GROSS INCOME

Income according to conceptual framework: Increase In assets or decrease in liabilities, that results
in an increase in Equity that are not related to contributions from equity participants.

Let us integrate VAT and Income Tax Act first.

What happens if the taxpayer is a registered VAT Vendor ?

 The taxpayer would have to apply S23C first.

 Nb: Kill VAT! Kill Normal Tax! Kill CGT!
 What do I mean by S23C, All the amounts in taxable income must exclude VAT.
 Firstly, Output VAT, This is the amount the Vendor receives from the sale/supply of good
or services however the amount received by the taxpayer should not be included in gross
income because the amount received is not received on the taxpayers own behalf and
own benefit( Geldenhuys Courtcase) and taxpayer is not unconditionally entitled to the
amount (Mooi Court case).
 For example: JOJO sold TV STANDS for R115000( Including VAT).
 Amount that will be included In the gross income is the value of supply which is
115000*100/115= R100 000 and 15000 wont be included in gross income because the
taxpayer is not UNCONDITIONALLY entitled to the amount and he wont receive the
amount for his own benefit and for his own behalf.
 Do you still remember in Accounting, that all amounts must exclude VAT on The SPL???
Also therefore all amounts on taxable income framework must exclude VAT due to S23C.

Residency.

 Starting point of determining the taxpayer’s Tax calculation.

Critical Questions to ask yourself
What is gross income ?
Does the definition of the Gross Income Apply to all persons ( e.g Natural Persons,
estate of the Deceased, Juristic persons etc….) ?
When is an Amount included in Gross Income?
What if the amount does not meet the definition of the Gross Income?
Can the taxpayer decide when such an amount may be Included??
 Definition of Gross Income as defined in Section 1 Of Income tax 58 of 1962

In Relation to any year or period of ASSESSMENT

1 In any case of any Resident, Total Amount of Cash or otherwise, Received by, or accrued to,
or In favour of such resident or

2 In the case of other persons other than residents, Total amount of cash or otherwise,
received by or accrued to or favour of such person from the source within the Republic (SA)

3 during such year or period of assessment, excluding receipts or accruals of a capital Nature

 The definition is divided into two sections namely: RESIDENT AND NON RESIDENT
 COMPONENTS OF THE DEFINITION :
- Resident.
- Total Amount of Cash/Otherwise.
- Received by, or Accrued to or In favour of.
- Year of assessment.
 - Receipts or Accruals of Capital Nature.

RESIDENT
NB: CITIZENSHIP IS IRRELEVANT IN TERMS OF DETERMINING RESIDENCY.
 There are two types of test of residency, namely: Ordinarily resident test and Physical presence
Test.
 First Test: Ordinarily Residents Test, is not defined in the Income tax Act, Therefore court Cases
will be used to explain the principle of ordinarily Residence Test.
 COURT CASES: Cohen and Kuttel are applicable court cases for ordinarily residence test.
 Cohen says that a person is ordinarily resident in a place in which he will return to after his
wanderings Example: Lets assume that both Bloemfontein and Johannesburg are Two different
countries. I Am from Johannesburg and I study at UFS which is located at Bloemfontein. Am I a
resident as defined in Bloemfontein? No I am not a resident (Ordinarily Resident) at
Bloemfontein, I may spend majority of my time there at Bloemfontein, but when I am done
with my academic year I return to Johannesburg (Home) after my studies (Wanderings).

 Kuttel says that a person is ordinarily resident in a place where they normally reside in apart
from their temporary/occasional absences. Since I study at UFS, I am temporarily absent at
home (Johannesburg), Johannesburg is where I normally reside in, therefore I am a ordinarily
resident in Johannesburg and I will be taxed on the worldwide income and at Bloemfontein I am
not a resident (Ordinarily Resident) therefore I will be taxed on the sources within Bloemfontein.

 Always Remember tax implications/Consequences.

 When does a person Become ordinarily resident: ON THE DAY THEY BECOME ORDINARILY
RESIDENT AND NOT NECESSARILY FOR THE FULL YEAR OF ASSESSMENT. Example: Let’s say I
decide to live at Bloemfontein On the 25th of February 2026 permanently because its more
peaceful than in Johannesburg, I automatically become an ordinarily resident in Bloemfontein on
the 25 February 2026, [REMEMBER YEAR OF ASSESSMENT OF NATURAL PERSON IS FROM 1
MARCH- LAST DAY OF FEBRUARY]. I will be considered a resident from the 25th of February
2026 till the last day of February 2026, so I will be only taxed only from 25 th February till the
last day of February 2026, Not the whole Year of Assessment.

 When does a person cease to be ordinarily a resident: ON THE DAY THEY LEAVE THE
REPUBLIC/COUNTRY TILL THE END OF YEAR OF ASSESSMENT, For example: since I am ordinarily
a resident in Bloemfontein, on the next year of assessment of 2027, I decide to leave
Bloemfontein on the 6 June 2026 because its too cold. On the 6th of June 2026 I will be regarded
as a Non resident of Bloemfontein, then I will be taxed on the sources of income of
Bloemfontein not the worldwide income. NB: [ FROM 1 MARCH 2026 – 5 JUNE 2026, I will be
taxed on the worldwide income since I am a resident, FROM 6 JUNE 2026 – 28/29 FEBRUARY
2027, I will be taxed on the sources of income from Bloemfontein Only]

 If a person does not meet the ordinarily residence test then Test 2 will be considered, which is
called PHYSICAL PRESENCE TEST.

 Test 2 Is not considered if the person meets the first Test (Ordinarily Residence Test).
 Requirements of Physical Presence test

(i) The person must be physically present for more than 91 days within the country, in
the current YOA.
(ii) The person must be Physically present for more than 91 days within the country, in
each of the past five years of Years of Assessment.
(iii) The person must be Physically present for more than 915 days within the country in
total/aggregate of the past/previous five years.

 These requirements must all be met, if one/two of these requirements are not met then a
person is not a resident by virtue in terms of the physical presence test.

 When does a person become a resident according to test 2: THE DAY THEY MEET ALL THE
REQUIREMENTS OF THE TEST 2, FROM THE FIRST DAY OF THE YOA AND WILL BE TAXED ON
WORLD WIDE INCOME FOR THE FULL YOA. Since I am a student in Bloemfontein, lets assume I
am not a resident according to Test 1, then my physical presence in Bloemfontein will be tested,
lets say I meet all the requirements of test 2 on the 25th of February 2026, then I will be
considered a resident for the whole YOA, I will taxed from the beginning of the YOA(1 March
2025) and I will be taxed on the worldwide income.

 When does a person cease to be a resident: THE DAY AFTER THEY LEAVE THE REPUBLIC, FOR
THE CONTINUOUS PERIOD OF AT LEAST 330 DAYS[ but why do we consider the day after they
leave??? The answer is because part of day= Full day] but excluding the days in transit.
Example: Lets say I want avoid taxes of Bloemfontein, I decide to take a plane to Johannesburg,
but it happens I happen to miss the flight by 2 min(PART OF DAY) time was 00:02, 00:02 will be
considered as if I was at Bloemfontein for the whole day, unless I was in the transit.

 NB:SECTION 102 TAX ADMINISTRATION SAYS THAT THE ONUS( BURDEN OF PROOF)
LIES/RESTS WITH THE TAX PAYER for example, lets say I left Bloemfontein for 330 full days
then I come back on 331st day , SARS will say to me I am resident of BLOEMFONTEIN, It is my
responsibility as a taxpayer to prove that I am not a resident by the physical presence test, so I
have to provide a record of days that I was present and absent in the Bloemfontein so that I
can prove that I am not a resident of Bloemfontein.

 VERY IMPORTANT: Physical presence test cannot be applied if a person was ordinarily resident
in the republic at any time during the year of assessment.

COMPANY
There are no relevant court cases that we can use to determine the residency of the company.
 There are two things we look at to determine the company’s residency NAMELY: PLACE OF
EFFECTIVE MANAGEMENT OR PLACE WHERE IT WAS ESTABLISHED/ INCORPORATED.
EFFECTIVE MANAGEMENT: For example, Lets say I have a company I have established in
Johannesburg because Johannesburg is a “TAX HEAVEN” while I manage everything relating
to the Company in Bloemfontein like the Annual General Meetings etc….. In this instance
Bloemfontein is the place of Effective Management, therefore the company will be considered
as a resident in BLOEMFONTEIN not Johannesburg, the reason is because companies came up
with ways to avoid tax, so SARS is coming for Everything!!!!!!