South Africa: Tax treatment of government grants

South Africa: Tax treatment of government grants

Proposed legislation includes measures that would change the rules for the tax treatment of government grants, and specifically that would align this tax treatment with the rules provided for public private partnerships.

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A provision (section 12P of the Income Tax Act) effective 1 January 2013, aimed at creating a unified system for the tax treatment of government grants and regulating the related allowances and deductions. The concept was to exempt “genuine” grants from tax. For the provision to apply, a government grant (defined as a grant-in-aid, subsidy or contribution by the national or provincial government) had to be paid to the taxpayer, and the amount received was not to be included in the taxable income of the taxpayer.

The current proposal reflects the government’s position that tax-exempt government grants are not to be used to fund an expenditure for which a deduction could be claimed against other income of the party receiving the government grant.

If enacted, the amendments would be effective 1 January 2016 and apply in respect of grants received or expenditure incurred on or after that date.

 

Read an August 2015 report prepared by the KPMG member firm in South Africa: Alignment of the tax treatment of government grants

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