Saica ITC JUNE 2022 SUGGESTED SOLUTION PAPER 1 PART II SAICA

 Part (g) Calculate the effect of the conversion costs of the manufacturing building (see para. 6.2) on the taxable income of Beeprop for the 2021 year of assessment.  Consider all amounts.  Provide brief reasons to support your answers.

Answer

This solution calculates the tax deductions for Beeprop's R8,574,000 manufacturing building conversion costs in FY2021.

Here's the breakdown:

• Deductible immediately:

  • Air conditioning/heating (R624,000): R17,333 (wear and tear, 2 months of 6-year write-off).

  • Solar panels (R1,750,000): R1,750,000 (100% allowance for less than 1MW solar).

  • Water-saving system (R2,500,000): R2,500,000 (considered a repair).

• Not deductible immediately (capital improvements):

  • Doors/windows (R3,000,000)

  • Energy-efficient lighting (R450,000)

  • Insulation (R250,000)

  • These sum to R3,700,000.

• Building Allowance (s13(1)) on capital improvements: R185,000 (5% of R3,700,000, for manufacturing building).

Net effect on taxable income: Total deductions = R17,333 + R1,750,000 + R2,500,000 + R185,000 = R4,452,333 reduction.