ago, but the buildings were never claimed as a deduction under Sec 12(f) of the firs
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
Section 12B(1)(f), of the Income Tax Act, refers to “machinery, implement, utensil or article (other than livestock) which is owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement … and brought into use for the first time by that taxpayer and used by him or her in the carrying on of his or her farming operations, except any …”
You referred to the First Schedule of the Act and we accept that the reference is to paragraph 12(1)(f). The relevant parts read as follows:
“… there shall be allowed as deductions in the determination of the taxable income derived by any farmer the expenditure incurred by him during the year of assessment in respect of –
(f) the erection of, or extensions, additions or improvements (other than repairs) to, buildings used in connection with farming operations, …”
When you say that you want to claim these expenses, we accept that you want to request SARS for a reduced assessment under section 93(1)(d) of the Tax Administration Act (or use the request correction function on efiling). Unfortunately, as the error was made more than three years earlier, it would not be possible to do so. It would also not be possible to lodge an objection.
In terms of section 99(2)(d)(iii) of the Tax Administration Act, section 99 (1) does not apply to the extent that … it is necessary to give effect to … an assessment referred to in section 93(1)(d) if SARS becomes aware of the error referred to in that subsection before expiry of the period for the assessment under subsection (1).
Under section 104(5)(b), the period for objection must not be so extended … if more than three years have lapsed from the date of assessment …
We accept that SARS based their response on either of the above (and they would be right to do so).
You can’t make use of section 93(1)(e) either – there is no processing error by SARS.
We are not sure what grounds you will be relying on to make the deduction, but we submit that the taxpayer can also not make the deduction in ‘this year of assessment’. Paragraph 12(1)(f) requires the expenditure to have been “incurred by the farmer during the year of assessment” and then “in respect of … buildings used in connection with farming operations”. As this happened in a previous year of assessment, the taxpayer would not be entitled to make it in this year.
We submit that the following statement by Judge Centlivres, in Sub-Nigel Ltd v CIR:
“For the whole scheme of the Act shows that, as the taxpayer is assessed for income tax for a period of one year, no expenditure incurred in a year previous to the particular tax year can be deducted.”