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Amendment to Section 4B of the ITA 1967 - Extension of the Scope of the Non-Business Income

Overview:

The proposed amendment to Section 4B of Act 53 introduces a significant change by completely substituting for Section 4B.


The amendment aims to clarify gains or profits derived from a business by explicitly excluding certain income types.


Currently, Section 4B addresses non-business income, particularly excluding certain interest income, with the proposed changes refining this provision.


The key amendment explicitly excludes gains or profits from the disposal of capital assets from business income, except when subsection 24(1) applies.


Impact on Taxpayers:

1. Clarity in Non-Business Income:

  • The amendment provides clearer guidelines on what constitutes non-business income by specifying the exclusion of gains or profits from the disposal of capital assets.

2. Consideration of Section 24(1):

  • Taxpayers need to be aware that gains or profits from the disposal of capital assets may be included in business income if subsection 24(1) applies. It's essential to understand the conditions under which this subsection is relevant.


3. Review of Capital Asset Transactions:

  • Taxpayers involved in the disposal of capital assets should carefully review their transactions to determine the impact on their classification as business or non-business income.


4. Timeline:

  • The proposed amendment is scheduled to come into operation on 1 January 2024.

5. Recommendation:

  • We recommend that taxpayers consult with their tax advisors to assess the specific implications of this amendment on their financial situations. Understanding the nuances of these changes will assist in accurate income categorisation and compliance with tax regulations.




Explanation of Section 24(5) - Interest from Stock in Trade Securities

Overview:

Section 24(5) of the Income Tax Act outlines the treatment of gross interest derived from securities that are part of the stock in trade of a business.


The section provides conditions under which such interest is considered the business's gross income and exempts it from the general provisions of subsection (1).

Key Provisions:

Relevance to Gross Interest:

  • The section applies when gross interest becomes receivable by an individual or entity during the relevant period.

Connection to Stock in Trade:

  • If the debenture, mortgage, or any other source generating interest is part of the stock in trade of a business conducted by or on behalf of the relevant person, Section 24(5) provisions come into play.

Lending of Money Business:

  • Alternatively, if the interest is related to a loan granted in the course of carrying on the business of lending money, and the business holds a license under any written law, Section 24(5) applies.


1. Stock in Trade Securities:

  • If a business buying and selling securities as part of its stock in trade receives gross interest from such securities during the relevant period, that interest is considered gross income of the business.

2. Licensed Money Lending Business:

  • Consider a licensed money lending business that grants loans. If the interest received on loans granted in or before the relevant period is subject to Section 24(5), it is treated as gross income of the business.


Conclusion:

Section 24(5) addresses the taxation treatment of gross interest arising from securities forming part of a business's stock in trade or from loans granted by a licensed money lending business. Understanding these provisions is essential for accurate income categorisation and compliance with taxation regulations.

Related-Article:

Finance (No. 2) Bill 2023: Amendment of section 2 - https://www.ccs-co.com/post/finance-no-2-bill-2023-amendment-of-section-2


Budget 2024: Further Tax Deduction For Voluntary Carbon Market (VCM) - https://www.ccs-co.com/post/budget-2024-further-tax-deduction-for-voluntary-carbon-market-vcm


Amendment to Section 4 of the ITA 1967 - Gains from the Disposal of Capital Asset - https://www.ccs-co.com/post/amendment-to-section-4-of-the-ita-1967-gains-from-the-disposal-of-capital-asset








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