Gross Income Definition:

 The total amount of cash or otherwise

 Received by, or accrued in favour of such a person
 During the period of assessment
 Excluding receipts and accruals of a capital in nature

Non-Residents:
 The total amount of cash or otherwise
 Received by, or accrued to
 From a source within the Republic
 During the period of assessment
 Not of a capital nature

General Deduction Formula requirements:

 Expenditure and Losses
 Actually incurred
 During the year of assessment
 In the production of income
 Not of a capital nature

Pre-Trade Expenditure requirements:

 The expenditure must have been actually incurred, in the preparation of a trade
 The expenditure must not have been previously allowed as a deduction

Restraint of Trade Payments requirements:

 Any amounts actually incurred by a person
 In the course of carrying on his trade
 As compensation in respect of any restraint of trade imposed on,
 Any other person who is a natural person
 To the extent that the amounts constitutes or will constitute income of the person to whom it is
paid

Legal Expenses Deduction requirements:

 Legal expenses actually incurred by the taxpayer during the year of assessment
 In respect of any claim, dispute, or action of law
 Arising in the course of the ordinary operations undertaken by the taxpayer in the carrying of
their trade that is
 Not of a capital nature
Expenditure relating to employment or holding of an office
deductions:
 Section 11(nA) – Refunds of amounts received in respect of services or any employment or
holding of an office
 Section 11(nB) – Refund of amounts received as a restraint of trade payments
 Section 11F – Any contributions to any retirement fund
 Section 11(c) – Legal Expenditure

SPECIAL INCLUSIONS
 Annuities - (Any annuity, Living annuity, Annuity amount)
 Alimony - (Alimony payable, exclude paying spouse, include receiving spouse)
 Par (c)/ Services Rendered - (Services rendered/to be rendered, Employment plus bonus on
employment, Voluntary awards)
 Restraint of Trade
 Compensation for Termination of Employment - (Include insurance policy payout received)
 Fund Benefits - (Include lump sum received from retirement funds, Pension funds, Provident
funds, Retirement annuity)
 Savings withdrawal benefit
 Commutation of amounts due - (Includes amounts received/accrued in commutation)
 Lease Premiums - (Includes amounts received/accrued from another person)
 Compensation for imparting knowledge and information - (Includes amounts received for
imparting stic information/knowledge or providing assistance)
 Leasehold Improvements
 Fringe Benefits
 Proceeds from the disposal of certain assets
 Par (k)/ Dividends - (Include local and foreign dividends)
 Key-man insurance policy proceeds
 Recoupments and other inclusions

EXEMPTS AMOUNTS
 Local Interest - (RSA interest received by natural persons)
o R23 800 for persons under 65 years
o R34 500 for persons 65 years and older
 Amounts received from Tax-Free Investments - (Any amounts received by a natural person
from a tax-free investment i.e. Dividends and Interest income)
o A natural person is allowed to contribute R36 000 during a year of assessment
o Allowed R500 000 as a lifetime contribution limitation
 o The taxpayer will be penalized 40% if he exceeds this limitation during the year of
assessment
 Purchased Annuity – Formula: Y=A/B x C
o A – Cash consideration paid by the purchaser
o B – Expected return (Whole amount expected and not for only the current year)
o C – Annuity amount received in the current year
o If the annuity will be received for the rest of the life, use life expectancy tables
o Another formula: X= A-D
 Local Dividends - (Dividends received from RSA resident company are exempt, whether received
by natural person or corporate entity)
o Dividends received from REIT and dividends received as an annuity are excluded from
this exemption
 Foreign Pensions
o Formula: (The period during which services were rendered outside RSA / Total period
during which services were rendered) x Total amount received
 Unemployment Insurance Fund - (Any amount received in terms of the Unemployment Act)
 Uniforms and uniform allowance - (The value of any uniform given to the employee by
employer is exempt if the uniform is required as a condition of employment to wear
employment while on duty)
 Relocation Benefits - (Relocation as a result of an appointment, transfer or termination of
employment)
o Costs will be exempt including but not limited to: Transportation, Selling costs,
Residential Accommodation for max period of 183 days)
 Employment Outside RSA - (Amounts received for services rendered outside RSA on behalf of
any employer is exempt)
o Exemption excludes government employees, independent contractors and self-
employed individuals
o Limited to R1 250 000 p.a
 Bursaries and scholarships - (If the remuneration of the employee exceeds R600 000 in a year,
there is no exemption available)
 RSA royalties paid to non-residents
 Amounts paid to foreign entertainers or sportspersons
 Compensation paid in terms of Road Accident Funds, Disability Pensions, Diseases and Injuries
contracted on duty
 Employee’s death - (The cause of death must be a result of employment, Amount limited to
R300 000)
 Funeral Benefits
 Alimony allowance received
 Employment Tax Incentive (s10(1)(s)

General Deduction Formula

 Section 11A/ Pre-Trade Expenditure - (The expenditure and losses need to have been actually
incurred by the taxpayer)
o (Exclude expenditure that is of capital nature)
 Section (a)/ General Deduction Formula - (Expenditure actually incurred in the production of
income, excluding of a capital nature)
 Prepaid Expenditure - (Does not apply to expenditure incurred to purchase trading stock)
 Section 23(g) – (prohibits the deduction of moneys not expended for the purposes of trade)

Section 23: Prohibited Deductions

 Section 24M – Assets disposed off for unquantified amounts (excludes trading stock)
 Section 23H – Prepaid Expenditure
o Section 23 H should be considered if 2 requirements are met:
o The expenditure incurred qualified for a deduction in terms of:
 GDF, Legal fees, Repairs, Insurance premiums in respect of key-man policies,
and Pre-trade expenditure and losses
o The expenditure relates to:
 Goods/services that will NOT all be supplied or rendered during the year of
assessment, or
 Any benefits and the period to which the benefits relate EXTENDS beyond
the year of assessment
o Section 23H does not apply to expenditure incurred to purchase trading stock
 Section 23(a) – Private maintenance expenditure
 Section 23(b) – Domestic and private expenditure
 Section 23(c) – Recoverable expenditure
 Section 23(d) – Interest, penalties and taxes
 Section 23(e) – Provisions and reserves
 Section 23(f) – Expenditure incurred to produce exempt income
 Section 23(g) – Non-trade expenditure
 Section 23(h) – Notional interest
 Section 23(i) – Deductions claimed against any retirement fund lump sum benefits and
retirement lump sum withdrawal benefits
 Section 23(k) – Expenditure incurred by labour brokers and personal service providers (PSP)
 Section 23(l) – Restraint of trade (except those allowable in terms of section 11(cA))
 Section 23(m) – Expenditure relating to employment or holding of an office
o Section 23(m) does not apply to any agent or representative whose remuneration is
derived mainly (>50%) in the form of commission based on sales or turnover
 Section 23(o) – Unlawful activities
 Section 23(q) – Expenditure incurred in the production of foreign dividends
 Section 23(r) – Premiums in respect of insurance policies against illness, injury, disability,
unemployment or death of that person
 Prohibitions against double deductions:
o Section 23B(1) – The double deduction of an expense is not permitted
o Section 23B(2) – Specific double deductions
o Section 23B(3) – Specific deductions overrides the General Deduction Formula
 o Section 23B(5) – Certain insurance premiums paid by an employer in respect of an
employee is not deductible
 Section 23C – VAT on the cost of an asset
o Registered VAT vendor can claim input tax on expenses incurred or cost of an asset

Special Deductions
If the amount qualifies for a deduction under both GDF and Special Deduction, it must be deducted only
under the Special Deduction

 Restraint of trade payment - (Only restraint of trade payments made to natural persons, labour
broker and personal service provider and exclude companies)
o Formula to calculate restraint of trade: (Take the smaller amount and never apportion)
 Amount / number of years restraint of trade applies
 Amount * 1/3
 Fund contributions by employers - (Contributions by employer on behalf of their employees or
former employees to any Pension, Provident, or Retirement Annuity Fund)
o Exclude contributions made to benefits funds such as medical aid schemes
o Deduct the Full Amount
 Annuities to former employees or partners and their dependents
o Former employee who retired due to old age, ill health or infirmity
o Former partner who retired due to old age, ill health or infirmity and was a partner for
at least 5 years
o Dependent of former retired or deceased employee/partner: person has to be
dependent to the retired/deceased employee/partner.
o Lump sump payments are not deductible.
 Legal expenses - (The legal expense must have been actually incurred in respect of any claim,
dispute or action at law arising in the course of carrying out a trade, not of capital in nature)
 Repairs - (Expenditure actually incurred for repairs of Immovable Property: occupied for the
purpose of trade from which income is received. Machinery and other movable property used
for the purpose of trade)
o Deduct the Full Amount
 Bad debts - (3 requirements must be met)
o Claim must be made in the current year and not be carried forward
o The amount of debt written off need to have been previously included in the taxpayer’s
gross income in the current year or previous year
o The debt must be due to the taxpayer
o Deduct the Full Amount
 Repayment of employee benefits - (The same principle will also apply in terms of Restraint of
trade payments and the amount need to have been included in the gross income)
o Deduct the Full Amount
 Other deductions (s11x)
Value-Added Tax
 Output tax: the supply by any vendor of goods and services in the course of an enterprise.
o Goods and Services exclude Money - (Donations are included in money)
o Enterprise excludes Salaries and Hobbies.
 Input tax:
o Can only be claimed if output tax was levied on the goods/services acquired
o The goods/services will be used to make taxable supplies
o There is a valid tax invoice for the supply

 Types of Supply: Taxable supplies (Standard rate and Zero-Rated) and Exempt supplies
 Exempt Supplies:
o Financial Services, Residential Accommodation, Education, Child-Care Services, Trade
Unions
o Transport of fare-paying customers
 Zero-Rated Supplies:
o Exports Goods, Fuel Levy Goods, Basic Food, Paraffin, International Flights, Municipal
Rates; excluding electricity, water and gas
 Standard Rated Supplies:
o All other supplies other than Exempt and Zero-Rated Supplies
o 15% applicable
 Time of Supply:
o Invoice Basis- Earlier of invoice issued
o Payment Basis- When payment is received
 Denial of Input Tax include:
o Acquisition of a ‘motor car’ as defined.
o Goods/services obtained for the purpose of entertainment
o Professional membership subscription

Introduction to CGT
1. There must be an asset.
2. There must have been a disposal of the asset during the year of assessment.
3. The base cost of the asset must be determined.
o Base Costs include; acquisition cost, improvement cost, and direct cost in respect of the
acquisition and disposal of the asset.
o Base Costs exclude; input tax, expenditure for repairs, maintenance, insurance, and
other similar expenses paid monthly.
4. The proceeds on disposal of the asset must be determined.
o Proceeds exclude; output tax, and recoupment.

 Eighth Schedule: Every person is subject to the CGT rules contained in the Eighth Schedule.
 o This includes natural persons and persons other than natural persons
o Both residents and non-residents are subject to Eighth Schedule
o Annual Exclusion: Only applicable to NATURAL PERSONS.
 Currently R40 000 (R300 000 in year of a death natural person)
 Never apportioned and never carried forward. Limited to the sum of all capital
gains and losses.
o Inclusion Rate:
 Natural persons: 40%
 Companies: 80%

Capital Allowances and Recoupments

SBC – (Allowances only available if a taxpayer qualifies as a SBC)

 3 types of capital allowances provided

o Movable manufacturing assets S12(1)
 Allowance is equal to 100% of the cost of the asset, only once and not apportion
o Movable non-manufacturing assets S12(1A)
 Wear and tear allowance: first year of use, Year 1: 50% Year 2: 30% Year 3: 20%
and not apportion
o Moving expenses – (The expenditure is deductible in equal instalments in terms of
S12E(1A) using the rate of remaining years to be deducted, and in full in terms of S12(1))
 Movable manufacturing assets (S12C)
o Brand new or unused
 40% for first year of use and 20% for 3 subsequent years (40% / 20% / 20%
/20%)
o Second hand
 20% in the first year and 20% for the 4 succeeding years (20% / 20% / 20% /
20% / 20%)
o Research and development asset
 New and unused plant brought into use for the first time (50% / 30% / 20%)
o All not apportioned
o Improvements to a S12(C) is treated as a new asset in that it is written off from the time
that the improvements are first brought into use
 Aircrafts and Ships (S12C)
o 20% straight line allowance – (Thus: 20% / 20% / 20% / 20% / 20%) (new or unused)
o Improvements made to Aircrafts and Ships will NOT qualify for S12C allowance
o If the taxpayer is a SBC, an allowance on Aircrafts and Ships could be claimed in terms
of S12E(1A) – (Thus: 50% / 30% / 20%)
o Not apportioned
 Wear and Tear S11(e)
o Applies to all assets that has diminished by reason of wear and tear or depreciation
 o Excluding buildings or other structures of permanent nature
o Wear and Tear may be calculated using the diminishing-value method or the straight-
line method
o Allowance must be Apportioned based on the period of time used
o Wear and Tear for small items that costs < R7000: Full write-off allowed, only for items
used for trade by the taxpayer.
 Buildings and improvements S13
o Allowance is 5% and can only be claimed once in the year in which it was brought into
use
o Not apportioned
 Disposal of an asset S11(o)
o 2 calculations need to be formed:
 Cal 1: Selling price limited to cost price less Tax Value =
Recoupment/Allowance
 Tax Value = Cost price less Total Allowances
 Cal 2: Proceeds less Base Cost = Capita gain/Loss
 Base Cost also includes amount got in calculation 1
o If allowance to be subtracted in Base Cost
o If recoupment to be subtracted in Proceeds amount
 Lease premiums S11(f)
o Only applicable to amounts paid for the right of use of an asset, which is used to
produce income.
o (Lease premium/No. of years of use) x Period in the YOA used
o No. of years of use: maximum of 25 years, including renewals
o Allowance is apportioned
 Leasehold Improvements S11(g)
o Improvements affected on the land or to buildings of the lessor by the lessee
o (The stipulated value of the improvements/No. of years of use) x Period in the YOA
used
o No. of years of use: calculated from the date improvements are completed until the end
of the lease but limited to a maximum 25 years
o Allowance is proportionately reduced in the year the improvements are completed if
the property is used for less than a full year
 Relief for lessor S11(h)
o Section 11(h) provides for the deduction of an allowance in respect of amounts included
in the taxpayer’s gross income under par (g) or par (h)
 Par (g): Lease premiums
 Par (h): Leasehold improvements
o Formula: The amount included in gross income in terms of par (g) or (h) less the
present value of the amount included in the lessor’s gross income

Non-Residents
Statutory Source rules:

 Dividends - (Same inclusion and exemption treatment)

 Interest - Interest is RSA source if:
o It is attributable to an amount incurred by the resident, unless it is attributable to a PE
of the RSA situated outside RSA
o The interest is received in respect of any funds used or applied in RSA
 Royalty - Royalties is RSA source if:
o It is attributable to an amount incurred by the resident, unless it is attributable to a PE
of the RSA situated outside RSA
o If the payer of the royalty is a RSA resident or the place whether the intellectual
property is used is in RSA
 Amounts received from a retirement fund - (The pension, annuities, provident is a RSA source if
the services in respect of which the amount is received were rendered within RSA)
o If the services were partially rendered in RSA and in other country a formula is used to
determine the RSA source:
o (Period in which services were rendered in SA / Total period during which services were
rendered) x Amount of pension or annuity
 Disposal of immovable property in RSA - (Amounts received for the disposal of immovable
property (of a capital nature) situated in RSA, is a RSA source)
 Disposal of a movable property in RSA - (Amounts received for the disposal of movable assets
other than immovable property in RSA (movable property includes trading stock), is a RSA
source)
 Other income categories source includes, Remuneration and income from other services
rendered, Rental income, Business income: must refer to a case law
Foreign source

--Amounts received by non-residents from sources outside RSA, do not form part of their gross
income e.g. foreign dividends, foreign interest

Exemptions for Non-Residents

 Interest exemption - Interest received by non-residents is not exempt except if:

o The natural person who is non-resident was physically present in RSA for a period
exceeding 183 days in the year of assessment
o Interest income received by non-resident in not exempt if debt from which interest
arises is effectively connected to the PE of non-resident in RSA
o This exemption applies to all persons
 Dividend exemption - Applies to both residents and non-residents in respect of dividends
declared by SA resident companies
 Non-resident sport persons and entertainers - Amounts paid to non-resident sport persons and
entertainers is exempt if such amounts were subject to withholding tax
 Royalty exemption - Royalty received by a non-resident is exempt except if:
o The non-resident is a natural person who was physically present in RSA for period
exceeding 183 days in the year of assessment
 o The Intangible Property to which the royalty is paid is effectively connected with PE of
that person in the Republic
Withholding Taxes
--Withholding taxes are normally levied on passive income

 Withholding tax on interest

o 15% final tax
o Exempt from WHT if:
 The interest paid to foreign person by RSA government, any bank, SA Reserve
Bank, any listed debt
 The non-resident is a natural person who was physically present in RSA for
period exceeding 183 days in the year of assessment
 The debt claim in respect of which interest is paid is effectively connected to a
PE of that non-resident in RSA
 Withholding tax on royalties
o 15% final tax
o Exempt from WHT if:
 The non-resident is a natural person who was physically present in RSA for
period exceeding 183 days in the year of assessment
 The Intangible Property to which the royalty is paid is effectively connected with
PE of that foreign person in RSA
 Withholding tax on payments to foreign entertainers and sportspersons
o 15% final tax
o No WHT exemption if foreign entertainers or sportsperson is:
 An employee of a resident employer
 Physically present in RSA for period exceeding 183 days in the year of
assessment
 Withholding tax on payments to non-residents sellers in respect of immovable property
disposed of in RSA
o The amount of withholding tax ranges from 7.5%-15% and not a final tax
 7.5% - if the non-resident seller is a natural person
 10% - if the non-resident seller is a company
 15% - if the non-resident seller is a trust
o No exemption if:
 If the selling price does not exceed R2 million
 In respect of a deposit paid, until the sale agreement has become unconditional

Case Laws
Resident:
 Cohen Case – ‘ordinarily resident’ means the country which a person would naturally and as a
matter of course return to from his wanderings.
Gross Income:
Amount

 Lategan Case – Amount does not only include money but also the value of every form of
property earned by a taxpayer that has monetary value.

Accrued to

 Lategan Case – When a taxpayer becomes entitled to the amount, it accrues to the taxpayer.

Received by

 Geldenhuys Case – For an amount to be received by the taxpayer, the amount should be
received by the taxpayer for his own benefit and on his own behalf.
 Pyott Case – If deposits are not deposited into a separate trust account, these deposits will be
included in gross income as the taxpayer has thus received these deposits for its own benefit.

Illegal Amount

 MP Finance Group CC Case – An amount is received by a taxpayer if the taxpayer intended to

receive the amount for his own benefit irrespective of the fact that such amounts are illegal in
nature.

Revenue and Capital:

Capital in Nature/Intention

 PnP Employee Share Trust Case – Receipts are of revenue in nature if the receipts are
generated by an operation of a business in carrying out a scheme of profit-making.
 Visser Case – The fruit is the income produced by the income producing-asset, the tree is the
income producing-asset. The fruit is revenue in nature and the tree is capital in nature.

Intention/Change of Intention

 Richmond Estates Case

o The taxpayer’s intention may also change from revenue to capital
o Taxpayer’s decision to dispose of a capital asset does not constitute a change in
intention
 Stott Case – The taxpayer’s intention at acquisition is important and conclusive unless a change
in taxpayer’s intention occurred thereafter

Expenditure:
Actually Incurred

 Edgars Stores Case – The taxpayer must incur an unconditional legal obligation before an
amount is actually incurred.

Carrying on a trade
  Burgess Case – Trade should be given a wide interpretation. The term trade was intended to
embrace every profitable activity.

Of A Capital Nature

 New State Areas Case – Expenditure incurred to perform the income-earning operations is
income in nature. Expenditure incurred to establish or improve the income-earning structure is
a capital in nature.
 BP Southern Africa Case – Expenditure that creates an enduring benefit is Capital in nature.
 Capstone Case – Where there is a purchase of shares NOT as trading stock for resale at a profit,
the proceeds from the sale of shares are capital nature.

In the Production of Income

 Sub-Nigel Case – An expense actually incurred would meet the requirement of ‘in the
production of income’ if the expense was incurred for the purpose of producing income. It is
therefore irrelevant if no income was in actual fact produced, in the year incurred, or over.
 Port Elizabeth Case – Expenditure must be closely connected to the income-earning activities of
an entity in order for it to be considered to be in the production of income.

Trading Stock:
 Ernst Bester Trust Case
o Sand not removed cannot be seen as part of trading stock and therefore can not be
classified as opening stock. OR
o In order for an item to form part of trading stock it should have been removed from the
ground in order for it to form part of trading stock.
 Volkswagen SA Case
o Closing stock should not be valued at net realisable value (which takes into account
future expenditure not yet incurred) for income tax purposes. OR
o Cost price should be used as the ‘baseline’ (starting point). It is only if the taxpayer can
prove that the value of trading stock was reduced and if the stock is worth less than cost
price, that SARS may adjust the closing stock value.

Assessed Losses:
 SA Bazaars – If a company does not carry on a trade in any one full year, the company loses the
right to carry forward a balance of assessed loss beyond that year. (only applicable to
companies)

In terms of a contract
 Clicks Retailers – for S24C to apply, the income and future expenditure must originate from
contracts that meet the sameness requirements. The contracts must be more inextricably
linked, they need to be able to not exist without the other.

Non-Residents:
From a source within the Republic

 Lever Brothers & Unilever Case – The source of income is where the originating cause of that
income is located

Rebates (Section 6(2))

 Primary rebates – (Under 65 years) – R17 235
 Secondary rebates – (65 years and older) -R9 444
 Tertiary rebates – (75 years and older) – R3 145