Expenditure in respect to the onstruction of employee ousing is no longer taxdeductible. f the many tax benefits vailable only to farmers, nd not to other taxpayers, n terms of the Income Tax Act 58 of 1962, one of most valuable is the right to claim n outright tax deduction in terms of paragraph 12 of the First Schedule to the Act for various kinds of capital expenditure, such as expenditure incurred in building dams, installing
irrigation systems and constructing roads and bridges.

A farmer has hitherto also been entitled to deduct expenditure incurred in constructing housing for his employees. This, of course, was a considerable incentive for farmers to provide good quality housing for employees, and farm workers benefited accordingly.

Abruptly, without fanfare and without explanation, the Revenue Laws Amendment Act 60 of 2008 amended the Income Tax Act to provide
that, as from October 21 2008, such expenditure in respect of the construction of employee housing ceased to be tax-deductible as farming capital expenditure.

The deduction of farming capital expenditure is contingent on there being taxable income from farming in the year of assessment in which the expenditure is incurred. To the extent that the capital expenditure exceeds current income, the excess is carried forward for deduction as farming capital expenditure in future years.

The effect of the amendment is that farmers are now required to claim deduction in respect of employee housing on the same basis as other taxpayers. In essence the farmer must own at least five units that are used for the purposes of a trade carried on in the Republic.

He may claim a deduction equal to 5% of the cost of erection or improvement of any such unit incurred on or after 1 October 2008. An
additional annual deduction equal to a further 5% of the cost may be claimed if the unit qualifies as "low cost residential housing".

"Low cost residential housing" means a housing unit costing not more than R200 000 and in respect of which a rental (if charged) of not more than 1% of such cost per month is levied. Expenditure on repairs to the housing of a farmer's employees remains deductible in the year in which incurred; it is only expenditure on construction, additions or improvements to such housing that has been affected by the amendment.

There has been no comment from organised agriculture in regard to thisamendment, and it is difficult to assess its impact on farmers in general in these circumstances.

Source:

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