Equipment purchases in a lean year?

[Intothedeepbluesea]

Clive making a serious and unsubstantiated claim is a poor show. This is a forum to put ideas out there and everyone to grow their knowledge, help us to understand your thinking?

I see no problem with what I am proposing, although I may be wrong. A tax payer is free to spend money as they see fit, how can not claiming an expense be tax avoidance, in this instance I only see it as prudence, unless that is I don't understand something but common sense seems to indicate that there is a very good chance that it is correct.

[Justloadit]

Whilst this is an open forum, the advice you seek requires a professional tax consultant to study your affairs and make an informed decision based on your individual circumstances.

[CLIVE-TRIANGLE]

Clive making a serious and unsubstantiated claim is a poor show. This is a forum to put ideas out there and everyone to grow their knowledge, help us to understand your thinking?

I see no problem with what I am proposing, although I may be wrong. A tax payer is free to spend money as they see fit, how can not claiming an expense be tax avoidance, in this instance I only see it as prudence, unless that is I don't understand something but common sense seems to indicate that there is a very good chance that it is correct.

It's anything but unsubstantiated.

You have one tax number, not two, and you actually don't have the privilege of cherry picking what to include and what to exclude. To compound it, you propose to conceal income and attempt to justify it by saying you did not claim a related expense

What I said is true and no malice was intended. You are not a qualified tax person nor a qualified accounting person; I am both. You asked for opinion and I gave it, along with as much explanation and elaboration as I could.

In a nutshell, you cannot decide to understate your operating nor your capital expenditure. You cannot decide to disregard proceeds from sale of equipment simply because you decided to understate expenses or capex. Selective understatement is still deliberate mis-statement, and if it it is a ruse then it is evasion.

If found out, the discretionary penalty is 200%. There is of course the possibility of criminal charges too, but based on the numbers you mention that would almost certainly not happen, unless you dated the wife of the assessor

Don't shoot the messenger. You asked for an informed opinion and that's what you got.

[CLIVE-TRIANGLE]

Let me give you an example. I won't mention the party nor the actual amounts, because frankly I can't remember

A company embarked on a project that improved their manufacturing capacity to the tune of about R5m. They treated (correctly so) the expense as a capital expenditure in their financial statements. They also treated it so in their tax return and claimed wear and tear over 5 years.

In about the 4th year SARS audited the tax return and held that the spend was actually an expense and not capital in nature, for tax purposes. SARS not only disallowed the wear and tear for year 4, they reversed the allowance for the preceding 3 years too.

The company took the matter to the tax court and SARS' view held sway.

The company took it to the Appeal Court and the tax court's decision was upheld.

By this stage it was more than 5 years down the line and the company could not revise the tax return for for the original year in which the expense was incurred, because it was now more than 5 years down the line.

In other words, the company now found itself in the position that R5m of expense could not be claimed either as wear and tear, nor as an operating expense, because on the one hand the 5 year prescription applied, and on the other they had treated an operating expense as capex. Ultimately you are talking about R1.4m in tax.

Now your numbers are nowhere near to that, but I can guarantee you as sure as the next load shedding, if SARS cottoned on to your otherwise logical plan, you will find yourself in the same boat.

[Dave A]

In other words, the company now found itself in the position that R5m of expense could not be claimed either as wear and tear, nor as an operating expense, because on the one hand the 5 year prescription applied, and on the other they had treated an operating expense as capex. Ultimately you are talking about R1.4m in tax.

Maybe time for SARS to start fearing a backlash against that sort of injustice, really.

[Justloadit]

Interesting that the 5 year prescription was applied because of SARS advantage

[Intothedeepbluesea]

Thanks Clive for the in depth reply and case scenario. You live you learn and I'm not trying to bypass any rules but rather work with them. As can clearly be seen I don't know enough of the rules, of which there are a preponderance. As advised a few comments back with something that is complicated or not black/white a consultation with a tax practitioner is the correct thing to do, I can see that is definitely true.