Taxation 1
CHAPTER 1 INTRODUCTION TO TAXATION
Taxation- is the amount paid to government based on your earnings
Means by which State collects funds from persons,
This amount is charged on citizens to pay for administration
And for benefits it provides citizens and residents (infrastructure development,
education, healthcare and defence.
1. Annual Budget
February each year the Minister of Finance presents the annual budget in parliament.
Total government expenditure for the following year is announced.(1 Mar- 28 Feb)
Total government expenditure for the following year is announced
The year to which the budget relates to is called a fiscal year.
2.Types of taxes
In South Africa we pay a variety of taxes of which the main types are:
Income tax - on income earned,
Consumption taxes - on the sale or use of goods or services, for example VAT
Wealth tax - on the ownership of assets or capital gains made on the sale of property,
for example capital gains tax, estate duty, donations tax.
Other taxes - are levied on specific business transactions, for example stamp duty,
transfer duty and securities transfer tax.
3.Methods to calculate the tax
Proportional tax - is levied at a fixed rate on the amount of income earned, for
example income tax on companies is levied at a fixed rate of 27% of taxable income.
Progressive tax - rate that is used to calculate the amount of tax is determined by the
person’s income. The higher a person’s income, the higher the tax rate that is used to
calculate the tax, for example income tax levied on natural persons.
Regressive tax - tax rate decreases with the increase of a person’s income. No such
form of tax exists in South Africa.
4.The person who has the responsibility of paying tax:
Direct taxes - paid directly by the person. (Wealth tax, Income tax, Capital gains)
Indirect taxes - levied on transactions, seller pays over the tax(VAT, Custom duty etc)
5.Calculating taxable income of a natural persons
Framework for the calculation of taxable income
Gross income (as defined in section 1) xxxx
Less: Exempt income (sections 10, 10A, 10B and 12T) (xxxx)
Income xxxx
Less: Deductions (section 11 – but see below; subject to section 23(m) and (xxxx)
assessed loss (sections 20 and 20A))
Add: Taxable portion of allowances (section 8 – such as travel and subsistence xxxx
allowances)
Taxable income before taxable capital gain xxxx
Add: Taxable capital gain (section 26A) xxxx
Taxable income before retirement fund deduction xxxx
Less: Retirement fund deduction (section 11F) (xxxx)
Taxable income before donations xxxx
Less: Donations deduction (section 18A) (xxxx)
Taxable income (as defined in section 1) xxxx
5. Steps to calculate taxable income
STEP1- Identify amounts that comply with Gross income
STEP2- Identify exempt income
STEP3- Identify amounts that can be deducted for tax purposes
STEP4- Calculate the taxable income by deducting exempt income and deductions
from income
STEP5-Calculate taxable capital gain
STEP6- Calculate total taxable income
6.Year or Period of assessment
Natural person – Year of assessment ends 28 February(start 1 March – 28
February).
If a person dies or insolvent – from 1 March to date of death or insolvency
7.Gross Income Definition
In case of a resident or non resident
1. Total amount in cash or otherwise
2. Received by or Accrued to
3. In favour of such resident (non resi or resi)
4. During the year of assessment( 1 March 2024 – 28 Feb 2025)
5. Excluding receipts and accruals that are capital in nature
1.Total Amount – must be an amount received
2. Cash or otherwise – something that has money value is included in gross income
3.Recieved by – this amount can be received by you
4.Accrued to – once you become unconditionally entitled to receive an amount you include it
in gross income
5. In favour of – you can receive an amount on behalf of another person.
CAPITAL IN NATURE
CAPITAL IN NATURE NON CAPITAL IN NATURE(REVENUE)
ONCE OFF RECURRING
TREE FRUITS
1. SUBJECTIVE TEST
2. OBJECTIVE TEST
8.Taxation of Residents and Non-Residents
Residents
Ordinary resident is someone who his or her true home is RSA
Residents are taxed on receipts and accruals anywhere in the world (worldwide
incomes and accruals).
Non-Residents
Non resident is someone who is not from RSA
Non Residents can become residents by meeting the requirements of physical
presence test.
Non residents are taxed on incomes and accruals received within the source of the
republic.(RSA)
9.Physical presence test requirements(NON RESIDENTS)
Present more than 91 days in total during the YEAR OF ASSESMENT.( 1 March -28
Feb).
Present more than 91 days in total during previous 5 years of assessment
Prent more than 915 days in aggregate(total) during the previous 5 years of assessment.
BUT
If such person leaves RSA for continuous period of 330 full days.He or she is deemed
to be no longer a resident from the first day of 330 day period.
10.Married in community of property
There are three types of marriage in South Africa:
marriage in community of property - where the husband and wife share certain risks
and benefits.
marriage out of community of property - where each spouse maintains their
independence and no debts or liabilities are shared.
NB
The income tax act provides that, where spouses are married in community of property,
certain passive income must be shared equally between them.
Income received or accrued from carrying on a trade is taxed in the hands of the
spouse who is carrying on the trade(Salary, bonus, or incomes received with an
intention of making a profit etc)
Income that will be split where spouses are married in community of property therefore
includes.
local and foreign interest(20 000/2) = 10 000
local and foreign dividends
income from letting of fixed property.(Rentals)
Income that will NOT be split where spouses are married in community of property
therefore include
a benefit paid by a pension, provident or retirement annuity fund(Fringe benefits)
income specifically excluded from the joint estate
a purchased annuity.
Calculating taxable income – married in community of property
Step 1: Add both spouses’ passive income together to calculate a total passive income,
for example, total interest received.
Divide the total passive income equally between the two spouses. Include half of the
total passive income, in each spouse’s gross income.
Qiniso (70 Years)
Gross Income
Interest- 30 000
Dividends = 22 500
Salary = R50 000
Gross Income = 87 500
Less exempt (30 000 )
20 000 + 10 000= 30 000/2 = 15 000
30 000 + 15 000 = 45 000/2 = 22 500
Exemptions
1. Interest – it is exempted according to the age of the taxpaper.
If a taxpayer is less than 65 = R23 800
If taxpayer is 65/ older = 34 500
