South Africa experiences various climates and rainfall patterns. The rainfall patterns differ from area to area. The current status of our country is that water resources are very limited and the present drought which is caused by extremely poor rainfall has further placed water resources under pressure.
The changing weather pattern which includes the change in rain periods is affecting the agricultural sector in a detrimental manner. The limited availability of water, due to the drought, has placed pressure on farmers, as they rely hugely on this resource for the success of their business.
Many livestock farmers in a drought-affected area face serious challenges, in that there is a lack of grazing pastures. This forces them to sell their livestock due to the drought. If a drought does not end before the end of the tax year, the problem of lack of grazing land still exists, thus the farmer would not be able to purchase replacement stock. This in effect would mean that, due to the sale of livestock, the farmer will have a bigger revenue than normal and since he could not purchase the replacement stock, he would not be able to deduct such expense, resulting in the income becoming taxable at a higher rate.
Paragraph 13 of the First Schedule to the Income Tax Act provides tax concessions to farmers who have been forced to sell livestock due to a drought. The cost of replacement livestock can be claimed as a deduction against the forced sale income. If a farmer has not purchased replacement livestock in the year of the forced sale, then the farmer must submit his income tax return without taking the deduction into account. When new livestock is purchased he will provide proof of such transaction to the Commissioner. The original assessment will then be reviewed and the farmer may be granted a refund or a credit.
Paragraph 13A provides that if there is a forced sale of livestock, due to a drought, the farmer also has an option to transfer the full proceeds or portion of the proceeds to the Land and Agricultural Bank of South Africa. If such transfer is effected within 3 months of such sale, the proceeds will not be included in his gross income in that year.
Many farmers are experiencing financial burdens that can be attributed to the drought. This relief that is available under provision 13 and 13A of the First Schedule can prove to be very beneficial to farmers, relieving a portion of their tax burden.
The material is not intended and does not constitute financial or any other advice. It is recommended that you speak to an accredited broker or financial adviser to consider all your options and draw up a plan to achieve your financial goals.
[PARAGRAPH 13 AND 13A OF THE INCOME-TAX ACT PROVIDES FINANCIAL RELIEF FOR FARMERS WHO HAVE SUFFERED LOSS DURING A DROUGHT.]