Number of handouts

Handouts include
1. Slides
2. Module outline
Presented by:
Tsireledzo
Mulaudzi CTA(SA)

Learning Outline
 Understand the framework used to calculate the taxable income of an individual.

 Understand the order of the inclusions and deductions used to calculate the taxable income of an individual.

 Identify and understand the unique deductions that an individual taxpayer can claim.

 Calculate the deduction allowed under s11F in terms of contributions to a pension, provident or retirement annuity fund;

 Calculate the credits available in terms of medical expenses allowed in terms of s6A and 6B.

 Understand the income tax implications of capital gains for an individual taxpayer.

 Calculate the taxable capital gains for an individual taxpayer.

 Understand the application of s 23(m) for salaried taxpayers.

 Calculate the normal tax liability of an individual taxpayer.

 Application of the individual tax tables to calculate the normal tax payable per the tax table.

 Understand and apply the provisions relating to the taxation of married couples and the concept of married in community of
property and married out of community of property.

 Apply the deemed inclusion provisions in terms of ss 7(2); (2A); (2B); (2C); (3).

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 Resources
SILKE: South African Income Tax 2024:
 Chapter 5 – Exemptions

 Chapter 6 – General Deductions

 Chapter 7 – Natural Persons

 Chapter 12 – Special Deductions & assessed losses

 Chapter 17 – Capital Gains Tax

 Refer to module outline for details on specific sections from the above chapters

Income Tax Act

 Refer to module outline for details on specific sections from the Income Tax Act

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Lecture Agenda
Section references

Gross income and special inclusions

Exemptions

General, special deductions and medical rebates

Capital gains and losses

Deemed inclusions

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Introduction
Individual taxpayers or natural persons are subject to tax in the same way as any other person or
entity (s5).

There are, however, special provisions in the Act that apply specifically to natural persons.

Examples of such provisions:

 Subject to tax calculated based on a sliding scale.
 Year of assessment ends on the last day of February each year (s5).
 Special inclusions specifically applicable to natural persons (e.g. restraint of trade gross income
definition par (cB)).
 Exemptions specifically applicable to natural persons (e.g interest exemption s10(1)(i)).
 Primary, secondary and tertiary rebates in terms of section 6.
 An annual exclusion in terms of Capital Gains Tax.
 CGT inclusion rate of 40%.

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 TAX ABLE IN COM E FRAM E WORK FOR IN DIVIDUALS

Definition per section 1, special inclusions AND allow ances

Gross Incom e
per section 8
Retirem ent fund lum p sum s, Retirem ent fund lum p sum withdraw al benefits (paragraph (e)
special inclusions) and sev erance benefits w ill be added to gross incom e, and then subtracted as it
is taxed according to the 2nd Schedule.
LESS Exem pt Incom e Section 10, 10A, 10B, 10C and 12T exemptions
EQUALS Incom e Defined in section 1 as Gross Income LESS Exem pt Income
LESS Deductions, Special deductions
Consider prohibitions under section 23
and Allowances
Consider section 20 (Assessed Losses) AND
LESS Assessed Loss Brought Forward
section 20A (Ring-fencing)
SUBTOTAL 1 XXX
PLUS Section 26A Taxable Capital Gain in term s of the Eighth Schedule
SUBTOTAL 2 XXX
Pension fund contributions, Prov ident fund contributions,
LESS Section 11F Deduction
Retirement annuity fund contributions
SUBTOTAL 3 XXX
LESS Section 18A Deduction Donation to a Public benefit organisation
LESS s6quat (1C) Deduction Deduction in respect of foreign taxes
TAXABLE IN COM E XXX
N ORM AL TAX PE R TABLE S Apply Tax Tables to TAXABLE IN COM E
LESS Rebates (Primary , Secondary
and Tertiary , where applicable)
PLUS Tax on Lum p Sum s Per the 2nd Schedule
PLUS additional tax Per s 12T(7)(a)
LESS Section 6quat rebate Rebate in respect of foreign taxes
LESS Section 6A M edical Credit M edical Scheme Fees Tax Credit per section 6A
LESS Section 6B M edical Credit Additional M edical Expenses Tax Credit per s6B
N ORM AL TAX PAYABLE XXX
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Individuals
Gross income and special inclusions

Exemptions

General, special deductions and medical rebates

Capital gains and losses

Deemed inclusions

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 Gross Income (s1)
“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 as are described hereunder, namely—

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• Many of the special inclusions listed in section

1(1) are specifically applicable to individuals, for
example:
• Alimony (par (b))
Special • Restraint of trade (par (cA) and (cB))
• Compensation for loss of office (par (d))
Inclusions • Fund benefits (par (e) and (eA))
• Commutation of amounts (par (f))
• Fringe benefits (par (i))

Special inclusions in gross income relating to natural

persons were dealt with in Tax II. Revise your Tax II notes
on special inclusions.
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 Other Inclusions in Gross Income
Section 8 Allowances: See Module 8 Part 2

Retirement fund lump sum benefits, retirement fund lump sum withdrawal benefits and severance
benefits: See Module 9

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Individuals
Gross income and special inclusions

Exemptions

General, special deductions and medical rebates

Capital gains and losses

Deemed inclusions

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 Action Point

Exemptions relating to natural persons were

dealt with in Tax II. Revise your Tax II notes on
exemptions.

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Employer-owned
insurance policies
s10(1)(gG) and
(gH)

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 Employer-
owned
insurance
policies par
d(ii)

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Employer-owned insurance policies s10(1)(gG)

In the event that the taxpayer(employee or director) dies, becomes disabled or severely ill

Proceeds

Insurer
Employer

Employee
If policy is for the benefit of
the employee/director or
dependants – proceeds are
included in gross income
under par (d)(ii) of the GI
definition.

Exemption under s10(1)(gG)

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 Employer-owned insurance policies s10(1)(gH)
In the event that the taxpayer(employee or director) dies, becomes disabled or severely ill

Proceeds

Insurer
Employer

Employee
If policy is solely for the benefit of
Possible 11(w) deduction for the employer – proceeds are
employer (NOT examinable) included in gross income under
par (m) of the GI definition.

Possible exemption under s10(1)(gH)

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Employer-owned insurance policies s10(1)(gG)

Requirements to be met for the exemptions to be applicable

Section 10(1)(gG) exempts the amount in the employee’s hands in the case of:

 A risk policy with no cash or surrender value, if the premiums paid by the employer were deemed taxable
benefits in the employee’s hands in terms of the Seventh Schedule (module 8 Part 2).

 Any other policy, if an amount equal to the aggregate of all the premiums was deemed a taxable benefit in
the employee’s hands in terms of the Seventh Schedule (module 8 Part 2) since the date that the policy
was entered into.

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 Pay attention to the difference between…
- premiums to an insurance policy (possible deduction for employer)
- pay-outs (proceeds) from insurance policies (inclusion into GI for employer, employee or
beneficiary of employee and possible exemption)

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s10(1)(gI) and
s23(r)

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 s10(1)(gI) and 23(r)

Can the employee get a deduction for this premium under s11(a)?

Employee Insurer

Premiums on policy against death,

disablement, illness or unemployment of a
person.

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s10(1)(gI) and 23(r)

From 1 March 2015, these deductions are prohibited under s23(r)
Premiums on policy against death,
disablement, illness or unemployment of a
person.

Employee Insurer

No deduction
as prohibited
under s23(r).

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 s10(1)(gI) and 23(r)
However, the proceeds received are exempt under s10(1)(gI). (The exemption does not apply if
the benefit is payable by a retirement fund)
Premiums on policy against death,
disablement, illness or unemployment of a
person.

Employee Insurer

No deduction
as prohibited
under s23(r).

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Exemptions: Employment and Investment income

Equity instruments s10(1)(nD): See Module 9

Exemption of non-deductible element of compulsory annuities s10C: See Module 9

With reference to your module outline, study the exemptions provided for in sections 10, 10A, 10B
(module 7), 10C (module 9) and 12T (Tax II).

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 Individuals
Gross income and special inclusions

Exemptions

General, special deductions and medical rebates

Capital gains and losses

Deemed inclusions

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Action Point

General and special deductions relating to

natural persons were dealt with in Tax II.
Revise your Tax II notes on special deductions.

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 Individuals: Deductions
Scenario:

Mr. Grey a bookkeeper at Tight Ltd earned remuneration of R200 000 in the current year of
assessment . He incurred costs to the value of R36 000 relating to the repayment for his
car and also needed to purchase some stationery to the value of R700 for use at the office
of his employer. Mr. Grey was too lazy to fill in the required requisition form, therefore Tight
did not refund the stationery cost.

Would the car repayment and stationery costs incurred by him qualify for a deduction in the
calculation of his taxable income for the current year of assessment?

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Consider s11(a) first:

S 11. 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—

(a) expenditure and losses actually incurred in the production of the income, provided such
expenditure and losses are not of a capital nature;

S 1 “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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 Section 23 – prohibited deductions:

 Section 23(m) – Extremely important for individuals!

 (m) Expenditure, losses or allowances in terms of s 11 relating to remuneration derived from

employment, other than an agent or representative whose remuneration is normally derived
mainly (>50%) in the form of commissions based on their sales.

Important distinction:
 Normal salary earning 23(m)

 Mainly commission earning 23(m)

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Section 23 – prohibited deductions:

 Section 23(m)
 23(m) thus prohibits the deduction of amounts in terms of s 11 for normal salary earners.
 However, the following deductions are not prohibited:
• S 11F – Contributions to pension, provident or retirement annuity funds
• S 11 (c)/(e)/(i) or (j) – legal expenses, wear-and-tear, bad debts and provision for doubtful debts
• S 11 (nA)/(nB) – amounts received in respect of services or restraint of trade that has been
refunded
• S 11 (a)/(d) in respect of rent, repairs or other expenses in connection with any part of a
domestic dwelling used for trade to the extent that it is not prohibited by s 23(b)

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 Section 23 – prohibited deductions:

 Section 23(b)
 (b) Domestic/private expenses, including expenses in connection with a domestic premises,
except for expenses relating to a ‘home office’ – provided that:
• That part of the house is specifically equipped for trade AND regularly and exclusively used for trade; and

• The taxpayer’s income from employment is mainly (>50%) derived from commission /performance-based
salary whose duties are mainly performed otherwise than in an office provided by his employer; or

• The taxpayer’s duties are mainly performed in that part of the house.

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Section 23 – prohibited deductions:

The prohibition in s 23(m) applies to s 11 deductions only and does not affect
deductions for donations(s 18A).

These provisions must be applied separately to each trade applied by the taxpayer.
These provisions do not apply to employees who mainly earn commission where their
commission is based on their sales or turnover attributable to them.
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.

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 Section 23 – prohibited deductions
Scenario:
Mrs Appleberry works as a software developer at an IT company in Johannesburg
on a full-time basis. She earns a monthly salary of R35 000 in this regard. She also
has her own private IT services practice which she runs from her study at home as
a sole proprietor. During the month of February, Mrs Appleberry spent R3 800 on
fuel, 50% of which related to driving to her employer’s offices and the remaining
50% relating to travel to the clients of her IT services practice.
Of the R3 800 spent on fuel, what amount (if any) will be deductible by Mrs
Appleberry?

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Section 23 – prohibited deductions

Solution:

Mrs Appleberry has two trades, and the deductibility of the fuel expense will be judged separately for
each trade.

All requirements of s11(a) are met, but the general deduction formula must be read in conjunction
with section 23.

Section 23(m) will only apply for the portion of the fuel expense related to her employment trade.
Since none of the exceptions apply, R1 900 (3 800*50%) will not be allowed as a deduction under
s11(a).

Section 23(m) will not apply to her trade as an accounting practitioner as she operates the business
as a sole proprietorship and is not employed. R1 900 will be deductible under s11(a).

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 Special Deduction

Pension fund contributions

Provident fund contributions

Retirement annuity fund contributions

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Retirement Funds 2024

Pension Fund (PF) Retirement Annuity Provident Fund (PF2)
Fund (RAF)
Retirement interest allowed ⅓ ⅓ ⅓
as lump sum (*)

Employer/ Employer Fund Funded by independent Employer Fund

Independent Fund individuals

Deduction for contributions S 11F S 11F S 11F

 *The remainder of the retirement interest must be paid in the form of an annuity or living annuity (which
will be included in gross income under par (a) of the gross income definition).

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 Retirement Funds
Individuals can choose to contribute amounts to a fund while they are employed, in order to be
able to provide income for their retirement when they are no longer able to work.

A number of such funds are defined in s1 of the Income Tax Act, including:
 pension fund

 retirement annuity fund (RAF) and

 provident fund.

In order to motivate retirement savings, contributions to these funds can qualify for a deduction in
terms of s11F.

Example: Momentum, Sanlam

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Retirement Funds
My
contributions Fund payout

A natural person’s When the fund pays out the

contributions represent amount represents an inflow
an outflow of resources of resources to the natural
for them and will qualify person either in the form of
for a deduction under an annuity or a lump sum
(Module 9).
s11F.

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 Section 11F
(2) The total deduction allowed in terms of subsection (1) must not in a year of assessment exceed the lesser of—

( a ) R350 000; or

( b ) 27,5 per cent of the higher of the person’s—

Defined in the Fourth Schedule (Module 10) (i) remuneration (other than in respect of any retirement fund lump sum benefit, retirement fund lump sum
withdrawal benefit and severance benefit) as defined in paragraph 1 of the Fourth Schedule; or
Follow the framework. This amount is “subtotal 2”
q(ii) taxable income (other than in respect of any retirement fund lump sum benefit, retirement fund lump
sum withdrawal benefit and severance benefit) as determined before allowing any deduction under
this section and sections 6quat(1C) and 18A.
Follow the framework. This
amount is “subtotal 1”
( c ) the taxable income (other than in respect of any retirement fund lump sum benefit, retirement fund lump sum
withdrawal benefit and severance benefit) of that person before—

(i) allowing any deduction under this section and sections 6quat (IC) and 18A; and

(ii) the inclusion of any taxable capital gain.

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Section 11F
(3) Any amount contributed to a pension fund, provident fund or retirement annuity fund in
any previous year of assessment which has been disallowed solely by reason of the fact
that the amount that was contributed exceeds the amount of the deduction allowable
in respect of that year of assessment is deemed to be an amount contributed in the
current year of assessment, except to the extent that the amount contributed has been—

( a ) allowed as a deduction against income in any year of assessment;

( b ) accounted for under paragraph 5 (1) ( a ) or 6 (1) ( b ) (i) of the Second

Module 9 Schedule; or

( c ) exempted under section 10C.

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 Section 11F
(4) Any amount contributed by an employer of the person for the benefit of that person must be
deemed—

( a ) to be equal to the amount of the cash equivalent of the value of the taxable benefit
contemplated in paragraph 2 (l) of the Seventh Schedule determined in accordance with
paragraph 12D of that Schedule OR if the amount is paid by an employer to a RAF, the cash
equivalent of the taxable benefit contemplated in paragraph 2 (h) of the Seventh Schedule
determined in accordance with paragraph 13 of that Schedule ; Module 8
Part 2
( b ) and to have been contributed by that person.

i.e. the deduction will be shown in the individual’s tax calculation even though
the employer has paid the contribution.

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Section 11F
(5) For the purposes of this section—

( a ) a partner in a partnership must be deemed to be an employee of the partnership; and

( b ) a partnership must be deemed to be the employer of the partners in that partnership

This is purely to ensure that a partner in a partnership will get the deduction as
they are not considered “employees”.

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 Section 11F

It is crucial to follow the framework when

calculating the section 11F

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Section 11F – SILKE Example

During the year of assessment ended 29 February 2024 Zurelda, aged 30 and a resident had the
following incomes and expenses.
Source rental income R400 000

Monthly RAF contributions R14 500

Assessed loss from the 2023 year R380 000

Taxable capital gain R200 000

Donation to PBO (certificate R50 000

received)

The balance of unclaimed contributions to all her retirement funds on 28 February 2023 amounted to R8 000.

Calculate Zurelda’s taxable income for the 2024 year of assessment.

Adapted from SILKE 2024 P185 (7.13(c))

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 Section 11F – SILKE Example (Solution)
Rental income 400 000
Assessed loss brought forward (380 000)
Subtotal 1 20 000
Taxable capital gain 200 000
Subtotal 2 220 000
Less s 11F (Note 1) (20 000)
Subtotal 3 200 000
Less s 18A donation (20 000)
50 000 limited to 10% of subtotal 3 (200 000*10%)

Taxable income 180 000

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Section 11F – SILKE Example (Solution)

Note 1
Actual contributions = R174 000 (14 500*12) + R8 000 = R182 000
Limited to the lessor of:
1. R350 000, or
2. 27.5% x the higher of
- R0 (remuneration), or
- R220 000 (taxable income in subtotal 2)
Therefore 27.5% x R220 000 = R60 500, or
3. R20 000 (subtotal 1)
The s 11F deduction is R20 000 and the excess of R162 000 (R182 000 – R 20 000) is carried forward to the
next year of assessment (s 11F(3)).

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

E.g.., maternity leave repayments

(restraint of trade payment)

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 Action Point
With reference to your module outline, study the special deductions and section 23
prohibitions covered in Tax II as well as sections 23(m), 11F, 11(nA) and 11(nB).

Answer the following questions:

1) Name an example of an occupation where the remuneration of employees is

mainly derived in the form of commission based on sales.

2) Would section 23(m) apply to an employee earning 50% commission and 50% in
the form of a fixed monthly salary?

3) Which deductions are not prohibited by section 23(m)?

4) Why is the order of inclusion of amounts important when it comes to calculating

the section 11F deduction? Provide a section reference as a reason for your
answer.

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Medical tax credits

s6A and 6B

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 Medical tax credits

S6A and 6B are rebates deducted after determining the normal tax per
the tax tables. (See framework)

Medical costs

Medical scheme fees tax credit s6A Additional medical expenses tax credit s6B

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Medical scheme fees

tax credit 6A

• Section 6A(1) provides for a

rebate known as the medical
scheme fees tax credit (deducted
from tax payable).
• Section 6A(2)(a) – The credit
applies to fees paid by the
taxpayer to a registered medical
scheme or a foreign medical
scheme.
The credit is non-refundable and
will function in the same way as the
primary, secondary and tertiary
rebates.
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 Medical scheme fees tax credit 6A
Section 6A(2)(b) – the monthly amount of the medical scheme credit is:

(i) (aa) Benefits to the taxpayer: R364 (2024);

(bb) Benefits to the taxpayer and one dependant: R728 (2024); or

(cc)Benefits to two dependants: R728 (2024); and

(ii) Benefits to each additional dependant: Add R246 (2024).

6A(4) for the purposes of this section a “dependant” in relation to a person means a “dependant”
as defined in section 6B(1).

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Medical scheme fees tax credit 6A

Section 6A(3) - For the purposes of this section, any amount contemplated in subsection (2) that
has been paid by—

( a ) the estate of a deceased person is deemed to have been paid by the person on the
day before his or her death; or

( b ) an employer of the person is, to the extent that the amount has been included in the
income of that person as a taxable benefit in terms of the Seventh Schedule, deemed to
have been paid by that person.

Any contribution made by the estate of a deceased person on behalf of the deceased or by an employer on
behalf of an employee is deemed to be made by the taxpayer (and so the rebate will follow)

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 Medical scheme fees tax credit 6A
Section (3A) - Where more than one person pays any fees in respect of benefits to a person or
dependant, the amount allowed to be deducted in respect of the medical scheme fees tax credit
under subsection (1) must be an amount that bears to the total amount in respect of that person or
dependant contemplated in subsection (2) ( b ) the same ratio as the amount of the fees paid by
that person bears to the total amount of the fees payable.

6A rebate = Total medical tax credit x Contributions payable by

the person/ Total contributions payable

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Medical scheme fees tax credit 6A

Scenario 1:

Mrs X is 45 years old. She has no dependants. She makes contributions of R2 500 per month to a medical
scheme.

Scenario 2:

Mrs X is 45 years old. She has a dependant husband and one child. She contributes R5 000 per month to a
medical scheme.

Required:

Calculate the normal tax payable by Mrs X for the current year of assessment. Mr. X’s Normal Tax Payable
before taking any medical scheme fees credits into account is R80 000.

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 Medical scheme fees tax credit 6A
Scenario 1 Scenario 2
R 364 x 12 = R4 368 (R728+246)x 12 = R11 688
Tax payable = R80 000 – R4 368 Tax payable = R80 000 – R11 688
= R75 632 = R68 312

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Medical scheme
fees tax credit 6B
• s6B tax credit is a rebate in
addition to the s6A rebate.
• This section only applies to
qualifying medical expenses
actually incurred in the current
year of assessment.

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 Medical scheme fees tax credit 6B
(a) any amounts (other than amounts recoverable by a person or his or her spouse) which were paid by the person during the year of
assessment to any duly registered -

 (i) medical practitioner, etc

 (ii) nursing home etc; or

 (iii) pharmacist for medicines supplied on the prescription of any person mentioned in subpar (i) for the person or any dependant of the
person;

(b) any amounts (other than amounts recoverable by a person or his or her spouse) which were paid by the person during the year of
assessment in respect of expenditure incurred outside the Republic on services rendered or medicines supplied to the person or any
dependant of the person, and which are substantially similar to the services and medicines contemplated in paragraph (a); and

(c) any expenditure that is prescribed by the Commissioner (other than expenditure recoverable by a person or his or her spouse)
necessarily incurred and paid by the person during the year of assessment in consequence of any physical impairment or disability suffered
by the person or any dependant of the

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Section 6B

It is important to determine whether a person meets the definition of a

‘dependant’ in terms of s6B because the credit can only be claimed on
contributions and ‘qualifying medical expenses’ paid for the benefit of
the taxpayer themselves or their qualifying dependants.

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 ‘Dependant’ – as defined in s6B
(a) a person’s spouse;

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

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

at the time the fees / medical contribution / medical expenses were [Link] the definition of “child” in
sNote
6B is therefore
that only of
the definition relevant
“child” inif sthe
6B taxpayer is only
is therefore not arelevant
member of taxpayer
if the a medical scheme
is not or if the
a member of a child
medical
scheme
does notorqualify
if the child
as adoes not qualify
dependent as aindependent
child childmedical
terms of the in termsscheme.
of the medical
(see scheme.
example(see example
on next on
slide)
next slide)

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‘Dependant’ – as defined in s6B

(a) a person’s spouse;

(b) a person’s child and the child of his/her spouse; ‘Child’ in s6B is a defined
term.

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

(d) any other person who is recognised as a dependant of that person in terms of the rules of a
medical scheme or fund,- Always consider this item first when determining whether a person
qualifies as a ‘dependant’.
the definition of “child” in s 6B is therefore only relevant if the taxpayer is not a member of a medical
scheme or if the child does not qualify as a dependent child in terms of the medical scheme. (see
example on next slide)

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 ‘Child’ – as defined in s6B
• Means a person’s child (s1) or child of his/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 (a child is between 0 to 17years)
OR
(ii) over the age of 21 (a child is between 0 to 20years)
AND wholly or partially dependent for maintenance upon the person
AND has not become liable for the payment of normal tax in such year;
OR
(iii) over the age of 26 years ( a child is between 0 to 25years)
AND 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.
the definition of “child” in s 6B is therefore only relevant if the taxpayer is not a member of
a medical scheme or if the child does not qualify as a dependent child in terms of the
medical scheme. (see example on next slide)
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‘Disability’ – as defined in s6B

moderate to severe limitation of a 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 1 year; and

 (b) is diagnosed by a duly registered medical practitioner in accordance with criteria

prescribed by the Commissioner.

the definition of “child” in s 6B is therefore only relevant if the taxpayer is not a member of a medical
scheme or if the child does not qualify as a dependent child in terms of the medical scheme. (see
example on next slide)

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 Example – ‘dependant’ s6B
Mr. V (56) is a member of Heal medical scheme and has three children, none of whom have a disability as defined.

Shudu is 24 years old and is a full-time student at Wits. Shudu is recognised as a dependant in terms of the rules of Heal.

Sammy is 22 years old, married and unemployed. Sammy is not recognised as a dependant in terms of the rules of Heal.

Tondi is 23 years old, unemployed and also a full-time student at Wits. Tondi is not recognised as a dependant in terms of the rules of
Heal.

Required:

Determine whether Shudu, Sammy and Tondi are “dependants” as defined of Mr. V for the purposes of s6B.

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Example – ‘dependant’ s6B

Shudu

1. Does she meet the definition of a ‘dependant’ par(d)?

2. Yes!

3. Therefore Shudu is a ‘dependant’ as defined

No need to go to the definition of a ‘child’

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 Example – ‘dependant’ s6B
Sammy

1. Does she meet the definition of a ‘dependant’ par(d)?

2. No

3. Does he meet the definition of a ‘child’ in s6B?

4. No

5. Therefore Sammy is not a ‘dependant’ as defined.

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Example – ‘dependant’ s6B

Tondi

1. Does she meet the definition of a ‘dependant’ par(d)?

No

3. Does he meet the definition of a ‘child’ in s6B?

Yes! ‘child’ par(iii)

Therefore, Tondi is a ‘dependant’ as defined

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 s6B – Additional Medical expenses tax credit

How do you calculate the credit?

s6B Additional Medical expenses tax credit

(3)(a) Age 65 and above (3)(b) Disability factor (3)(c) All other taxpayers

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s6B – Additional Medical expenses tax credit

6B(3)(a) 65 years and older and 6B(3)(b) person, his or her spouse
or his or her child is a person with a disability :
33,3% of

[excess of (s 6A(2)(a) contributions paid less (3 x s 6A(2)(b) credit))

Plus

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

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 s6B – Additional Medical expenses tax credit
6B(3)(c) All other taxpayers:
25% of

[excess of (s 6A(2)(a) contributions paid less (4 x s 6A(2)(b) credit))

Plus

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

Less

7,5% of the taxpayer’s taxable income (excluding any retirement fund lump
sum/withdrawal benefits or severance benefits)]

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s6A &s6B – Medical expenses tax credit

Scenario 1:

Mr. Q is 55 years old. He has no dependants. He contributes R3 500 per month to a medical scheme. His
qualifying medical expenses for the year amounted to R29 000. His taxable income excluding lump sum and
severance benefits amounted to R250 000.

Scenario 2:

Mr. Yellow is 65 years old. He has a dependant wife and one child. He contributes R4 900 per month to a
medical scheme. His qualifying medical expenses for the year amounted to R29 000. His taxable income
excluding lump sum and severance benefits amounted to R250 000.

Required:

Calculate the Normal Tax Payable of Mr. Q and Mr. Yellow for the current year of assessment if each of their
Normal Tax Payable before taking any medical scheme fees credits into account amounted to R60 000.

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 s6A &s6B – Medical expenses tax credit
Scenario 1:

6A medical scheme fees credit:

R 364 x 12 = R4 368

6B additional medical expenses credit:

42 000 [R3 500 x 12] – 17 472 [4 x 4 368] = R24 528 Limited to zero
Plus R29 000 (qualifying medical expenses)

Less R18 750 [7,5% of R250 000]

= R34 778

X 25%

= R8 695

Normal Tax Payable = R60 000 – 4 368 – 8 695

= R46 937

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s6A &s6B – Medical expenses tax credit

Scenario 2:

6A medical scheme fees credit:

(R728+246) x 12 = R11 688

6B additional medical expenses credit:

58 800 [R4 900 x 12] – 35 064 [3 x 11 688] = R23 736

Plus R29 000 (qualifying medical expenses)

= R52 736

X 33.3%

= R17 561

Normal Tax Payable = R60 000 – 11 688 – 17 561

= R30 751

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 s6A &s6B – Medical expenses tax credit
Contributions or qualifying medical expenses paid by the estate of a deceased person are
deemed to have been paid by the person on the day before his death (s 6A(3)(a) & s6B(4)(a)).

Contributions or qualifying medical expenses paid by the employer of a person which have been
treated as a taxable benefit in terms of the Seventh Schedule are deemed to have been paid by
that person (s6A(3)(b) & s6B(4)(b)).

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Section 6B
Where a natural person contributes to a medical scheme, the 6B credit is calculated regardless of
whether any other ‘qualifying medical expenses’ have been incurred.

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 Action Point
With reference to your module outline, study section 6A and 6B.

Answer the following questions:

1) What would the amount of the s 6A credit be for a

contributing taxpayer with a spouse and three children, all
of whom are his dependants?

2) Which formula in s 6B would be used for a taxpayer who is

exactly 65 years of age?

3) Would a taxpayer qualify for a 6B credit if the qualifying

medical expenses were paid for by their employer? Provide
a section reference to prove your answer.

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Individuals
Gross income and special inclusions

Exemptions

General, special deductions and medical rebates

Capital gains and losses

Deemed inclusions

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 Capital gains and losses
Certain paragraphs of the Eighth Schedule are especially relevant to individuals. Some of these include (Module 2) :

 Annual exclusion (par 5)

 Taxable capital gain 40% (par 10)

 Personal use assets (par 53, 15)

 Primary Residence (par 44)

 Retirement benefits (par 54) (module 12)

 Life insurance and assurance policies (par 55)

 Small business assets (par 57)

 Compensation for personal injury, illness or defamation (par 59)

 Gambling, games and competition winnings (par 60)

 Disposal by spouse married in community of property (par 14)*

 Transfer of assets between spouses (section 9HB)*

 Attribution of gains (par 68, 69)*

(*)covered in this module

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Transfer of assets between spouses (s9HB)

Transferor – disregard any capital gain or capital loss.

Transferee must be regarded as having acquired the asset:

 On the same date,
 For an amount equal to the base cost of the transferor,
 Regarded as having used the asset in the same manner as the transferor prior to the disposal,
 And as having received an amount equal to an amount received by the transferor in respect of
that asset that would have constituted proceeds on disposal had the transferor disposed of the
asset to a person other than the transferee.
 So, in effect, the asset simply ‘rolls-over’ to the transferee.
 Also applies to assets transferred in consequence of a divorce order and in settling an accrual
claim of the deceased spouse against the surviving spouse where an asset of the surviving
spouse is transferred to the deceased estate.

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 Transfer of assets between spouses (s9HB)
Therefore, if the transferee subsequently disposes of the asset, he or she will calculate the capital
gain or capital loss in the same way as the transferor would have calculated it.

Also, if the transferee subsequently disposes of the asset, he or she will be treated as having used
the asset in the same way as the transferor. For example, if the transferor used the asset as a
personal-use asset, it will constitute a personal-use asset in the hands of the transferee
regardless of the manner actually used by the transferee.

This roll-over provision is not available if the asset is disposed of to a spouse who is not a resident
(except for assets which remain in the tax net e.g., immovable property in SA).

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Action Point

Study section 9HB.

Answer the following question:

1) Is the application of section 9HB dependent on whether

the spouses are married in or out of community of property?

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 Individuals
Gross income and special inclusions

Exemptions

General, special deductions and medical rebates

Capital gains and losses

Deemed inclusions

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Introduction – deemed inclusions

Scenario:

Mr. and Mrs M are married out of community of property. Mr. M has some excess funds which he
would like to invest to earn interest income. Mr. M is taxed at the highest marginal tax rate, while
his wife, Mrs M, is taxed at the lowest rate.

In order to reduce his tax liability, Mr. M donates the amount to be invested to his wife, who then
invests the funds in her own name.

Section 7 provides certain anti-avoidance mechanisms to deal with this and other similar tax
avoidance schemes.

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 Deemed inclusions – s7
 Income of spouses and former spouses
 s 7(2); 7(2A); 7(2B); 7(2C);

 Income of minor children

 s 7(3)

 Paragraph 68, 69 (Eighth Schedule)

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Introduction
s 7 deals with certain anti-avoidance mechanisms where donations have been made to avoid tax.

These provisions have been brought into the Act to prevent tax evasion through the diverting of
income to individuals taxed at lower rates.

General point: Unless one of the deemed inclusion rules of s 7 applies, each spouse in a marriage
is taxed separately on his or her taxable income for a particular year of assessment. Income
received by a minor child in his own right is taxed in the hands of that child.

The same principles of s 7(2) and (3) are addressed by paragraphs 68 and 69 of the Eighth
Schedule. These principles thus also apply to capital gains.

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 Deemed inclusions (s7(2)(a))
s7(2)(a) – If a spouse receives income in consequence of a donation, settlement or other
disposition made by his or her spouse, and the sole or main purpose is the reduction,
postponement or avoidance of tax, the donor spouse will be taxed on that income of the recipient
spouse.

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Deemed inclusions (s7(2)(a)) –SILKE Example

Example:

Mr. D donated money to his wife which enabled her to earn interest. His wife is taxed at the lowest
marginal tax rate while Mr. D is taxed at the highest rate. His sole purpose was to reduce his tax
liability.

Adapted from SILKE 2024 P191 (7.5.1)

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 Deemed inclusions (s7(2)(a)) –SILKE Example

Solution:

S7(2)(a) will thus deem the interest earned to accrue to Mr. D and it will be included in his taxable
income. No amount will be included in his wife’s taxable income

Interest
Adapted from SILKE 2024 P191 (7.5.1)

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Deemed inclusions (s7(2)(b))

s7(2)(b) – Income received by or accrued to one spouse (the recipient) is deemed to be the income of
the other spouse (donor) if:
The recipient receives more income than he or she should as a result of a trade carried on in
partnership or association with the donor or which is connected to the trade of the donor, or
The recipient receives more income than he or she should from a partnership of which the donor is a
member or from a company of which the donor is the sole or main or one of the principal
shareholders.

Example (Silke): If Mrs A works as a secretary for her husband and annually earns R400 000 when a
reasonable income for her services rendered amounts to R180 000, Mrs A will be taxed on the R180
000 and Mr. A on the excessive R220 000.

Adapted from SILKE 2024 P192 (7.5.1)

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 Income of minor children (s7(3))
Where income has accrued to a minor because of a ‘donation, settlement or other disposition’
made by the parent, that income is taxable in the donor parent's hands.

‘minor child’ <18 (includes stepchild or adopted child)

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Income of minor children (s7(3))

Example:

Mr. Daniels donated an interest-bearing investment to his son, aged 14 allowing him to earn interest of R35 000.

Interest-bearing
investment

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 Income of minor children (s7(3))
Solution:

S7(3) will thus deem the interest to be earned by Mr. Daniels and it will be included in his taxable income.

Interest-bearing
investment

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Attribution of capital gains

 Paragraph 68 deals with the attribution of
capital gains to spouses.

Paragraph 69 deals with the attribution of

capital gains to parents of minor children.

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 Paragraph 68 – Attribution of capital gain to spouse

The treatment of a person's capital gains that are derived directly or indirectly from that person's
spouse mirrors that afforded to ordinary income under s 7(2). That part of a person's capital gain
as can be attributed to

 a donation, settlement or other disposition, or

 any transaction, operation or scheme made, entered into or carried out by that person's
spouse

is under this rule taken into account only in the hands of that spouse when the latter made, entered
into or carried out that transaction mainly for purposes of the avoidance of any tax, duty or levy
administered by the Commissioner.

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Paragraph 68(2)
 This rule also applies when a person's capital gain is derived from a trade carried on by that person in association or in
partnership with that person's spouse or when it is derived from that spouse or from a partnership or company at a time when that
spouse was a member of that partnership or the sole, main or one of the principal holders of shares in that company.

 The rule then applies to so much of that person's gain as exceeds the amount of that person's reasonable
entitlement to the gain. The latter amount is determined taking into account amongst other things, the
nature of the relevant trade, the extent of that person's participation in it and the services rendered by that
person.

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 Solution - Paragraph 68(2)
Facts:

Cherel and her husband Barker operate a successful car rental business in partnership at OR Tambo International Airport. Since
Cherel takes a leading role in the business while her husband’s involvement is minimal, they share profits in the ratio of 90:10. They
had originally bought the car hire franchise for R100 000 in 2004, with Cherel contributing R90 000 and her husband R10 000.

During the 2024 year of assessment with business booming, Cherel decided it was time to retire. In order to avoid CGT, she
transferred her share in the business to Barker. Under section 9HB Cherel was treated as making neither a capital gain nor loss on the
transfer, while Barker was deemed to have acquired it for an expenditure of R90 000. During the same year of assessment, he sold
the business to a third party for R400 000 and he and Cherel moved to Hermanus.

He included the taxable capital gain of R104 000 in his 2024 tax return (R400 000 – R100 000 [90 000 + 10 000] = R300 000 – R40
000 (annual exclusion) = R260 000 × 40%). Because he was over 65, he fell below the tax threshold and paid no tax. Assume that
Barker did not qualify for the small business asset exclusion in para 57.

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Example - Paragraph 68(2)

Result:

Harry, a tax auditor with SARS noticed the transaction, and after establishing the facts, and being satisfied that this was a scheme the
sole purpose of which was to avoid CGT, subjected 90% of the capital gain of R300 000 to tax in Cherel’s hands under para 68.

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 Paragraph 69 – Attribution of capital gain to parent of minor
child
This rule mirrors the rule embodied in s 7(3) under which income received by, accruing to or in favour
of or expended for the benefit of a minor is in certain circumstances deemed to be that of a parent of
that minor.

Any amount of a minor child's capital gain or of a capital gain that has vested in or is treated as
having vested in that child during the year in which it arose and that is attributable to a donation,
settlement or other disposition made by a parent of that child is treated as the capital gain of
that parent. This rule also applies when the gain is attributable to a donation, settlement or other
disposition made by another person in return for some donation, settlement or other disposition or
some other consideration made or given by a parent of that child in favour, directly or indirectly,
of that person or his or her family.

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Spouses married in community of property

(s 7(2A),(2B) & (2C))
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 Spouses married in
community of property
(s 7(2A))

 Income deemed to accrue in

equal shares (50:50),
UNLESS
 Income from trade accrues to
spouse carrying on trade OR
 Income and/or assets fall
outside the joint estate

Income and asset treated

separately

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Married in community of property (s 7(2A) & s 7(2C))

For purposes of s 7(2A) “trade” does not include:

 The letting of fixed property (the income will therefore be apportioned):

Other examples of non-trade income: interest and dividends

S 7(2C) deems certain types of income to be income derived by a spouse from a trade
(these items will not be apportioned):
 Benefits from funds (module 9)
 S 10A annuities (Tax II)
 Income from patents, copyrights and similar property

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 Section 7(2A) and 7(2C)

• Remember that ‘employment’

constitutes a trade in terms of s1.
Income derived from employment will
therefore not be apportioned between
spouses married in community of
property.
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Married in community of property (s 7(2A), (2B) & (2C))

Other important principles:
 Capital gains on assets that fall within the joint estate are also apportioned 50:50 (par 14 -
Eighth Schedule)
 If an asset falls outside the joint estate the disposal is treated as having been made only by
the spouse making the disposal. (par 14 – Eighth Schedule)
 It is possible for the income from an asset to fall within the joint estate while the asset itself
does not (and vice versa).
 Remember that the primary residence exclusion is per residence and not per person (par
45(2))
 Each spouse is still entitled to the full annual exclusion on capital gains.

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 Married in community of property (s 7(2A), (2B) & (2C))
Other important principles:

 Each spouse is still entitled to the full interest exemption (s10(1)(i)).

 If divorced, income is split 50:50 only up to the date of divorce.

 If income is split between spouses in accordance with s7(2) or 7(2A), the associated
expenses or allowances are also split accordingly (s 7(2B)).

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Married in community of property (s 7(2A), (2B) & (2C))

Example:
Mr. and Mrs Matthews (both 40 years old) are married in community of property. Mr. Matthews received the
following amounts during the 2024 year of assessment:
0Salary R150 000
Interest R60 000
Dividends R30 000
Rental income (fixed property) R150 000
Rental income (movable property) R10 000

Expenses relating to the rental of fixed property amounted to R30 000.

Mrs Matthews received interest of R37 000 during the 2024 year of assessment.
Required:
Calculate the taxable income of Mr. Matthews for the 2024 year of assessment.

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 Married in community of property (s 7(2A), (2B) & (2C))
Solution:
Salary (Trade income) R150 000
Interest R48 500
Interest Mr. M (R60 000 x 50%) and interest Mrs.
M (R37 000 x 50%)

Interest exemption 10(1)(i) (R23 800)

Dividends (R30 000x50%) R15 000
10(1)(k) exemption (R15 000)
Rental income (fixed property) (150 000 x 50%) R75 000
Expenses incurred (30 000 x 50%) (s7(2B)) (R15 000)
Rental income (movable property) (Trade Income) R10 000
Taxable income R244 700

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Action Point
With reference to your module outline, study section 7 and
paragraphs 68 and 69 of the Eighth Schedule.

Answer the following questions:

1) What is the purpose of section 7?

2) Is the application of section 7(2) dependent on whether the

spouses are married in or out of community of property?

3) If one spouse in a marriage in community of property

renders accounting services as a sole proprietor, would the
income from their practice be apportioned to their spouse?

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