Webinar COTE TAX PRACTITIONER EXAMS - SAIPA

WebinarCOTE TAX PRACTITIONER EXAMS

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i) Framework for the calculation of taxable income

There is a fixed sequence that is used to calculate taxable income.

Gross income

Less: Exempt Income

Equals: Income

Less: Allowable deductions

Taxable Income

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Individuals

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FRAMEWORK

Gross Income Definition per section 1, special inclusions and allowances- NB

Lumpsums from Funds and Employers

LESS Exempt Income Sections 10 and 10A - 10C exempt income items

EQUALS Income Defined in section 1

LESS Deductions and

Allowances

Section 23(m) allowed deductions

Capital allowances

LESS Assessed Loss Brought

Forward

Consider section 20 (Assessed Losses) and

section 20A (Ring-fencing)

SUBTOTAL 1 XXX

LESS Section 11(k)

LESS Section 11(n)

PLUS Section 26A

SUBTOTAL 2 XXX

LESS Section 18A

Taxable Income XXX

Normal Tax Payable Apply 2016 Tax Table

Individuals

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FRAMEWORK

Normal Tax Payable Apply 2016 Tax Table – See Update Notes

LESS S6(2) and s6quat rebates

Normal Tax after rebates XXX

PLUS Normal Tax payable on the taxable income from lump sums and

severance benefits

LESS s6A and s6B - medical aid credits and out of pocket medical

expenses credits

Normal Tax Liability XXX

LESS PAYE and Provisional Tax

Normal Tax due by or to

taxpayer

XXX

PLUS Dividends Tax

Total Tax Liability of a

natural person

XXX

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ii) Revision of important definitions as listed in Section 1 of the income Tax Act

The relevant extract of the definition of “gross income”, reads as follows

“gross income”, in relation to any year or period of assessment, means –

(i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such resident; or

(ii) in the case of any person other than a resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such person from a source within the Republic,

during such year or period of assessment, excluding receipts or accruals of a capital nature, but including, without in any way limiting the scope of this definition, such amounts (whether of a capital nature or not) so received or accrued ................ SPECIAL INCLUSIONS

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What is Gross Income?

- In the case of a non resident, all the above requirements must be satisfied but only amounts from a source within SA are included in gross income

- SA residents, will be taxed on their worldwide income

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Specific inclusions in Gross income

The specific inclusions provisions in the `gross income ‘ definitions deal with amounts which, even though they may fall outside the scope of the general definition because they are of a `capital nature, are specifically included in `gross income’.

The special inclusions provision informs us which capital receipts must be included in `gross income’.

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Specific inclusions in Gross income (continued)

Examples of capital receipts to be included in `gross income’:

-Annuities

-- Alimony or maintenance receipts

-- Payments received for services rendered

-- Restraints of trade payments

-- Services : Compensation for loss of office

-- Pension. Provident, and retirement annuity benefits determined in terms of the 2nd

Schedule

-Services – commutation of amounts due

-Lease Premiums

-Compensation for imparting knowledge and information

-Leasehold improvements

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Specific inclusions in Gross income (continued)

- Fringe benefits

- Proceeds from the disposal of certain assets - assets similar to trading stock

- Dividends

- Subsidies and grants

- Amounts received by or accrued to s11E sporting bodies

- Key-man insurance policy proceeds

- Amount deemed to be receipts or accruals and s8(4) recoupments

- Amounts received from certain short term policies

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“person” includes-

(a) an insolvent estate;

(b) the estate of a deceased person;

(c) any trust; and

(d) any portfolio of a collective investment scheme

but does not include a foreign partnership

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“trade” includes every profession, trade, business, employment, calling,

occupation or venture, including the letting of any property and the use of or the grant of permission to use any patent as defined in the Patents Act or any design as defined in the Designs Act or any trade mark as defined in the Trade Marks Act or any copyright as defined in the Copyright Act or any other property which is of a similar nature

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“year of assessment”

A year of assessment for natural persons, deceased estates, insolvent estates and specialtrusts covers 12 months which commences on the first day of March of a specific year andends on the last day of February of the following year.

Companies are permitted to have a year of assessment ending on a date that coincides withtheir financial year-end. The year of assessment for a company with a financial year-end of 30June, will run from 1 July of a specific year to 30 June of the following year.

Trusts – always have a year of assessment ending on the last day of February.

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Concepts from the Tax Administration Act 28 of 2011

Burden of proof – s102

(1) A taxpayer bears the burden of proving-

(a) that an amount, transaction, event or item is exempt or otherwise not taxable;

(b) that an amount or item is deductible or may be set-off;

(c) the rate of tax applicable to a transaction, event, item or class of taxpayer;

(d) that an amount qualifies as a reduction of tax payable;

(e) that a valuation is correct or

(f) whether a ‘decision’ that is subject to objection and appeal under a tax Act, is incorrect.

(2) The burden of proving whether an estimate under section 95 is reasonable or the facts on which SARS based the imposition of an understatement penalty under Chapter 16, is upon SARS

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240. Registration of tax practitioners

(1) Every natural person who-

(a) provides advice to another person with respect to the application of a tax Act; or

(b) completes or assists in completing a return by another person, must-

(i) register with or fall under the jurisdiction of a ‘recognised controlling body’ by the later of 1 July 2013 or 21 business days after the date on which that person for the first time provides the advice or completes or assists in completing the return; and

(ii) register with SARS as a tax practitioner in the prescribed form and manner, within 21 business days after the date on which that person for the first time provides the advice or completes or assists in completing the return.

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(2) The provisions of this section do not apply in respect of a person who only-

(a) provides the advice or completes or assists in completing a return for no consideration to that person or his or her employer or a connected person in relation to that employer or that person;

(b) provides the advice in anticipation of or in the course of any litigation to which the Commissioner is a party or where the Commissioner is a complainant;

(c) provides the advice as an incidental or subordinate part of providing goods or other services to another person; or

(d) provides the advice or completes or assists in completing a return -

(i) to or in respect of the employer by whom that person is employed on a full-time basis or to or in respect of the employer and connected persons in relation to the employer; or

(ii) under the supervision of a registered tax practitioner who has assigned or approved the assignment of those functions to the person.

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(2A) A tax practitioner who has assigned or approved the assignment of functions to a person under subsection (2)(d)(ii) is regarded as accountable for the actions of that person in performing those functions for the purposes of a complaint to a recognised controlling body under section 241(2).

(3) A person may not register as a tax practitioner under subsection (1) or SARS may deregister a registered tax practitioner if the person or the registered tax practitioner, as the case may be-

(a) during the preceding five years has been removed from a related profession by a ‘controlling body’ for serious misconduct;

(b) during the preceding five years has been convicted (whether in the Republic or elsewhere) of-

(i) theft, fraud, forgery or uttering a forged document, perjury or an offence under the Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004); or

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(ii) any other offence involving dishonesty, for which the person has been sentenced to a period of imprisonment exceeding two years without the option of a fine or to a fine exceeding the amount prescribed in the Adjustment of Fines Act, 1991 (Act No. 101 of 1991); or

(c) during the preceding five years has been convicted of a serious tax offence.

(4) If prosecution for a serious tax offence has been instituted but not finalised against a person or registered tax practitioner and if the person or registered tax practitioner continues with the commission of a serious tax offence after the criminal proceedings have been instituted, a senior SARS official may-

(a)not register the person as a registered tax practitioner; or

(b) suspend the registration of the registered tax practitioner,for the duration of the criminal proceedings commencing on the date that prosecution is instituted and ending on the date that the person or registered tax practitioner is finally acquitted.

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iii) Exempt Income

Once the `gross income’ is determined, the next step is to determine if any income is exemptfrom tax.

If an amount complies with the definition of `gross income’, it is included in the taxpayers’gross income. Section 10 of the Income Tax Act makes provision for certain types of incometo be exempt – not subject to tax . This income which was included in `gross income’ mustnow be deducted from a taxpayer’s gross income.

Section 10 of the Income Tax Act provides a list of the exempt income.

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Exemptions

s10(1)(h) – Interest exemption for non-resident

- From 1 January 2015

– who is not a resident, and

– was not physically present in South Africa for a period exceeding 183 days in aggregate during the twelve-month period preceding the date on which the interest is received by or accrues to that person, and

– the debt from which the interest arises is not effectively connected to a permanent establishment of that person in the Republic.

any other person

– who is not a resident, and

- the debt from which the interest arises is not effectively connected to a permanent establishment of that person in the Republic.

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Exemptions

s10(1)(k) – Dividend exemption

s10(1)(k)(ii)- Paragraph (ii) to the proviso to s10(1)(k)(i) provides that dividends received or accrued iro services rendered or to be rendered or iro or by virtue of employment or the holding of any office are taxable as ordinary revenue(not exempt) unless:

- The dividend is received iro of a restricted equity instrument as defined in s8C or

- The share is held by the employee

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Exemptions

s10B – Foreign Dividends

- Foreign Dividend Exemption (section 10B(3))

- Ratio applicable to a natural person, deceased estates, insolvent estate or trust changed from 25/40 to 26/41.

- For the 2016 YOA

s10(2)

What happens if dividends or interest are received in the form of an annuity?

s10(1)(h)- (non residents ) will not be applicable however you can use s10(1)(i)

and s10(1)(k) will not be applicable.

s10(1)(i) and s10B– still applicable

s10A – Purchased Annuities

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Interest exemption – 2016 YOA

Persons below 65 years R23 800

Persons 65 years or older R34 500

s12T – Tax Free Investments – effective 1 March 2015 – 2016 YOA-examinable

Interest

Tax free investments (s12T)

s12T aims to encourage household savings by providing certain tax exempt investment opportunities.

12T provides for an exemption from normal tax for natural persons of all amounts received from a ‘tax free investment’ (effective from 1 March 2015).

A capital gain or loss from the disposal of a tax free investment is disregarded for CGT purposes.

A dividend paid to a natural person in respect of a tax free investment is also exempt from dividends tax.


‘Tax free investment’: A financial instrument or policy (long-term

insurance under 29A) that complies with the requirements of the regulations, owned by a natural person and administered by a person designated by the Minister of Finance.

The administrators typically include JSE authorised users, banks, long-term insurers, collective investment scheme companies and the national government.

The characteristics of these products are to be included in regulation made by the Minister.


A natural person is allowed to contribute up to R30 000 in cashduring a year of assessment. A lifetime limit of R500 000 will apply.

The limits are not affected by:

Amounts received from a tax free investment and re-invested.

Transfers of amounts between tax free investments.

Where contributions are made in excess of the limitations, 40% of the excess contribution is deemed to be normal tax payable. The proceeds from the excess contributions will still be exempt from normal tax.


Example:

During the 2016 year of assessment, Mr X contributed R1 500 per month to a fund that qualifies as a ‘tax free investment’ as defined in s 12T(1). He received interest of R1 200 and dividends of R3 500 from this investment. Mr X reinvested the interest and dividends in the same tax free investment.

Required:

Calculate the taxable income of Mr X for the 2016 year of assessment.


Solution:

Interest received 1 200

12T exemption – tax free investment (1 200)

Dividends received 3 500

12T exemption – tax free investment (3 500)

Taxable income -

Annual limit R30 000 (R1 500 x 12 = R18 000)

The limit has not been reached.

The interest and dividends reinvested are not taken into account in order to determine whether the contribution limit has been reached.

There are several exemptions that apply to employment income, namely:

Individuals who are employed in the embassy of a foreign country in the Republic and are not ordinarily resident in the Republic (this includes any private servants of these individuals)s10(1)(c)).

War pensions and disease compensation payable to miners (s 10(1)(g)).

Disability pensions (s 10(1)(gA))

Exemptions

Amounts received in terms of the Workmen's Compensation Act or Compensation for Occupational Injuries and Diseases Act (s 10(1)(gB))

Any compensation paid by an employer in respect of the death of an employee. The employee’s death must have been caused by his employment. The compensation must be paid in addition to the compensation that is paid in terms of the Workmen’s Compensation Act 30 of 1941 or the Compensation for Occupational Injuries and Diseases Act 130 of 1996. This exemption only applies to the extent that the compensation paid does not exceed R300 000 (s 10(1)(gB)(iii))

Road Accident Fund – s 10(1)(gB)(iv)

Pensions or social security grants received from outside of the Republic (s 10(1)(gC)) – received from SA source – when a resident receives a pension from a source outside SA, only the portion of a pension that is applicable to services rendered outside SA is exempt. Portion where services rendered in SA is taxed in SA

Exemptions

With effect from 1 March 2015, an amount received or accrued in respect of a policy of insurance relating to the death, disablement, severe illness or unemployment of a person who is the policyholder in respect of that policy of insurance is exempt in terms of s 10(1)(gI).

The premiums paid in respect of these policies are not deductible from the person’s income (s 23(r) ) – loss of income policies

Exemptions

Salaries paid to ship crews engaged in international transportation (of goods and passengers) or mining on the continental shelf (seabed outside SA) (s 10(1)(o)(i)) Must be outside SA for at least 183 FULL days in year of assessment

For years of assessment that commences on or after 1 April 2014, remuneration derived by any person as an officer or crew member of a South African ship as defined in s 12Q(1) will be exempt, if the ship is mainly engaged in international shipping as defined in 12Q(1), or in fishing outside the Republic.

This exemption applies irrespective of the period that such officer or crew member is outside South Africa during a year. Section 12Q, which provides for an exemption of income in respect of ships used in international shipping

Exemptions

Salaries paid to any employee whilst working abroad for the employer (s 10(1)(o)(ii)) if employee was outside the republic –(aa) for a period or periods exceeding 183 full days in aggregate during any period of 12 months; and

(bb) for a continuous period exceeding 60 full days during that period of 12 months,

Exemptions

Alimony or maintenance paid in terms of a post 1 March 1962 divorce s10(1)(u)

S 10(1)(q) – Bursaries Unemployment Insurance benefits (s 10(1)(mB)) S10(1)(nC-E)- Share incentive schemes S 10(1)(nA) – Uniform and uniform Allowances S 10(1)(nB) – Relocation Benefits S 10(1)(p) – Employment Non Residents

Exemptions

Bursaries to relatives of employees

‘remuneration proxy’ – exceeds R250 000 – no exemption

• If Remuneration Proxy does not exceed R250 000 - Exemption changed to:

• R10 000 for qualifications at NQF level 1 – 4 and Grade R - 12 has been allocated in accordance with Chapter 2 of the National Qualifications Framework Act, 2008; and

• R30 000 in respect of a qualification to which an NQF level 5 - 10 has been allocated in accordance with Chapter 2 of the National Qualifications Framework Act, 2008.

• Effective 1 March 2013.

• Look at per relative

• Open bursary – scholarships/bursaries to non employees – exempt

• Bursaries to employees – exempt – clause to pay back if fails

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• Calculation of Remuneration Proxy

• Remuneration proxy is defined in s1 as an employee’s

remuneration, as defined in paragraph 1 of the Fourth

Schedule, received from an employer during the

immediately preceding YOA, excluding the cash

value of employer provided accommodation.

• If the employee was only employed by a specific

employer for a portion of the preceding year, the

remuneration proxy must be determined with

reference to the number of days in that year that the

employee was employed.

Remuneration Proxy –s1

• If the employee was not employed by the employer

during the immediately preceding YOA, the

remuneration proxy is determined with reference to

the number of days in the first month of the

employee’s employment.

Remuneration Proxy –s1…cont

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IV) The General Deduction Formula

General deductions allowed in determination of taxable income

For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person so derived –

- expenditure and losses: expenditure need not be in cash only. It can be in a form other than cash, for example, a trade-in of an asset as payment of an expense

- actually incurred : includes both amounts paid & amounts for which the taxpayer has incurred an unconditional liability to pay an expense.

- Year of assessment: Deductible expenditure can be deducted only in the year of assessment in which in incurred.

But refer to section 23H of the Income Tax Act for the rules regarding pre-paid expenses.

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The General Deduction Formula (continued)

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- in the production of the income: Income incurred in the production ofexempt income is not allowed as a deduction.

- provided such expenditure and losses are not of a capital nature:capital expenditure will not be allowed as a deduction. NB. CapitalAllowances may be available

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Expenditure actually incurred

- Not essential to decide whether it was necessarily - that is whether the expenditure is prudent

-Expenses must have been actually incurred

-Not decided on a cash basis - as long as there is a liability that has been incurred

-Future expenditure will not be allowed until such time as the liability has actually arisen – that is an unconditionally liability to pay.

-This naturally brings us to the next point of the slide – Prepaid expenses section 23H

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Expenditure to be claimed as a deduction must be incurred during the year in which it is claimed. But section 23H of the Income Tax Act refers to prepaid expenses.

This section limits the deduction of an expense where none of the benefits (or part of the benefits) arises in the year of assessment.

This section applies to s11(a) general deductions ( excluding the acquisition of trading stock) as well as s11(c) (qualifying legal expenditure), s11(d)( qualifying expenditures relating to repairs, s11(w)(premiums iro key-man policies concluded on or after 1 March 2012) or s11A(pre-trade expenditure and losses

The prepaid expense will be allowed if

i) All goods or services to which the expenditure relates are supplied within six months after the end of the year of assessment during which the expenditure was incurred or

ii) Aggregate of all amounts of prepaid expenditure incurred by the taxpayer does not exceed R100 000.

iii) Any expenditure to which the provisions of s 24K or 24L apply .

iv) Any expenditure actually paid in respect of any unconditional liability to pay an amount imposed by legislation. For example, if municipal law requires a person to pay property tax upfront, this expenditure will not be subject to the limitations of s 23H .

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Commission earners

`remuneration ‘ as defined in Fourth Schedule and paid as income for employment income includes `commission ‘.

Deductions of expenditure against income derived by employees and office holders from employment (remuneration) are limited ito s23(m).

- This limitation does not apply to agents and representatives whose remuneration is normally derived mainly in the form of commission based on their sales or the turnover attributable to them. Mainly – more than 50% of their monthly total remuneration in the form of commission

- Expenditure incurred by commission earners must still comply with section 11 (a) requirements

- A commission earner, for example, would not be able to claim deduction incurred to acquire a capital item – NB Capital Allowances may be granted.

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Prohibited deductions

Deductions Prohibited in determining taxable income:

Private maintenance of taxpayer

Domestic/ private expenses, except for home office expenses

Loss or expense recoverable under any insurance, guarantee...

Taxes, interest, penalties... on income tax, VAT,

Income carried to any reserve fund…provisions

Expenses incurred iro amounts which do not constitute income…exempt income

Non trade expenditure

Notional interest on capital employed

Deductions claimed against retirements lump sums and retirement withdrawal lumpsums

Labour brokers and personal service trusts/companies

Restraint of trade payments

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Prohibited deductions

Deductions Prohibited in determining taxable income:

Expenses relating to employment income

Deductions relating to government grants

Expenses relating to unlawful activities

The cession of policies by employers

Expenditure incurred in the production of foreign dividends

Premiums iro insurance policies against illness, disability, unemployment or death of that person- not examinable – applicable from 1 March 2015…2016 YOA

Section 23B – Prohibition of double deductions – get a deduction under a specific section – then only get the deduction under that section of the Act

Section 23C – Reduction of cost or MV of certain assets - VAT

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Loss of Income Policies

With effect from 1 March 2015, an amount received or accrued in respect of a policy of insurance relating to the death, disablement, severe illness or unemployment of a person who is the policyholder in respect of that policy of insurance is exempt in terms of s 10(1)(gI).

The premiums paid in respect of these policies are not deductible from the person’s income (s 23(r) )

The deduction of premiums paid by a person in terms of an insurance policy which covers a person against death, disablement, severe illness or unemployment is prohibited with effect from 1 March 2015. The proceeds of such policies are also exempt from tax in terms of s 10(1)(gI) with effect from the same date.

Please note the s11(a) deduction of insurance premiums paid on income protection policies to the extent that amounts received under the policy will constitute income has been deleted with effect from 1 March 2015.

Loss of income policies paid by an employer- Fringe Benefit for the employee however from 1 March 2015 there is no s11(a) deduction for the employee.

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Any individual earning income from employment can only claim deductions in terms of:

s 11(c) – legal expenses

S 11(nA) and s 11(nB)- see separate slide

s 11(e)- wear and tear

s 11(i) – bad debts

s 11(j) – provision for doubtful debts

s 11(k) – pension contributions – also see separate slide

s 11(n) – RAF contributions

s11(a) and 11(d) – home office

Limitations for salaried individuals (s 23(m))

The prohibition in s 23(m) applies to s 11 deductions only and does not affect deductions for donations (s 18A) These provisions do not apply to commission earners where their commission is based on their sales or turnover.

Agents and representatives who derive more than 50% of their total remuneration in the form of commission may deduct expenditure incurred under any relevant provision of the Act, provided that the specific requirements of that provision have been met.

Limitations for salaried individuals (s 23(m))

Where an individual is carrying on a trade as a sole trader, deductions may be claimed under general deduction formula, special deductions and capital allowances therefore not limited by s23(m).

Sole Proprietors

(nA) so much of any amount, including any voluntary award, received or accrued in respect of services rendered or to be rendered or any amount received or accrued in respect of or by virtue of any employment or the holding of any office as was included in the taxable income of that person and is refunded by that person;(maternity payments)

(nB) so much of any amount contemplated in paragraph (cA)of the definition of “gross income” received by or accrued to any person as is refunded by that person;(restraint of trade payment)

S 11(nA) and s 11(nB): refunds by employees

Individuals

Section 11(k) – Pension Contributions

Total contributions of natural person (ONLY) to a pension fund.

Contribution by employer is NOT a fringe benefit.

Limited to the greater of:

R1750; or

7.5% of RFE (Retirement Funding Employment Remuneration)

Amount not allowed as a deduction MAY NOT be carried forward!

Arrear contributions are limited to R1 800, and any balance not deducted MAY be carried forward.

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Individuals

Section 11(n)- RAF Contributions

Total Contributions of natural person AND employer to a retirement annuity fund

Contribution by employer IS a fringe benefit!

Limited to the greater of:

R1750; or

R3500 - section 11(k) deduction; or

15% x (Subtotal 1 - RFE).

Any amount not allowed as a deduction MAY be carried forward to the next year of assessment.

Arrear contributions are limited to R1 800, and any balance not deducted MAY be carried forward.

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Individuals

Provident Fund Contributions

No deduction for provident fund contributions

Contribution by employer is NOT a fringe benefit.

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Various provisions concerning the tax implications of contributions to retirement funds and the taxability of distributions from retirement funds will be amended with effect from 1 March 2016 (the 2017 year of assessment). The purpose of the amendments is to encourage individuals to make provision for their retirement and to eliminate differences between the various funds.

S11(l) – fund contributions by employers from 1 March 2016 has also changed.

And Fringe Benefits – paras 2(l) and 12D

Replacement of s11(k) and s11(n) deductions with new s11(k) deduction- not examinable

s11(n) deduction for RAF contributions is deleted and the s11(k) deduction is amended to include contributions to any pension fund, provident fund and retirement annuity fund. The total deduction under the new s11(k) is limited to the lesser of :-

R350 000 or

27,5% of the higher of the person’s remuneration (excluding lump sums from funds and severance benefits) or taxable income (excluding lump sums from funds and severance benefits) as determined before allowing any deduction ito s11(k) and s18A (proviso (i) to s11(k))

• Any excess can be carried forward to a next year of assessment provided that it has not been allowed as a deduction in any year of assessment, has not been taken into account ito par5(1)(a) or 6(1)(b)(i) of the Second Schedule or has not been exempted ito s10C(proviso (ii) to s11(k))

Replacement of s11(k) and s11(n) deductions with new s11(k) deduction

Section 11(l) is amended so that employers can claim deductions in respect of all actual contributions to any pension fund, provident fund or retirement annuity fund.

• The contributions of employers to any pension fund, provident fund or retirement annuity fund are taxed as fringe benefits in the hands of the employees ito paras 2(l) and 12D of the Seventh Schedule and such contributions are deemed to be made by the employee (proviso (iii) to s11(k)). This depends on ‘defined benefit component’ or both ‘defined benefit component’ and ‘defined contribution component’

• A partner in a partnership is deemed to be an employee of the partnership and a partnership is deemed to be an employer of a partner for the purposes of s11(k) (proviso (iv) to s11(k)).

Replacement of s11(k) and s11(n) deductions with new s11(k) deduction….other implications

Tax Tables – Individuals

Income tax rates for natural persons and special trusts

Year of assessment ending 29 February 2016

Taxable income (R) Taxable rates

0 – 181 900 18% of each R1

181 901 – 284 100 32 742 + 26% of the amount above 181 900



550 101– 701 300 149 619 + 39% of the amount above 550 100

701 301 and above 208 587 + 41% of the amount above 701 300

2016 Rebates – s6(2)(a)-(c)

– 2016

Under 65 R13 257

65 years and under 75 R 7 407

75 years or older R 2 466

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2016 Tax Thresholds

Tax thresholds – 2016

Under 65 R73 650

65 years and under 75 R114 800

75 years or older R128 500

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Individuals

Section 18A

Donations to a Public Benefit Organization (PBO) actually paid or transferred.

Total value of donation limited to 10% of Subtotal 2.

Must have received proof of donation (s18A(2)).

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- For donations made during the YOA commencing on or after 1 March 2014, any amount of a donation not allowed in the current YOA (due to the donation exceeding the limits for deduction set out above) can be rolled over and will be allowed as deductible donation in the following year(subject to the limits set out above). The excess can be rolled over from year to year until it is fully deductible.

Donations (s 18A)

- Married in community of property

- Married out of community of property

- Donations between spouses

- Donations to minor children

Spouses

Definitions:antedated salary or pensionmeans an amount of salary or pension which has become payable to any

person , made with retrospective effect, in respect of a period ending on or before the date on which the grant has become effective

Pensionmeans an annuity payable under any law or under the rules of a pension fund

or provident fund or by an employer to a former employee of that employer or to the dependant or nominee of a deceased person who was employed by such employer

Salarymeans salary, wages or similar remuneration payable by an employer to an

employee, but does not include any bonus or any amount referred to in subsection (4).

Antedated salaries (s7A)

If the period iro which the payment is made(the accrual period) commences before 1 March of the current YOA, the taxpayer can elect to spread the taxability of the payment

-If the accrual period commenced not more than two years before 1 March of the current YOA, the antedated salary or pension will be apportioned over the total accrual period on the basis of the number of months in each YOA

- If the accrual period commenced more than two years before 1 March of the current YOA, the antedated salary or pension will be deemed to have been received or accrued in three equal annual instalments. One third will be taxed in each of the current and previous two YOA. The previous two years’ assessments will therefore be reopened and reassessed

Antedated salaries (s 7A)

Variable Remuneration - s7B

Variable remuneration has a history of causing recurring problems between taxpayers and SARS,

due to interpretation differences regarding the timing of the accrual of these amounts the introduction of s 7B aims to address

effective from 1 March 2013.

s7B Variable remuneration is defined in s 7B(1) and includes

overtime pay, bonus or commission (as contemplated in the definition of ‘remuneration’ in par 1 of the Fourth Schedule

a travel allowance or advance paid in terms of s 8(1)(b)(ii), or

leave pay (an amount which an employer is liable to pay to an employee due to any leave period

which the employee has not taken during the year).

s7B

If a taxpayer is determining his taxable income during a year of assessment, any amount to which an employee becomes entitled from an employer in respect of variable remuneration, is deemed to have

- accrued to the employee, and

- will constitute expenditure incurred by the employer,

on the date of payment of the amount by the employer to the employee (s 7B(2)).

The timing of the accrual and incurral of variable remuneration will therefore be on the payments basis and will therefore only be included in the income of the employee (and be taken into account

for employees’ tax purposes) and be expenditure incurred on the date of payment.

Accumulated Leave Pay

Accumulated Leave Pay – from 1 March 2015

Accumulated leave payments are not lump sums and therefore not part of a Severance Benefits, but are payments in respect of services rendered, and must be included in gross income in terms of par (c) of gross income. The employees’ tax on such leave payments must be calculated in the same manner as employees’ tax on a bonus (and is also seen as variable remuneration (s 7B))

Accumulated Leave Pay

Therefore for the 2016 YOA, accumulated leave pay paid in consequence of relinquishment, termination, loss, repudiation, cancellation or variation of the person’ s office or employment and one of the following requirements have been met :

(a) the person has attained the age of 55 years, or

(b) the person has become permanently incapable of holding his or her office or employment due to sickness, accident, injury or incapacity through infirmity of mind or body, or

(c) the person’s employer (i) has ceased to carry on or intends to cease carrying on the trade in respect of which he or she was employed or appointed, or (ii) made a general reduction in personnel or a reduction in personnel of a particular class and he or she has become redundant in consequence thereof .

will be a par (c) gross income inclusion and not a par (d) gross income inclusion. Following from this, the accumulated leave pay will be taxed according to normal tax tables and not the retirement tax tables used to tax severance benefits.

Partnerships

The partnership is NOT an employer of the partners.

NO employer-employee relationship exists – except for s11(k) and s11(l).

Steps:

1. Calculate the Taxable income of the partnership

2. Make adjustments to the Partnership’s Taxable income based on Special rules

3. Add percentage of partnership income (based on profit-sharing ratio) to the partner’s taxable income

4. Continue with normal exemptions and deductions available to the partner to calculate partner’s taxable income

A partnership may be a registered VAT vendor. (see VAT slides for registration requirements). The partner’s do not register for VAT.

Partners responsible for tax on partnership in their personal capacity

Partnership is not a separate legal entity

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Partnerships

Interest paid by the partnership is a deduction for the partnership and an inclusion in gross income for the partners.

For the purposes of section 11(k), the partners are deemed to be employees of the partnership, hence they can claim a section 11(k) deduction for THEIR contributions to the partnership pension fund.

Normal gross income and exempt income rules apply to partners.

Premiums on the partners’ lives are not deductible under s11(a) as it is capital in nature

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Partnerships

The property of the partnership does not belong to the partnership as such since, as already noted, a partnership is not a legal entity. The property of the partnership, whether originally introduced into the partnership by one or more of the partners or subsequently bought by the partnership, belongs jointly to the individual partners who are its co-owners. Any capital allowances granted on assets must be apportioned between the partners according to the ratio in which they share profits or losses. Recoupments are included in their incomes in the same proportions. Not all property used in a partnership business is necessarily owned jointly by the partners. A partner may contribute property or buy assets for use in the partnership, it being the clear intention that they are not to form part of the property of the partnership, but are to be owned by the particular partner. In that event, it is submitted that the capital allowances that are deductible must be allowed in full to the partner who owns the assets and must be deducted from his share of the profits of the partnership. Certain capital allowances are calculated on the cost to the taxpayer of the particular asset. Therefore, when a partner lays out the cost, and the asset does not belong to the partnership, that partner is the taxpayer who enjoys the benefit of the capital allowances. The capital allowances on such assets are therefore not deducted in the calculation of the ‘taxable income’ of the partnership, but are only claimed as a deduction in the calculation of the taxable income of the individual partner.

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Partnerships

When the assets of a partnership include debt due to the partnership, the s 11(i) allowance for bad debt must be apportioned among the partners according to their profit-sharing ratios. Section 11(i) provides that the allowance for bad debt is only allowed if the amount is or was previously included in the taxpayer's income. On admitting a new partner to the partnership, the new partner may acquire an interest in debt that is owed to the partnership. Should the debt subsequently become bad, the new partner is not entitled to the s 11(i) allowance. The reason is that no portion of the debt was included in his income in previous years (the writing off of the debt could result in a capital loss for the new partner for CGT purposes). The other partners may also not obtain the benefit of the full allowance. It is a requirement of s 11(i) that the debt be due to the taxpayer. Therefore, the other partners may not claim the s 11(i) allowance in respect of the portion of the debt that was owed to the new partner.

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Partnerships

When an amount that was deducted in terms of s 11(i) is later recovered, the amount recovered is included in the person’s income in terms of par (n) of the definition of ‘gross income’ read with s 8(4)(a) as a recoupment. The amount recovered is only included in gross income to the extent that the person claimed a deduction in terms of s 11(i). Any bad debt recovered by a partnership will therefore be included in the partners’ gross income to the extent that the partners previously claimed a s 11(i) deduction in respect of the bad debt. If a specific partner did not claim a deduction for bad debt in terms of s 11(i) when the debt became bad (for example, the specific partner had not been admitted as a partner at the time when the debt became bad), the partner’s share in the amount recovered is not included in the partner’s gross income, since it is of a capital nature (such amount will also not be subject to CGT since there was no disposal of an asset).

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7373

V) Fringe benefit – Seventh Schedule

For the online examinations, candidates need to know the following in relation to fringe

benefits :

-What is the fringe benefit?

-- what is the value of the fringe benefits?

-- are there any` nil value ‘ for a particular `fringe benefit’?

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7474

Fringe benefit

ACQUISITION OF AN ASSET AT LESS THAN THE ACTUAL VALUE

taxable benefit shall be deemed to have been granted if any asset consisting of any

goods, commodity, marketable security or property of any nature (other than money)

is acquired by an employee from the employer, any associated institution or from any

person by arrangement with the employer, for no consideration or for a consideration

less than the value of the asset.

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- The value to be placed on the asset is the market value thereof at the time the

employee acquired the asset.

- However, where the asset is a:

- Movable property and the employer acquired the asset in order to dispose of it to the

employee, the value to be placed on the asset is the cost thereof to the employer

(excluding VAT)

- Trading stock of the employer, the value to be placed on the asset is the lower of the

cost thereof to the employer or the market value

- Marketable securities, the value to be placed on the asset is the market value

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7676

With effect from 01 March 2014 a taxable fringe benefit may arise where the employee

acquires an asset from the employer at less than the market value.

Relief for low cost housing will have no value if the:

- The remuneration proxy of the employee in respect of the year of assessment of

acquisition does not exceed R250 000 per annum;

- The market value of the immovable property to the employee on the date of

acquisition is not more than R450 000; and

- If the employee is not a connected person in relation to the employer.

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- Where assets are presented to the employee as an award for bravery or for long

service, the value determined is reduced by the lesser of the cost to the employer

of all such assets so awarded to the relevant employee during the tax year and

R5 000. For example, if the cost excluding VAT of the asset is R5 600, only R600

will be taxable and reflected on the IRP5/IT3 (a) certificate.

- Long Service award – unbroken period of 15 years.

Webinar: Professional Tax Technician (SA)

7878

RIGHT OF USE OF AN ASSET

A taxable benefit shall be deemed to have been granted where an employee is

granted the right of use of any asset (other than residential accommodation or any

motor vehicle) for private or domestic purposes, either free of charge or for a

consideration which is less than the value of such use.

Valued placed on benefit

Where the employer is leasing/hiring the asset: The amount of the rental payable by

the employer for the period during which the employee has the use of the asset.

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Where the employer owns the asset: An amount calculated for the period during

which the employee has the use of the asset, at the rate of 15% per annum on the

lesser of the cost of the asset to the employer and the market value of the asset at

the date of commencement of the period.

Sole right of use of the asset is granted to the employee: Where an employee is

granted the sole right of use of the asset for a period extending over the useful life of

the asset or a major portion thereof, the value to be placed on the use of the asset

shall be the cost thereof to the employer.

The taxable benefit will be deemed to have accrued to the employee on the date on

which he was first granted the right of use of such asset.

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Nil value

Exemptions in respect of assets used for private or domestic purposes are applicable when one of the following criteria is met:

- The private use is incidental to the use of the asset for the employer‘s business

- The asset is provided by the employer as an amenity for recreational purposes for the

use of his/her employees in general at his/her place of work

- Any equipment or machine that the employer allows his/her employees in to use in

general from time to time for short periods where the value of the private use of the

asset is negligible

- The asset consists of telephone or computer equipment which the employee uses

mainly for the purposes of the employer‘s business

- Books, literature, recordings or works of art

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8181

RIGHT OF USE OF A MOTOR VEHICLE

A taxable benefit shall be deemed to have been granted where an employee is

granted the right of use of any motor vehicle for private or domestic purposes. The

cash equivalent of the value of the taxable benefit shall be so much of the value of the

private use of such vehicle as exceeds any consideration given by the employee to the

employer for the use of such vehicle during such period, other than consideration in

respect of the cost of the licence, insurance, maintenance or fuel in respect of such

vehicle.

Value of benefit

From the 1 March 2015, the determined value is the retail market value:-

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- Determined value* (with effect from 1 March 2015) = Retail market value (excluding

finance charges) if the employer bought the motor vehicle

The original cost price (and, from 1 March 2015, the retail market value) if employer

leases the motor vehicle (other than an ‘operating lease’ in terms of s 23A) or acquires it

on termination of the lease

The market value (and, from 1 March 2015, the retail market value) of the motor

vehicle at the time when the employer first obtained the vehicle or the right of use

thereof or manufactured the vehicle, in any other case also the market value.

• The original cost of the motor vehicle (excluding finance charges but including VAT).

• The determined value is reduced by 15% per year (reducing balance method) for every

completed 12month period between the date of acquisition by the employer and the

date of granting the right of use to the employee.

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- This reduction does not apply if both the employee and the asset are transferred to an

associated institution

- Maintenance plan = contract covering all maintenance costs for not less than 3 years

and a distance of not less than 60 000 km

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- Where the employer has granted an employee the right of use of a motor vehicle and

a limit was placed on the value of such vehicle to be acquired for this purpose by the

employer and the employee makes a contribution towards the purchase price of a

more expensive vehicle, the determined value shall be the determined value as at the

date on which the employee was granted the right of use of such motor vehicle for the

first time.

- Where an employee and the motor vehicle allocated to him/her are both transferred to

an associated institution, the determined value of the motor vehicle must be

determined as on the date that the employee first became entitled to the right of use of

such vehicle

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Value Placed on benefit

- For each month during which the employee is entitled to use the vehicle for private purposes, the value is 3, 5% of the determined value of the motor vehicle.

- Effective 1 March 2012, the percentage rate for all employer-provided vehicles will be 3.5% per month of the vehicle‘s determined value. However, vehicles with maintenance plans included within the purchase price at the time of purchase will trigger only a 3.25% of the determined value of the motor vehicle.

- With effect from 1 March 2014, the value of the fringe benefit for vehicles under operating leases as defined in section 23A(1) is, in terms of paragraph 7(4)(a)(ii) is the actual cost to the employer incurred under that operating lease and the cost of fuel in respect of that vehicle

Webinar:

Amendment – In determining the value of the company car fringe benefit, the actual retail market value of the car should be used in all cases. Only applicable for motor vehicles that are acquired after 1 March 2015.

The “retail market value” (as determined by the Minister by Regulation) will be given.

Retail market value includes VAT

Right of Use of a Motor Vehicle – Amendment

Right of Use of a Motor Vehicle

Right of Use of a Motor Vehicle (Paragraph 7)

1. ‘Determined Value’: Retail Market Value reduced by 15% on the reducing balance method for every full 12 months from date of purchase to date of right of use granted.

2. Multiplied by 3.5% or 3.25% (includes a maintenance plan)

3. Multiplied by the number of months the right of use was granted in the YOA.

4. EQUALS the Value of Private Use.

5. Value of Private Use will be reduced by:

Business km deduction (par. 7(7)): Private Use value x (Business km/Total km).

Licence deduction (par. 8(a)(i)): Licence cost x (Private km/Total km)

Insurance deduction (par. 8(a)(ii)): Full cost of insurance x (Private km/Total km)

Maintenance deduction (par. 8(a)(iii)): Maintenance Cost x (Private km/Total km)

Fuel deduction (par. 8(b)): Value per table x Private km.

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6. Cash Equivalent = Value of Private Use LESS Consideration

More than 1 vehicle: Use highest Private Use value UNLESS either of 2 vehicles receives any deduction. If so, include both.

Right of Use and Travel Allowance: No Travel Allowance Deduction!

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Where the company car is acquired by the employer under an operating lease

Must meet requirements of an operating lease:-

The employer must rent the vehicle from a lessor in the ordinary course of the lessor’s business.

The vehicle may be leased by the general public for a period of less than a month


The costs of maintaining the vehicle must be borne by the lessor

The risk of loss or destruction of property must not be assumed by the lessee.

Right of Use of a Motor Vehicle Where the vehicle is acquired by the employer under an operating lease,

the actual cost to the employer incurred under the operating lease and the cost of fuel in respect of that vehicle, will be the value of the private use.

Par 7(8) reduction does not apply to a vehicle acquired by the employer under an operating lease

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Nil value

The private use of a motor vehicle by the employee shall be deemed to have no value, if:

- The vehicle is available to and is used by other employees of the employer in general

and the private use of the vehicle by the employee is infrequent or is merely incidental

to the business use and the vehicle is not normally kept at or near the residence of the

employee concerned when not in use outside business hours; or

- The nature of the employee‘s duties are such that he/she is regularly required to use

that vehicle for the performance of such duties outside his/her normal hours of work

and he/she is not permitted to use such vehicle for private purposes other than:

i)Travelling between his/her place of residence and place of work, or

ii)Private use which is infrequent or is merely incidental to its business use.

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9393

MEALS, REFRESHMENTS AND MEAL AND REFRESHMENT VOUCHERS

A taxable benefit shall be deemed to have been granted where the employee has

been provided with any meal or refreshment or voucher entitling him/her to any meal

or refreshment, either free of charge or for a consideration which is less than the value

of such meal, refreshment or voucher.

Value of the Benefit

The amount of the cost to the employer less any consideration paid by the employee.

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Nil value

Shall be placed on:

- Any meal or refreshment supplied by an employer to his/her employees in any canteen, cafeteria or dining room operated by or on behalf of the employer and patronised wholly or mainly by his employees

- Any meal or refreshment supplied by an employer to his/her employees mainly by his/her employees on the business premises of the employer.

- Any meal or refreshment supplied by an employer to any employee during business hours or extended working hours or on special occasions.

- Any meal or refreshment enjoyed by an employee in the course of providing a meal or refreshment to any person whom the employee is required to entertain on behalf of the employer.

- Board and meals provided with accommodation. They are dealt with as part of the accommodation benefit.

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9595

ACCOMMODATION

A taxable benefit shall be deemed to have been granted where the employer has

provided the employee with residential accommodation either free of charge or for a

rental consideration which is less than the value of such accommodation.

Value of the benefit

Any residential accommodation supplied by the employer is valued as follows:

Rental value for the year ………..……………..…..R xxx

Less: amount paid by the employee …………… .R xxx

Value of benefit …………………………………..…R xxx

Webinar:

9696

The rental value is determined is different ways:

- An amount determined using a formula less the amount paid by the employee for the

accommodation

- An amount in respect of holiday accommodation

- An amount determined by treating an option price as a low interest loan

Webinar:

Fringe Benefits

Residential Accommodation (Paragraph 9)

Cash equivalent value = Rental Value LESS consideration.

If rented by the employer, Rental Value is the lesser of:

(A-B) x (C/100) x (D/12); or

Rentals payable and any other expenditure defrayed.

WHERE:

A= Remuneration proxy,

B = R73 650,

C

= 17 (Less than 4 rooms)

= 18 ( at least 4 rooms AND power OR furniture)

= 19 ( at least 4 rooms AND power AND furniture),

D=No. of months use.

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If employer-provided accommodation is rented by the employer from an unconnected third party, the rental value will be determined as the lower of the cost to the employer in providing the accommodation or the rental value as determined in the Income Tax Act

Effective from 1 March 2015

Residential Accommodation – Amendment

9999

FREE OR CHEAP SERVICES

A taxable benefit shall be deemed to have been granted if any service has at the expense of the employer been rendered to the employee (whether by the employer or by some other person) and that service has been utilised by the employee for his/her private or domestic purposes and no consideration or an inadequate consideration has been given by the employee.

Value of benefit

In the case of any travel facility granted by an employer engaged in the business of conveying passengers for reward by sea or air, to enable any employee or his/her relative to travel to any destination outside the Republic for private purposes, an amount equal to the lowest fare

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payable by any passenger utilising such facility less any amount paid by the employee or his/her relative. For this purpose, the forward and return journey is regarded as one journey.

- In the case of rendering of any other service, the cost to the employer in rendering such service or having such service rendered, less any amount paid by the employee.

Nil value

Shall be placed on:

Any travel facility granted by an employer engaged in the business of conveying passengers for reward by land, sea or air, to enable any employee, his/her spouse or minor children to travel:

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to any destination in the Republic or to travel overland to any destination outside the Republic

- To any destination outside the Republic if such travel was undertaken on a flight or voyage made in the ordinary course of the employer‘s business and such employee, spouse, or minor child was not permitted to make a firm advance reservation of the seat or berth occupied by him/her.

- Any transport service rendered to employees in general for the conveyance of such employees from their home to the place of their employment and vice versa.

- Any communication service provided to an employee if the service is used mainly for the purposes of the employer‘s business.

- Services rendered to employees at their place of work:

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- For better performance of their duties

- As a benefit to be enjoyed by them at their place of work

- For recreational purposes at work or a place of recreation, other than at the place of work that is for the use of employees in general.

- The provision of parking for motor vehicles of personnel at their place of work is not a taxable benefit.

- Any travel facility granted by an employer to the spouse or minor child of the employee if: The employee is for the duration of his/her employment stationed for purposes of the employer‘s business at a specific place in the Republic further than 250 kilometres away from his/her usual place of residence in the Republic and the employee is required to spend more than 183 days of the year at the aforementioned business place (Such a facility is granted in respect of travel between the employee‘s usual place of residence in the Republic and that specific place where the employee is so stationed).

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LOW INTEREST OR INTEREST FREE LOANS

Prescribes that a taxable benefit shall be deemed to have been granted if a debt (other than a debt for purposes of the payment of any consideration in respect of any qualifying equity share in terms of section 8B by the employee, the payment of any securities transfer tax payable in respect of that share or a debt in respect of which a subsidy is payable has been incurred by the employee), has been incurred by the employee, whether in favour of the employer or in favour of any other person by arrangement with the employer or any associated institution in relation to the employer and either :-

(i) no interest is payable by the employee in respect of such debt or

(ii) interest is payable by the employee in respect thereof at a rate lower than the official rate of interest.

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Value of benefit

The amount of interest that would have been paid on the loan during the tax year if any interest had been paid at the official rate, less the amount of interest (if any) actually incurred by the employee.

Nil value

Shall be placed on the benefit derived in consequence of:

- The granting of a casual loan or loans if the aggregate of such loans do not exceed the sum of R3 000 at any time. The loans contemplated in this exclusion are short-term loans granted at irregular intervals to employees and not all loans merely because they are less than R3 000. A taxable benefit would arise if the loans were granted on a regular basis to all employees or a certain category of employees notwithstanding the fact that the loan does not exceed R3 000

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- The granting of a loan for the purposes of enabling the employee to further his/her own studies.

If a financial institution such as a bank provides loans to its employees at the same rate as to the customers of the institution on the same conditions and under the same circumstances, no taxable benefit will accrue if such customer rate is below the official interest rate.

If a low interest or interest free loan is provided to a director of a company or to a member of a close corporation, no taxable benefit will accrue if such loan is, for example, provided only as a result of the director‘s shareholding and not in respect of any services rendered. In such a case, the interest on the loan will not be deductible in the hands of the company or close corporation.

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SUBSIDIES IN RESPECT OF LOANS

That a taxable benefit shall be deemed to have been granted if the employer has paid any subsidy in respect of the amount of interest or capital repayments payable by the employee in terms of any debt.

That a taxable benefit shall be deemed to have been granted if the employer has made a payment to a third party in respect of the granting by that party of a low interest or interest free loan to an employee. Such payment would be deemed to be a subsidy.

Value of benefit

The amount of any subsidy paid by the employer in respect of the amounts of interest or capital repayments

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PAYMENT OF EMPLOYEE’S DEBT OR RELEASE OF EMPLOYEE FROM AN OBLIGATION TO PAY A DEBT

A taxable benefit shall be deemed to have been granted if the employer has paid an amount owing by the employee to a third party, whether directly or indirectly, without requiring the employee to make any payment for the amount paid or the employer has released the employee from an obligation to pay an amount owing by the employee to the employer. This excludes medical contributions made by the employer or medical costs incurred by the employer, pension or provident fund contributions made by the employer.

Value of benefit

- The amount paid by the employer or the amount of the debt from which the employee has been released.

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Nil value

No value shall be placed on the taxable benefit under the following circumstances:

- The employer has paid subscription fees to a professional body if such membership of such body is a condition of the employee's employment

- Insurance premiums indemnifying an employee solely against claims arising from negligent acts or omissions on part of the employee in rendering services to the employer

- Any portion of the value of a benefit which is payable by a former member of non-statutory force or service as defined in the Government Employees Pension Law, 1996 to the Government Employees‘ Pension Fund.

- No value shall be placed on the benefit should the new employer grant a low interest or interest free loan to the employee in order to enable him/her to recompense the previous employer. However, a refund of any bursary, study loan or similar assistance by an employer on behalf of his/her employee to the employee's previous employer, is not regarded as a taxable benefit, if:

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The employee‘s previous employer made a grant on condition that the employee rendered service to the employer for an agreed period.

- On termination of service before the expiration of the period agreed upon, the employee is liable to refund an amount to his/her previous employer.

- Upon accepting employment with a new employer, the outstanding amount is refunded to the previous employer by the new employer on behalf of the employee.

- The employee consequently is liable to work for the new employer for a period not shorter than the remaining period which he/she should still have worked for the previous employer.

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MEDICAL SCHEME CONTRIBUTIONS PAID BY AN EMPLOYER

A taxable benefit shall be deemed to have been granted where the employer contributes directly or indirectly, to a medical scheme on behalf of an employee and his/her dependants

Value of the benefit

- The amount of the contribution or payment by the employer (directly or indirectly) to a medical scheme for the benefit of the employee and dependants of such employee for any period.

- The amount of contributions paid by the employer on behalf of an employee who is 65 years and older and is still in the employ of such employer, it is a taxable fringe benefit with effect from 1 March 2012.

.

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Nil value Shall be placed on the benefit, if the payment by the employer is made on behalf of:

- A person who has retired by reason of age, ill-health or other infirmity retired from the employ of such employer

- The dependants of a former employee after the death of the employee retired from the employ of such employer by reason of age, ill-health or other infirmity

- The dependants of a deceased employee after such employee‘s death, if such deceased employee was in the employ of the employer on the date of death.

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MEDICAL COSTS INCURRED BY AN EMPLOYER

A taxable benefit shall be deemed to have been granted where the employer, directly or indirectly, incurred any amount (other than a medical scheme contribution paid to a registered medical scheme) in respect of medical, dental and similar services, hospital services, nursing services or medicines provided to the employee, his/her spouse, child, relative or other dependant.

The value of the benefit

The amount incurred by the employer (directly or indirectly) in respect of any medical, dental and similar services, hospital services, nursing services or medicines in respect of that employee, his/her spouse, child or other relative or dependents.

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No value must be placed on any benefit:

- Resulting from the provision of medical treatment listed in any category of prescribed minimum benefits determined by the Minister of Health in terms of section 67(1)(g) of the Medical Schemes Act no. 131 of 1998, which is provided to the employee or his/her spouse or children in terms of a scheme or programme of that employer:

i) Which constitutes the carrying on of the business of medical schemes if that scheme or programme is approved by the Registrar of Medical Schemes as being exempt from complying with the requirements of medical schemes

ii) Which does not constitute the carrying on of the business of medical schemes, if that employee and his/her spouse and children:

• Are not beneficiaries of a medical scheme registered under the Medical Schemes Act no. 131 of 1998

• Are beneficiaries of such medical scheme and the total cost of that treatment is recovered from that medical scheme.

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- Where the services are rendered or the medicines are supplied for purposes of complying with any law of the Republic.

- Derived from an employer by:

• A person who by reason of age, ill-health or other infirmity retired from the employ of that employer

• The dependants of a person after that person‘s death, if that person was in the employ of that employer on the date of death

• The dependants of a person after that person‘s death, if that person retired from the employ of that employer by reason of age, ill-health or other infirmity

• An employee who is 65 years or older

- Where the services are rendered by the employer to its employees in general at their place of work for the better performance of their duties.

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BENEFITS IN RESPECT OF INSURANCE POLICIES

A taxable benefit shall be deemed to have been granted where the employer, the employer has made any payment to any insurer under an insurance policy directly or indirectly for the benefit of the employee or his or her spouse, child, dependent or nominee: Provided that this paragraph shall not apply in respect of an insurance policy that relates to an event arising solely out of and in the course of employment of the employee.

The value of the benefit

Amount of premiums paid.

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Allowances

Section 8

Reimbursive allowances are not taxable (Section 8(1)(a)(ii)).

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Travelling Allowance

• Deemed expenditure table has changed with effect from 1 March 2015

See revised table

Bands increase in R80 000 increments

Fixed cost, fuel and maintenance also increases

• Reimbursive travel allowance where business km’s less than 8 000 p/a decreased from R3.30/km to R3.18/km

Travelling Allowance

Value of the vehicle

(including VAT)Fixed cost Fuel cost

Maintenance

cost

R R per annum c per km c per km

0 – 80 000 26 105 78.7 29.3

80 001 – 160 000 46 505 87.9 36.7

160 001 – 240 000 66 976 95.5 40.4

240 001 – 320 000 84 945 102.7 44.1

320 001 – 400 000 102 974 109.9 51.8

400 001 – 480 000 121 886 126.1 60.8

480 001 – 560 000 140 797 130.4 75.6

Exceeding 560 000 140 797 130.4 75.6

Allowances

Travel Allowance (Section 8(1)(b))

Total Amount Received LESS the GREATER of:

Actual cost per km x Business km; or

Deemed cost per km x Business km;

Given rate (R3.18) x Business km.

Only if Total km (of all vehicles) < 8000km.

• Deduction only allowed if actual records of distance travelled are kept.

• Actual cost only allowed if records of actual cost are kept.

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Travel AllowancesIf the travel allowance is based on a rate per km travelled and not a fixed allowance:

Follow the same principles as for a fixed travel allowance, only now there is a third option if:

The total business kilometers travelled does not exceed 8 000 km during the year of assessment; and

No other travel allowance or reimbursement may be paid by the principal to the employee.

Then: the taxpayer may elect to use 318 cents per kilometer as the cost per kilometer

Allowances

Travel Allowance

Actual cost:

Fixed Costs: Value of vehicle (limited to R560 000) divided by 7.

Financing Costs: Amount Limited to amount as if the principal of the loan was R560 000.

Any other actual cost, such as repairs, fuel, etc..

Deemed Cost (Refer to new table – 2016):

Fixed cost: Fixed cost per bracket divided by total km (take note that apportionment for time may be necessary)

Fuel: Value per bracket (only if bears fuel cost)

Maintenance: Value per bracket (only if bears maintenance cost)

Travelled LESS THAN 8000km in total (consider all vehicles), then consider R3,18.

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Allowances

Subsistence Allowance (Section 8(1)(c))

Total amount received LESS the GREATER of: Actual Cost (must have records); or

Deemed Cost :

Incidental costs only: R109 per day.

Meals and Incidental costs: R353 per day.

Any allowance related to accommodation: Total received LESS actual costs.

Must have been actually received, and actually away from home.

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Allowances

Holder of Public Office Allowance (Section 8(1)(d))

Amount received LESS any amounts used to defray expenditure (listed in s8(1)(d) .

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Review of deduction for medical expenses per section 6A and section 6B

Medical expenses are divided into two distinct categories

- Contribution paid to a registered medical aid scheme (Section 6A )

- Other qualifying medical expenses (usually referred to as out-of-pocket expenses) - (Section 6B)

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Section 6A – Medical Scheme fees tax credit

- Refers to the contributions to a medical aid scheme will be used to determine theMedical Tax Credit the taxpayer is entitled to claim in the form of a rebate;

- contributions must have been paid by the taxpayer to any medical schemeregistered under the provisions of the Medical Schemes Act (Act 131 of 1998);

- Implies that the taxpayer may make any contributions for him- or herself, his or herspouse and any dependant, to any medical scheme;

Contributions paid by a person other than the taxpayer - not be taken into account when the Medical Tax Credit is determined for the taxpayer, except for –

i) qualifying medical costs paid by the estate of a deceased taxpayer for the period up to the date of the taxpayer’s death and

ii) qualifying medical costs paid by an employer of the taxpayer, to the extent that the amount has been included in the income of the taxpayer as a taxable benefit.

- Taxpayers will qualify for a medical tax rebate on based on the number of dependants for whom the taxpayer contributes to a medical scheme

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Section 6B -Additional Medical expense tax credit

Only qualifying medical expenses which were paid by the taxpayer personally, willbe taken into account in determining the Medical Tax Credit that the taxpayer willbe entitled to claim as a rebate.

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- The term ‘dependant’ ito s6B means

(a) a person’s spouse;

(b) a person’s child and the child of his or her spouse;

(c) any other member of a person’s family in respect of whom he or she is liable for family care and support; and

(d) any other person who is recognised as a dependant of that person in terms of the rules of a medical scheme or fund

- Section 6B(1) also defines the term ‘child’. The taxpayer can claim for a child who was alive during any portion of the year of assessment.

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“child” means a person’s child or child of his or her spouse who was alive during any portion of the year of assessment, and who on the last day of the year of assessment—

(a) was unmarried and was not or would not, had he or she lived, have been—

(i) over the age of 18 years;

(ii) over the age of 21 years and was wholly or partially dependent for maintenance upon the person and has not become liable for the payment of normal tax in respect of such year; or

(iii) over the age of 26 years and was wholly or partially dependent for maintenance upon the person and has not become liable for the payment of normal tax in respect of such year and was a full-time student at an educational institution of a public character; or

(b) in the case of any other child, was incapacitated by a disability from maintaining himself or herself and was wholly or partially dependent for maintenance upon the person and has not become liable for the payment of normal tax in respect of that year;

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In terms of s1 , “child”, in relation to any person, includes any person adopted

by him or her—

(a) under the law of the Republic; or

(b) under the law of any country other than the Republic, provided the adopted person is under such law accorded the status of a legitimate child of the adoptive parent and the adoption was made at a time when the adoptive parent was ordinarily resident in such country;

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“disability” means a moderate to severe limitation of any person’s ability to function or perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment, if the limitation—

(a) has lasted or has a prognosis of lasting more than a year;

and

(b) is diagnosed by a duly registered medical practitioner in accordance with criteria prescribed by the Commissioner;

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To qualify for a deduction for medical expenses, the taxpayer must meetall the aforementioned requirements. If, for example, the child is 21 yearsold, but is liable for income tax, the taxpayer cannot claim any medicalexpenses for him or her.

If the child is under 18, but is married, the taxpayer may not be able toclaim the medical expenses paid for him or her.

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Individuals

Medical Deductions

From 2015 Year of Assessment: Section 6A and Section 6B (Section 18 DELETED).

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Medical scheme fees tax credit

Section 6A(2)(b) – the monthly amount of the medical scheme credit is:

Benefits to the taxpayer: R270 (2016);

Benefits to the taxpayer and one dependant: R540 (2016);

Benefits to each additional dependant: R181 (2016).

Additional Medical Credits – s 6B continued…s6(B)(3)(a)

65 years and older

33,3% of

Excess of (s6A(2)(a) contributions paid

less (3 × s 6A(2)(b) - medical scheme fees tax credit))

plus

All the amounts in par (a),(b) and (c) of the definition of qualifying medical expenses

Additional Medical Credits – s 6B continued…s6(B)(3)(b)

The person, his or her spouse or his or her child is a person with a disability

33,3% of

Excess of (s6A(2)(a) contributions paid

less (3 × s 6A(2)(b) - medical scheme fees tax credit))

plus

All the amounts in par (a),(b) and (c) of the definition of qualifying medical expenses

Additional Medical Credits – s 6B continued…s6(B)(3)(c)

All other cases

Step 1: Total Contributions to Medical Scheme- s6A(2)(a)

Step 2: LESS 4 x Section 6A(2)(b) credit

Step 3: PLUS All the amounts in par (a),(b) and (c) of the definition of qualifying medical expenses

Step 4: LESS 7.5% of Taxable Income BEFORE lump sums from funds and severance benefits = BALANCE

Step 5: Multiply BALANCE by 25%

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Capital Gains Tax (CGT) – as per the the Eight Schedule

In order to calculate a capital gain or loss, four requirements have to be met:

(1) There has to be an asset. The definition is wide enough to include virtually any asset.

(2) There must have been a disposal of the asset during the year of assessment. A disposal is the event that triggers CGT, which includes deemed disposals

(3) The base cost of the asset must be determined. In general terms, the base cost of an asset

includes the following:

acquisition cost

improvement cost

direct cost in respect of the acquisition and disposal of the asset.

(4) The proceeds on disposal of the asset must be determined (normally referred to as the selling price of the asset).


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- CGT is triggered until an `asset’ is `disposed of’.

What is an `asset’ ?

“asset” includes—

(a) property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency, but including any coin made mainly from gold or platinum; and

(b) a right or interest of whatever nature to or in such property;

The definition includes both non-capital assets and capital assets. Any amount already taken into account for income tax purposes will be excluded from proceeds (par 35(3)(a)) and base cost (par 20(3)(a)). The result of these exclusions will be a CGT effect of Rnil on non-capital assets as the proceeds and base cost have already been taken into account for normal income tax purposes (for example trading stock).

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The definition of an asset is wide enough to include virtually any asset. This includes,

for example, fixed property, listed or unlisted shares, gold coins, machinery, plant,

vehicles and aircraft. Intellectual property such as trademarks, copyright and goodwill

are also included. Any debit loan (whether interest bearing or not) fixed deposits, as

well as outstanding debtors fall within the definition of an ‘asset’.

Rights that can be disposed of or turned into money (like personal rights) are also

considered assets for CGT purposes, for example land claims

The definition of an asset excludes currency, but includes coins that are made mainly

from gold or platinum. Where cash is donated, there would be no capital gains tax as

cash is not an asset. Kruger Rands, for example, will be considered to be an asset.

Coins that are made mainly from gold or platinum are also not personal-use assets

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What is a disposal for CGT purposes?

The disposal of an asset triggers the liability for CGT and it is, therefore, fundamental to the application of CGT.

A disposal is any event, act, forbearance, or operation of law, which results in the creation, variation, transfer, or extinction of an asset.

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Events giving rise to a disposal are :

- Sale, donation, expropriation, conversion, grant, cession, exchange or any other alienation or transfer of ownership

- Forfeiture, termination, redemption, cancellation, surrender, discharge, relinquishment, release, waiver, renunciation, expiry or abandonment

- Scrapping, loss, or destruction

- Vesting of an interest in an asset of a trust in a beneficiary

- Distribution of an asset by a company to a holder of shares

- Granting, renewal, extension or exercise of an option

- Decrease in value of a person's interest in a company, trust or partnership as a result of a ‘value shifting arrangement

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The following events are not disposal:

- The transfer by a person of an asset as security for a debt or by a creditor who transfers that asset back to that person upon release of the security.

- There is no disposal by a company in respect of the issue, cancellation or extinction of a share in the company; or the granting of an option to acquire a share in or certificate acknowledging or creating a debt owed by that company, other than a share, option or certificate issued to any person by a company that is a resident in exchange, directly or indirectly, for shares in a foreign

- The issue by a collective investment scheme (CIS) of a participatory interest in that CIS, and the granting of an option by that CIS to acquire a participatory interest in that CIS.

- The issue of any debt by or to a person

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- A disposal made to correct an error in the registration of immovable property in that person’s name in the deeds registry.

- The vesting of the assets of the spouse of an insolvent in the Master of the High Court or in a trustee

- A transaction under which any security is lent by a lender to a borrower under a ‘securities lending arrangement’.

- When an equity instrument contemplated in s 8C has not yet vested.

- When a marketable security is ceded or the rights released for a consideration that consists of other marketable securities as contemplated in s 8A(5).

- In respect of shares held in a company, where that company

subdivides or consolidates those shares;

converts shares of par value to no par value or of no par value to par value, or

converts shares in terms of section 40A or 40B solely in substitution of the shares held, and

– the proportionate participation rights and interests remain unaltered, and

– no other consideration passes in consequence of that subdivision, consolidation or conversion.

- Where a person exchanges a qualifying equity share for another qualifying equity share as contemplated in s8B(2)

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- Proceeds

The amount received by or accrued to the seller on disposal of the asset constitutes the proceeds. Assets disposed of by donation, for a consideration not measurable in money, or to a connected person at a non-arm’s-length price are treated as being disposed of for an amount received or accrued equal to the market value of the asset. Amounts included in income such as a recoupment of capital allowances are excluded from proceeds.

Also includes the amount by which any debt owed by that person has been reduced or discharged and any amount received by or accrued to a lessee from the lessor of property for improvements effected to the property.

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Base cost

Broadly the determination of the base cost of an asset depends on whether it was acquired –

• on or after 1 October 2001; (expenditure incurred in acquiring the asset)

• before 1 October 2001(the value on 1 October 2001 referred to as Valuation date value plus any expenditure incurred on or after 1 October 2001; or

• by donation, for a consideration not measurable in money or from a connected person at a non-arm’s length price.

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Some of the main costs that qualify to be part of the base cost of an asset include –

• the costs of acquisition or creation of the asset;

• the cost of valuing the asset for the purpose of determining a capital gain or loss;

the following amounts actually incurred as expenditure directly related to the acquisition or disposal of the asset, namely –

- the remuneration of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal advisor, for services rendered;

- transfer costs;

- securities transfer tax, transfer duty or similar duty;

- advertising costs to find a seller or to find a buyer;

- moving costs;

-installation costs including foundations and supporting structures;

- sales commission

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- cost of an option used to acquire or dispose of the asset;

- cost of establishing, maintaining or defending a legal title to or right in the asset;

- a portion of donations tax payable by the donor or the donee on an asset disposed of by donation

- cost of effecting an improvement to or enhancement of the value of the asset(swimming pool, jacuzzi)

- value-added tax incurred on an asset and not claimed as an input tax credit for VAT purchases.

(Not an inclusive list – )

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Capital gain

A person’s capital gain during the current year is equal to the amount by which the

proceeds received or accrued on the disposal exceed the base cost of the asset.

Capital loss

A person’s capital loss in respect of the disposal of an asset during a year of

assessment is equal to the amount by which the base cost of that asset exceeds the

proceeds received or accrued in respect of that disposal.

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Capital gain or capital loss – EXAMPLE

Gain Loss

R R

Proceeds 10 000 Proceeds 10 000

Less: Base cost (5 000) Less: Base cost (20 000)

Capital gain 5 000 Capital loss (10 000)


Individuals Section 26A

Taxable Capital Gain inclusion in Taxable Income.

150

FRAMEWORK R

Sum of Capital Gains (In accordance with the 8th schedule) XXX

LESS Sum of Capital Losses (In accordance with the 8th schedule) (XXX)

EQUALS Balance XXX

LESS/PLUS Annual Exclusion (Reduces Capital Gain and Capital Loss) (30 000)

EQUALS Aggregate Capital Gain XXX

LESS Assessed Capital Loss Brought Forward (XXX)

EQUALS Net Capital Gain/Assessed Capital Loss XXX

MULTIPLIED BY Inclusion Rate of Net Capital Gain/ ACL cf 33.3%

EQUALS Taxable Capital Gain XXX

Capital Gains Exclusions and Rates

No changes from 2015 YOA

Therefore for 2016 YOA

- Annual Exclusion – R30 000

- Annual Exclusion in year of death – R300 000

- Primary Residence Exclusion – R2 000 000

- Small Business Assets Exclusion – R1 800 000

- Also no changes to rates

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The inclusion rate

- An individual’s taxable capital gain for the 2013 to 2016 years of assessment is 33,3% of the net capital gain (for the 2012 and earlier years: 25%).

- Capital gains and losses on the disposal of specified assets are excluded from CGT. Some of the important exclusions include the following:

• Personal-use assets, which include personal belongings such as a motor vehicle (including a motor vehicle for which you receive a car allowance), a caravan, artwork, stamp collection, furniture and household appliances and other assets used mainly (that is, more than 50%) for a non-trade purpose

• Boats not exceeding ten metres in length and aircraft having an empty mass of 450 kilograms or less which are personal-use assets

• Lump sum payments from pension, pension preservation, provident, provident preservation and retirement annuity funds (approved retirement funds)

• Proceeds from an endowment policy or life insurance policy (but not if it is a second-hand policy or a foreign policy)

• Compensation for personal injury or illness

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- Prizes or winnings from gambling, games or competitions which are authorised by, and conducted under, the laws of South Africa, for example, the National Lottery

- Donation or bequest of an asset to an approved public benefit organisation

- Disposal of an interest in a foreign company on or after 1 January 2013(certain requirements must be met eg, at least 10% interest and held for at least 18 months)

- An award for land restitution under the Restitution of Land Rights Act 22 of 1994

- A tax-free investment under section 12T (effective from 1 March 2015)

- Assets used to produce exempt income

(Not an inclusive list –)

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Excluded from personal use assets –

An aircraft with an empty mass exceeding 450 kg.

A boat exceeding ten metres in length (a ‘boat’ being defined as any vessel used or capable of being used in, under or on the sea or internal waters, whether self-propelled or not and whether equipped with an inboard or outboard motor) (par 1).

Any fiduciary, usufructuary or other like interest, the value of which decreases over time.

A right or interest of whatever nature to or in any of the above assets.

Any capital loss must be disregarded in terms of par 15 (to the extent that it is used for purposes other than trade), but a capital gain must be taken into account.

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Excluded from personal use assets –

A coin made mainly from gold or platinum, the market value of which is mainly attributable to the material from which it is minted or cast.

Immovable property.

A financial instrument

Any contract, including a reinsurance policy in respect of such a contract, under which a person, in return for payment of a premium, is entitled to policy benefits upon the happening of a certain event, but excluding any short-term policy (see below).

Any short-term policy but only to the extent that it relates to any asset that is not a personal-use asset.

A right or interest of whatever nature to or in any of the above assets.

Any capital gain or loss is not disregarded, but is taken into account when calculating the aggregate gain or loss.

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Inclusion rate and taxable capital gain – for companies

- The taxable capital gain of a company is determined by multiplying the net capital gain

by the inclusion rate. For years of assessment commencing on or after 1 March 2012

the inclusion rate of a company or close corporation is 66,6%. For earlier years of

assessment the inclusion rate was 50%.

There no annual exclusion for companies.

The effective rates for companies and close corporations is 18.65%. This is arrived as

follows:

It is given that the Capital gain = R150 150 x 66.6% - the inclusion rate for companies

Then the taxable capital gain of a company is = R100 000and which will be included in

the company’s taxable income and taxed at the rate of 28%, that is, R100 000 × 28%

= R28 000. The effective rate of tax on the sum of all the gains and losses is R28 000 /

R150 150 × 100 = 18.65%.

- Therefore effective rates for Individuals and Special Trusts is 13,65% and Companies is

18,65% and Other Trusts is 27,31%

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Small business assets (para 57)

Disregard capital gain on disposal of ‘active business assets’ Immovable property or assets used and held wholly and exclusively for business purposes

Exclude: Financial instruments and assets held to mainly derive income in the form of an annuity, rental income, a foreign exchange gain or royalty (income of a similar nature)

Exclusion - to a limit of R1.8 million during the natural person’s lifetime

Small business – Market value of all assets at date of disposal of the assets or interest does not exceed R10 million.

CGT

Residential ExclusionPrimary Residence = Ordinarily reside as primary residence AND use mainly for

domestic purposes.

General Principle: Natural person must disregard R2 000 000 of the capital gain OR capital loss

on disposal of primary residence as defined. Natural person can disregard entire capital GAIN on disposal of primary

residence if: Proceeds on disposal are R2 000 000 or less The residence was not used for business purposes throughout period of

ordinary residence and The person was ordinarily resident throughout the period of holding the

house.

CGT

Meaning of ‘primary residence’

The term ‘primary residence’ is defined as one in which a natural person or a special trust holds an

‘interest’. In addition, the natural person or a beneficiary of the special trust or the spouse of the person or beneficiary must

- ordinarily reside or have resided in the residence and regard it as his main residence, and

- use or have used it mainly for domestic purposes – MORE THAN OR = TO 50% USED FOR DOMESTIC PURPOSES

CGT

‘Residence’ is defined as ‘any structure, including a boat, caravan or mobile home, which is used as a place of residence by a natural person, together with any appurtenance belonging thereto and

enjoyed therewith’.

CGT

An interest is defined as

(a) any real or statutory right, or

(b) a share in a share block company (or in a similar entity which is not a resident), or

(c) a right of use or occupation

but excluding a

a right under a mortgage bond, or

right or interest in a trust or trust asset other than a right of a lessee who is not a connected

person in relation to that trust (par 44).

This means that a person may hold an interest in a residence by owning it, by holding shares in a share block company or even by holding a mere right to occupy the residence (for example a 99-year lease or any similar right).

CGT

The primary residence exclusion is limited to a land size of two hectares.

When a person disposes of a primary residence together with the land on which it is situated, the exclusion of the capital gain or loss will apply only to so much of the land, including unconsolidated adjacent land as does not exceed two hectares

CGT

Uninterrupted ordinary residence is required.

An adjustment must be made when a person has occupied a residence as his primary residence for only a part of the period. The capital gain or loss to be disregarded in these circumstances must be determined with reference to the period during which the person concerned was ordinarily resident in the residence.

CGT

Exception (par 48)

There is an exception to the par 47 rule of uninterrupted residence in certain circumstances. A natural person or a beneficiary of a special trust is treated as being ordinarily resident in a residence for

the purposes of par 47 for a continuous period of up to two years if he does not reside in it during this period for any of the following reasons:

The residence was offered for sale while it was his primary residence and he vacated it due to the acquisition, or intended acquisition, of a new primary residence.

CGT

The residence was erected on land acquired for the purposes of building his primary residence.

The residence was accidentally rendered uninhabitable.

The taxpayer died.

CGT

Any trade use of the primary residence is not allowed.

An adjustment must be made to the primary residence exclusion in the situation where part of the residence is used by a person or beneficiary of a special trust for domestic purposes and also for the purpose of carrying on of a trade.

CGT Exception

An exception to this rule applies in certain circumstances where the trade constitutes the temporary letting of the property. A person will be treated as having used a residence for domestic purposes for the purposes of par 49, even though he is absent from it for a continuous period of up to five years while it is being let. A non-trade adjustment is therefore not necessary in such a case. This concession applies if

the person concerned resided in the residence as a primary residence for a continuous period of at least one year prior to and after the period of letting, and

No other residence was treated as his primary residence during the period of letting, and

he was either temporarily absent from South Africa during the period of letting or was employed or engaged in carrying on business in South Africa at a location further than 250 kilometres from the residence during the relevant period

PLEASE NOTE : Where the par 50 period of absence exceeds five years, the natural person or the beneficiary of a special trust is treated as having used the residence for trade purposes (i.e. not domestic purposes) for the full period of absence.

Spouses that are married in community of property will have 50% of the net capital gain included in their taxable income if the underlying assets and liabilities fall into the joint estate.

Where the asset does not fall into the joint estate, the net capital gain will be included in accordance with any agreement entered into or, if no agreement has been entered into, then who has beneficial entitlement to the asset.

The R2 million gain exclusion operates on a ‘per primary residence’ basis and not on a ‘per person holding an interest in the primary residence’ basis. This means that where, for example, two individuals have an equal interest in the same primary residence, they will each be entitled to a primary residence exclusion of a maximum of R1 000 000. This would typically apply to spouses married in community of property.

CGT

Connected person disposal (par 38)

Disposal by way of donation, consideration not measurable in money and transactions between connected persons not at arm’s length price

Disposal: treated as being for proceeds equal to MV (@ date of disposal)

Acquisition: treated as being for costequal to MV – become par 20 base cost

Excluding certain assets (par 38(2))

Asset subject to s 10(1)(nE); qualifying equity share ito s 8B (par 1 of the Seventh Schedule and assets subject s 40CA

Not applicable to transfer of assets between spouses (par 67)

Capital losses in respect of a disposal to certain connected persons (par 39)

Disregard capital loss of asset if,

Person you disposed to was a connected person immediately before disposal; or

Immediately after disposal are a member of the same group of companies or a trust with a beneficiary which is a member of the same group of companies as that person

Par 39(2) the disregarded loss may deduct against capital gain in respect of a disposal to the same person (current or subsequent years), if that person is still a connected person

Capital losses in respect of a disposal to certain connected persons (par 39)

Par 39(3) ‘connected person’ in relation to a natural person only include:

A parent, child, stepchild, brother, sister, grandchild or grandparent of that person

Par 39(4) Exclusion for employee share trusts in respect of disposals to ‘employees’

S 8C assets

Recoupment and CGT

Recoupment – Selling Price up to original cost – tax value

Tax value – Cost minus allowances

Capital Gain

Proceeds – Recoupment

Minus

Base Cost – Allowances

Nb VAT

Recoupment – s8(4)(k)

Deemed to be sold at Market Value if asset was:

Donated

Sold to connected person

Dividend in specie

Recoupment

Market Value (Limited to

Cost)Tax Value

Other

Special Trusts CREATED FOR PERSONS WITH A DISABILITY . THE DISABILITY MUST PREVENT THEM FROM EARNING SUFFICIENT INCOME FOR THEIR MAINTENANCE OR FROM MANAGING THEIR OWN FINANCIAL AFFAIRS– CGT – SAME as NATURAL PERSONS – RATE/ANNUAL EXCLUSION/ PRIMARY RESIDENCE EXCLUSION

Connected Persons – Definition – look at and learn. Important – note – definition for Income Tax and VAT is different

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Dividend tax

“dividend” means any amount transferred or applied by a company that is a resident for the benefit or on behalf of any person in respect of any share in that company, whether that amount is transferred or applied-

(a) by way of a distribution made by; or

(b) as consideration for the acquisition of any share in, that company,

but does not include any amount so transferred or applied to the extent that the amount so transferred or applied-

(i) results in a reduction of contributed tax capital of the company;

(ii) constitutes shares in the company; or

(iii) constitutes an acquisition by the company of its own securities by way of a general repurchase of securities......(as applied to listed companies)

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“foreign dividend” means any amount that is paid or payable by a foreign company in respect of a share in that foreign company where that amount is treated as a dividend or similar payment by that foreign company for the purposes of the laws relating to-

(a) tax on income on companies of the country in which that foreign company has its place of effective management; or

(b) companies of the country in which that foreign company is incorporated, formed or established, where the country in which that foreign company has its place of effective management does not have any applicable laws relating to tax on income,but does not include any amount so paid or payable that-

(i) constitutes a redemption of a participatory interest in an arrangement or scheme contemplated in paragraph (e)(ii) of the definition of “company”;

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Dividend tax: 15% of the amount of any dividend paid by any company other than aheadquarter company

A cash dividend declared by a listed company is deemed to be paid on the date onwhich the dividend is paid. This provision applies to listed resident companies andlisted foreign companies. A listed foreign company will of course only be liable toaccount for dividends tax if the relevant share is listed on the JSE (essentially a duallisting).

A cash dividend declared by a non listed company is deemed to be paid on theearlier of the date on which the dividend is paid or becomes due and payable(lastday for shareholders to register).

In the case where the dividend consists of an asset in specie, is deemed to be paid onthe earlier of the date on which the dividend is paid or becomes due and payable( For both listed and non listed).

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When must dividend tax be paid? Paid over to SARS by the last day of the month following the month during which the divided was paid (listed company) or due and payable (non-listed company).

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Dividends payable to the following beneficial owners could be exempt from DividendsTax (provided the required “declaration” and “undertaking” are submitted to thecompany or withholding agent in time):

- South African resident companies

- Government (all three spheres)

- Public Benefit Organisations (approved in terms of section 30(3) of the Act)

- Mining rehabilitation trusts (section 37A of the Act)

- Section 10(1)(cA) persons

- Section 10(1)(d) funds (e.g. pension funds, provident funds and medical schemes)

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- Section 10(1)(t) persons (e.g. CSIR and SANRAL)

- Shareholders in a registered micro business (6th Schedule to the Act) (insofar asdividends do not exceed R200,000 per year)

- Non-residents receiving dividends from foreign companies listed on theJohannesburg Stock Exchange

- Portfolios of collective investment schemes in securities

- Any person to the extent that the dividend constitutes income of that person

- Any person to the extent that the dividend was subject to the STC

- Fidelity or indemnity funds contemplated in section 10(1)(d)(iii)

- Dividends paid by a REIT (real estate investment trust) or a controlled propertycompany (as defined in section 25BB) received or accrued before 1 January 2014(insofar as it does not consist of a dividend in specie)

- A small business funding entity as contemplated in section 10(1)(cQ)

- A natural person in respect of a dividend paid on or after 1 March 2015, for a taxfree investment.

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Controlled foreign companies (CFCs)

A CFC is any foreign company of which more than 50% of the total participation rights in

that foreign company are held, or more than 50% of the voting rights in that foreign

company are directly or indirectly exercisable, by one or more persons that are

residents of South Africa, other than headquarter companies.

Residents are liable for income tax on their proportional share of the net income of a CFC

under section 9D except where a resident (together with any connected person in

relation to that resident), holds less than 10% of the participation rights in aggregate

and may not exercise at least 10% of the voting rights in that CFC.

The ratio of the net income to be determined for any one resident is the proportion that the

resident’s participation rights bears to all the participation rights in the CFC.

The net income calculation is performed in a CFC’s currency of financial reporting and the

end result must be translated to rand by applying the average exchange rate for the

year of assessment during which the net income is included in the resident’s income.

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Small business corporations (SBCs)

The SBC tax legislation provides for two major concessions to entities (private

companies, close corporations and co-operatives) which comply with all of the

following requirements –

• the holders of shares in the company or members of the close corporation or co-

operative must at all times during the year of assessment be natural persons;

• no holder of shares or members should hold any shares or have any interest in the

equity of any other company, other than companies as specified in the definition of

“small business corporation” in section 12E(4); - Details not provided- please refer

to the section and learn

• the gross income of the entity for the year of assessment may not exceed R20 million

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- not more than 20% of the total of all receipts and accruals of “investment income” as

defined in section 12E(4) and income from rendering a “personal service” as defined in

section 12E(4); and

- the entity may not be a “personal service provider” as defined in the Fourth Schedule

An entity which is engaged in the provision of personal services will still qualify for the

relief provided it employs three or more full-time employees as specified throughout

the year of assessment and the service must not be performed by a person who holds

an interest in that entity.

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‘Investment income’ means

any income in the form of dividends, foreign dividends, royalties, rental derived from

immovable property, annuities or income of a similar nature

qualifying interest as contemplated in s 24J (interest on instruments), any amount

contemplated in s 24K (interest on interest rate agreements) and any other income

which, by the laws of the Republic administered by the Commissioner, is subject to the

same treatment as income from money lent, and

any proceeds derived from investment or trading in financial instruments (including

futures, options and other derivatives), marketable securities or immovable property.

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‘Personal service’ means

any service in the field of accounting, actuarial science, architecture, auctioneering,

auditing, broadcasting, brokering, commercial arts, consulting, draftsman ship,

education, engineering, entertainment, health, information technology, journalism, law,

management, performing arts, real estate, research, secretarial services, sport,

surveying, translation, valuation or veterinary science

if that service is performed personally by any person who holds an interest in that

company, cooperative or close corporation. However, the services will not be regarded

as personal services if the company, co-operative or close corporation employs at

least three full-time employees throughout the year of assessment in its business of

rendering services and none of those employees is a holder of a share in the company

or member of the co-operative or close corporation (or its connected person).

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Small business corporation (SBC) – tax rate structure for YOA ending between 1/04/2015 and 31/03/2016

S 12E allowances

Manufacturing 100%

Non-manufacturing 50%, 30%, 20% or s11(e)

t

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RATES APPLICABLE TO OTHER COMPANIES

Taxable Income Tax Rate

R0 to R73 650 0%

R73 650 not exceed R365 000 7%*>R73 650

R365 001 – R550 000 R20 395 + 21%*>R365 000

R550 001 + R59 245 + 28%*>R550 000

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With effect from 1 March 2015 , a Provisional taxpayer is a

- company, or

- Any individual

who earns income other than remuneration or an allowance or advance payable by the

person’s principal.

An individual is exempt from the payment of provisional tax if the individual

- does not carry on any business,

- and the individual’s taxable income will not exceed the tax threshold for the tax year;

or

from interest, foreign dividends and rental will be R30 000 or less for the tax year.

Provisional tax returns showing estimation of total taxable income for the year of

assessment are required from provisional taxpayers.

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Normal tax rate @ 28%

Flat rate of tax

Tax payable from first rand of TI

STC rate 10% and Dividend tax from 1 April 2012 @ 15% - Holder of Equity shares (an ordinary share that allows the taxpayer to participate in the profits of the company)receiving a dividend may be subject to dividends tax.

NO primary / secondary rebate

NO interest exemption s 10(1)(i)

NO ANNUAL EXCLUSION FOR CGT FOR COMPANIES

Employment company (personal service provider-Company) - 28%

[personal service provider – TRUST – 41%]

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Tax Liability of a Company / CC

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Companies

Companies – other than gold-mining companies, small business corporations or

micro businesses) pay tax on their taxable income a rate of 28%.

As defined in the Income Tax Act:

“company” includes -

(a) any association, corporation or company (other than a close corporation) incorporated

or deemed to be incorporated by or under any law in force or previously in force in the

Republic or in any part thereof, or any body corporate formed or established or

deemed to be formed or established by or under any such law; or

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(b) any association, corporation or company incorporated under the law of any country

other than the Republic or any body corporate formed or established under such law;

or

(c) any co-operative; or

(d) any association (not being an association referred to in paragraph (a) or (f) formed in

the Republic to serve a specified purpose, beneficial to the public or a section of the

public; or

(e) any -

(ii) portfolio comprised in any investment scheme carried on outside the Republic that is

comparable to a portfolio of a collective investment scheme in participation bonds or a

portfolio of a collective investment scheme in securities in pursuance of any

arrangement in terms of which members of the public (as defined in section 1 of the

Collective Investment Schemes Control Act) are invited or permitted to contribute to

and hold participatory interests in that portfolio through shares, units or any other form

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http://discover.sabinet.co.za/webx/access/netlaw/45_2002_collective_investment_schemes_control_act.htm

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of participatory interest; or

(iii)portfolio of a collective investment scheme in property that qualifies as a REIT as

defined in paragraph 13.1(x) of the JSE Limited Listing Requirements; or

(f) a close corporation,

but does not include a foreign partnership;

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Webinar COTE TAX PRACTITIONER EXAMS - SAIPA

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