In a recent development, the South African Revenue Service (SARS) has issued a Binding General Ruling (Income Tax) 73 on the 30th of July 2024, shedding light on the meaning of taxable income for the purpose of setting off the balance of an assessed loss by companies. ​ This ruling aims to provide clear guidance on the limitation of set-off for companies under section 20(1)(a)(i) as amended by the Taxation Laws Amendment Act 20 of 2021. ​

The ruling clarifies that an assessed loss occurs when deductions claimed by a taxpayer exceed its income for the relevant year of assessment. ​ Section 20(1)(a) allows companies to offset the balance of assessed loss against income derived from carrying on any trade, with certain limitations on the set-off amount. ​ Notably, the 80% (max R1 Million) limitation in section 20(1)(a)(i) is based on the company's taxable income, including taxable capital gains. ​

By emphasizing that the calculation of the 80% limitation amount should be based on the comprehensive definition of "taxable income" as outlined in section 1(1), which encompasses taxable capital gains, the ruling aims to ensure consistency in the application of tax laws. ​

This ruling, issued under section 89 of the Tax Administration Act 28 of 2011, will remain valid from the date of publication until any revisions are made. ​ It provides valuable insights for companies navigating the complexities of assessing taxable income and setting off assessed losses within the framework of the Income Tax Act.

Overall, the SARS ruling serves as a crucial reference point for companies seeking clarity on tax implications related to assessed losses and taxable income, contributing to a more transparent and consistent tax environment in South Africa.