TAXATION 388
TEST 2
Chapters 5, 6, 7 & 8
Notes made in the 2020 academic year
Tax email address:
TABLE OF CONTENTS
Chapter 5 ..................................................................................................................................................... 4
EXEMPT INCOME ....................................................................................................................................... 4
5.1. Fundamentals ................................................................................................................................... 4
5.2. Exemptions incentivising investments ............................................................................................ 5
5.2.1. Interest received by Natural persons ........................................................................................... 6
5.2.2. Interest received by Non-residents ............................................................................................... 6
5.2.3. Amounts received from tax-free investents ............................................................................... 11
5.2.7. Proceeds from insurance policies ................................................................................................ 17
5.3. Exemptions relating to dividends ................................................................................................. 19
5.3.1. Dividends from resident companies ........................................................................................... 20
5.3.8. Foreign dividends .......................................................................................................................... 21
5.4. Exemptions relating to employment ............................................................................................ 23
5.4.1. Foreign pensions ........................................................................................................................... 23
5.4.2. Unemployment insurance benefits.............................................................................................. 24
5.4.3. Uniforms and uniform allowances ............................................................................................... 24
5.4.4. Relocation benefits ........................................................................................................................ 24
5.4.9. Employment Outside RSA ............................................................................................................ 25
5.5. Exemptions that Incentivise Education ......................................................................................... 26
5.5.1. Bursaries and Scholarships ........................................................................................................... 26
5.10. Exemptions aimed at amounts that are subject to withholding tax ......................................... 28
5.10.3. Interest Paid to Non-residents ................................................................................................... 28
5.11. Other Exemptions ........................................................................................................................ 28
5.11.1. Alimony and Maintenance.......................................................................................................... 28
5.11.4. War Pensions and Awards for Diseases and Injuries .............................................................. 29
Chapter 6 ................................................................................................................................................... 30
1
,GENERAL DEDUCTIONS .......................................................................................................................... 30
6.1. Overview ......................................................................................................................................... 30
6.2. Meaning of ‘carrying on a trade’ ................................................................................................... 31
6.3. General deduction formula (GDF) ................................................................................................. 34
6.3.1. ‘Expenditure and losses’ ............................................................................................................... 35
6.3.2. ‘Actually incurred’ .......................................................................................................................... 35
6.3.3. ‘During the year of assessment’................................................................................................... 37
6.3.4. ‘In the production of income’ ...................................................................................................... 37
6.3.5. ‘Not of a capital nature’ ................................................................................................................ 39
6.5. Section 23 Prohibited Deductions ................................................................................................ 42
6.5.1. Private maintenance expenditure................................................................................................ 42
6.5.2. Domestic or Private expenditure ................................................................................................. 42
6.5.12. Expenditure relating to Employment or Office ....................................................................... 43
6.5.6. Expenditure incurred toproduce exempt income..................................................................... 46
6.5.7. Non-trade expenditure ................................................................................................................. 47
6.6. Prohibitions of double deductions ................................................................................................ 48
6.8. Excessive Expenditure ................................................................................................................... 48
6.9. Cost of assets and VAT .................................................................................................................. 49
6.10. Specific Transactions.................................................................................................................... 50
6.10.1 Advertising ..................................................................................................................................... 50
6.10.2 Copyrights, inventions, patents, trademarks and know-how ................................................. 50
6.10.3 Damages and compensation ...................................................................................................... 50
6.10.4 Education and continuing education ......................................................................................... 50
6.10.5 Employment and services rendered .......................................................................................... 50
6.10.6 Fines................................................................................................................................................ 51
6.10.7 Goodwill ......................................................................................................................................... 51
6.10.10 Losses: Fire, theft and embezzlement ..................................................................................... 51
6.10.11 Losses: Loans, advances and guarantees ............................................................................... 52
6.10.12 Losses: Sale of debts.................................................................................................................. 52
6.10.13 Provisions for anticipated losses or expenditure ................................................................... 52
Chapter 7 ................................................................................................................................................... 53
NATURAL PERSONS ................................................................................................................................. 53
7.1. Overview and framework ............................................................................................................... 53
7.1.1. Assessed losses .............................................................................................................................. 55
7.2. Calculation of normal tax payable ................................................................................................ 60
7.2.1. Rebates ............................................................................................................................................ 61
7.2.2. Medical tax credits......................................................................................................................... 62
ss 6A and 6B Medical tax credits: Summary ......................................................................................... 68
7.3. Recovery of normal tax .................................................................................................................. 72
7.4. Deductions ..................................................................................................................................... 72
7.4.1. contributions by members to retirement funds......................................................................... 73
7.4.2. Donations to Public Benefit Organisations ................................................................................ 73
7.5. Married couples ............................................................................................................................. 74
7.5.1. Deemed inclusion .......................................................................................................................... 75
2
, 7.5.2. Marriages in community of property .......................................................................................... 76
7.5.3. Meaning of ‘income’ for the purposes of deeming provisions in s 7..................................... 77
7.5.4. Expenditure and allowances ........................................................................................................ 77
7.6. Separation, divorce and maintenance orders .............................................................................. 78
7.7. Minor children ................................................................................................................................ 78
Chapter 8 ................................................................................................................................................... 79
EMPLOYMENT BENEFITS ........................................................................................................................ 79
8.1. Overview ......................................................................................................................................... 79
8.2. Allowances ...................................................................................................................................... 81
8.3. Specific allowances ........................................................................................................................ 85
8.3.1 Travel Allowances ........................................................................................................................... 85
8.3.2. Subsistence allowance .................................................................................................................. 93
Other allowances/ advances/ reimbursements .................................................................................... 96
8.4. Seventh Schedule Benefits ............................................................................................................ 96
8.4.1. Benefits granted to relatives of employees and others ........................................................... 96
8.4.2. Consideration paid by employee ................................................................................................ 96
8.4.3. Employer’s duties .......................................................................................................................... 97
Taxable benefits per paragraph 2 .......................................................................................................... 97
8.4.4. Assets acquired at less than actual value ................................................................................... 98
8.4.5. Use of sundry assets ...................................................................................................................... 99
8.4.6. Right of use of motor vehicles ................................................................................................... 102
8.4.7. Meals, refreshments and meal and refreshment vouchers .................................................... 110
8.4.8. Residential accomodation .......................................................................................................... 112
8.4.9. Holiday accomodation ................................................................................................................ 113
8.4.10. Free or cheap services .............................................................................................................. 114
8.4.11. Low-interest debts ..................................................................................................................... 116
8.4.13. Release from or payment of an employee’s debt ................................................................ 117
8.4.14. Contributions to medical schemes (benefit funds) ............................................................... 118
8.4.15. Costs relating to medical services........................................................................................... 118
8.4.17. Contributions by an employer to pension and provident funds ........................................ 119
3
, CHAPTER 5
EXEMPT INCOME
Examinable: Yes or No
5.1. FUNDAMENTALS
Section 1(1) of the Income Tax Act: definition of ‘income’ pg 13 SAICA:
“income” means the amount remaining of the gross income of any person for any year or
period of assessment after deducting therefrom any amounts exempt from normal tax under
Part I of Chapter II
“exempt income” refers to amounts received by or accrued to any person that is not subject
to normal tax
Gross Income – Exempt Income = Income
• You must include an amount in gross income even if the full amount or a portion thereof will
qualify for an exemption.
• You must include the gross amount in gross income and then exempt the relevant amount (if
applicable) - Do not include a net amount in gross income
• Majority of these exemptions are contained in s10 of the Income Tax Act
• Exempt income refers to amounts received or accrued to any person, that are not subject to
normal tax.
4
TEST 2
Chapters 5, 6, 7 & 8
Notes made in the 2020 academic year
Tax email address:
TABLE OF CONTENTS
Chapter 5 ..................................................................................................................................................... 4
EXEMPT INCOME ....................................................................................................................................... 4
5.1. Fundamentals ................................................................................................................................... 4
5.2. Exemptions incentivising investments ............................................................................................ 5
5.2.1. Interest received by Natural persons ........................................................................................... 6
5.2.2. Interest received by Non-residents ............................................................................................... 6
5.2.3. Amounts received from tax-free investents ............................................................................... 11
5.2.7. Proceeds from insurance policies ................................................................................................ 17
5.3. Exemptions relating to dividends ................................................................................................. 19
5.3.1. Dividends from resident companies ........................................................................................... 20
5.3.8. Foreign dividends .......................................................................................................................... 21
5.4. Exemptions relating to employment ............................................................................................ 23
5.4.1. Foreign pensions ........................................................................................................................... 23
5.4.2. Unemployment insurance benefits.............................................................................................. 24
5.4.3. Uniforms and uniform allowances ............................................................................................... 24
5.4.4. Relocation benefits ........................................................................................................................ 24
5.4.9. Employment Outside RSA ............................................................................................................ 25
5.5. Exemptions that Incentivise Education ......................................................................................... 26
5.5.1. Bursaries and Scholarships ........................................................................................................... 26
5.10. Exemptions aimed at amounts that are subject to withholding tax ......................................... 28
5.10.3. Interest Paid to Non-residents ................................................................................................... 28
5.11. Other Exemptions ........................................................................................................................ 28
5.11.1. Alimony and Maintenance.......................................................................................................... 28
5.11.4. War Pensions and Awards for Diseases and Injuries .............................................................. 29
Chapter 6 ................................................................................................................................................... 30
1
,GENERAL DEDUCTIONS .......................................................................................................................... 30
6.1. Overview ......................................................................................................................................... 30
6.2. Meaning of ‘carrying on a trade’ ................................................................................................... 31
6.3. General deduction formula (GDF) ................................................................................................. 34
6.3.1. ‘Expenditure and losses’ ............................................................................................................... 35
6.3.2. ‘Actually incurred’ .......................................................................................................................... 35
6.3.3. ‘During the year of assessment’................................................................................................... 37
6.3.4. ‘In the production of income’ ...................................................................................................... 37
6.3.5. ‘Not of a capital nature’ ................................................................................................................ 39
6.5. Section 23 Prohibited Deductions ................................................................................................ 42
6.5.1. Private maintenance expenditure................................................................................................ 42
6.5.2. Domestic or Private expenditure ................................................................................................. 42
6.5.12. Expenditure relating to Employment or Office ....................................................................... 43
6.5.6. Expenditure incurred toproduce exempt income..................................................................... 46
6.5.7. Non-trade expenditure ................................................................................................................. 47
6.6. Prohibitions of double deductions ................................................................................................ 48
6.8. Excessive Expenditure ................................................................................................................... 48
6.9. Cost of assets and VAT .................................................................................................................. 49
6.10. Specific Transactions.................................................................................................................... 50
6.10.1 Advertising ..................................................................................................................................... 50
6.10.2 Copyrights, inventions, patents, trademarks and know-how ................................................. 50
6.10.3 Damages and compensation ...................................................................................................... 50
6.10.4 Education and continuing education ......................................................................................... 50
6.10.5 Employment and services rendered .......................................................................................... 50
6.10.6 Fines................................................................................................................................................ 51
6.10.7 Goodwill ......................................................................................................................................... 51
6.10.10 Losses: Fire, theft and embezzlement ..................................................................................... 51
6.10.11 Losses: Loans, advances and guarantees ............................................................................... 52
6.10.12 Losses: Sale of debts.................................................................................................................. 52
6.10.13 Provisions for anticipated losses or expenditure ................................................................... 52
Chapter 7 ................................................................................................................................................... 53
NATURAL PERSONS ................................................................................................................................. 53
7.1. Overview and framework ............................................................................................................... 53
7.1.1. Assessed losses .............................................................................................................................. 55
7.2. Calculation of normal tax payable ................................................................................................ 60
7.2.1. Rebates ............................................................................................................................................ 61
7.2.2. Medical tax credits......................................................................................................................... 62
ss 6A and 6B Medical tax credits: Summary ......................................................................................... 68
7.3. Recovery of normal tax .................................................................................................................. 72
7.4. Deductions ..................................................................................................................................... 72
7.4.1. contributions by members to retirement funds......................................................................... 73
7.4.2. Donations to Public Benefit Organisations ................................................................................ 73
7.5. Married couples ............................................................................................................................. 74
7.5.1. Deemed inclusion .......................................................................................................................... 75
2
, 7.5.2. Marriages in community of property .......................................................................................... 76
7.5.3. Meaning of ‘income’ for the purposes of deeming provisions in s 7..................................... 77
7.5.4. Expenditure and allowances ........................................................................................................ 77
7.6. Separation, divorce and maintenance orders .............................................................................. 78
7.7. Minor children ................................................................................................................................ 78
Chapter 8 ................................................................................................................................................... 79
EMPLOYMENT BENEFITS ........................................................................................................................ 79
8.1. Overview ......................................................................................................................................... 79
8.2. Allowances ...................................................................................................................................... 81
8.3. Specific allowances ........................................................................................................................ 85
8.3.1 Travel Allowances ........................................................................................................................... 85
8.3.2. Subsistence allowance .................................................................................................................. 93
Other allowances/ advances/ reimbursements .................................................................................... 96
8.4. Seventh Schedule Benefits ............................................................................................................ 96
8.4.1. Benefits granted to relatives of employees and others ........................................................... 96
8.4.2. Consideration paid by employee ................................................................................................ 96
8.4.3. Employer’s duties .......................................................................................................................... 97
Taxable benefits per paragraph 2 .......................................................................................................... 97
8.4.4. Assets acquired at less than actual value ................................................................................... 98
8.4.5. Use of sundry assets ...................................................................................................................... 99
8.4.6. Right of use of motor vehicles ................................................................................................... 102
8.4.7. Meals, refreshments and meal and refreshment vouchers .................................................... 110
8.4.8. Residential accomodation .......................................................................................................... 112
8.4.9. Holiday accomodation ................................................................................................................ 113
8.4.10. Free or cheap services .............................................................................................................. 114
8.4.11. Low-interest debts ..................................................................................................................... 116
8.4.13. Release from or payment of an employee’s debt ................................................................ 117
8.4.14. Contributions to medical schemes (benefit funds) ............................................................... 118
8.4.15. Costs relating to medical services........................................................................................... 118
8.4.17. Contributions by an employer to pension and provident funds ........................................ 119
3
, CHAPTER 5
EXEMPT INCOME
Examinable: Yes or No
5.1. FUNDAMENTALS
Section 1(1) of the Income Tax Act: definition of ‘income’ pg 13 SAICA:
“income” means the amount remaining of the gross income of any person for any year or
period of assessment after deducting therefrom any amounts exempt from normal tax under
Part I of Chapter II
“exempt income” refers to amounts received by or accrued to any person that is not subject
to normal tax
Gross Income – Exempt Income = Income
• You must include an amount in gross income even if the full amount or a portion thereof will
qualify for an exemption.
• You must include the gross amount in gross income and then exempt the relevant amount (if
applicable) - Do not include a net amount in gross income
• Majority of these exemptions are contained in s10 of the Income Tax Act
• Exempt income refers to amounts received or accrued to any person, that are not subject to
normal tax.
4
