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CARMEN VENTER WORKSHOPS FOR CFP® EXAMINATIONS2015

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INCOME TAXINCOME TAX ACT

The Income Tax Act [ITA] incorporates the following taxes which is imperative for your studies:

Donations Tax: Section 56 – 64

Dividend Tax: Section 64B – 64N

Capital Gains : 8th Schedule and Section 26A

Retirement Benefits and Taxation: 2nd Schedule

Fringe Benefits: 7th Schedule and various Sections in the

ITA Employee’s Tax and Provisional: 4th Schedule and various Sections in the

ITA Micro Business and turnover tax: 6th Schedule

The other taxes which we will also discuss later in the workshop being:

Estate Duty, Transfer Duty and VAT [ Securities Transfer Tax – 0.25%]

THE BASE OF OUR TAX SYSTEM

Our point of departure starts off by the understanding that our tax system is ‘residence-based’ and , if you are not a ‘resident’ then we switch over to a source-based system of taxation.

If you are a resident - you will be taxed on your WORLD WIDE income .

If you are not a resident – you will be taxed only on income that is derived from RSA.

DEFINITION OF RESIDENCE

Natural persons: defined as either ordinarily resident or physical resident. The first test is to establish whether you are ordinarily resident and, if this fails, we will test for physical residency in terms of your presence in RSA.

Ordinarily resident: no definition but case law makes reference to ‘ a residence in a place with some form of degree of continuity’



Physical presence:

ALL the following requirements have to be met:

Physically present in RSA for a period or periods EXCEEDING

91 days in aggregate during the CURRENT year of assessment AND91 days in aggregate during EACH of the FIVE years of assessment PRECEDING the

current year of assessment AND915 days in aggregate during the FIVE years of assessment PRECEDING the current year

of assessment.

BUT: a person ceases to be a physical resident if – he is physically outside of RSA for acontinuous period of at least 330 full days.

Persons other than Naturals:

It is incorporated or formed in RSA ORIt has it’s place of effective management in the RSA

NOTE: as from 1/1/2013 – in testing the ‘ effective place of management’ – you no longer include [ie EXCLUDE]:

ANY FOREIGN COMPANY IF:1. it is incorporated, established or formed in a country other than RSA2. it has it’s place of effective management in RSA3. qualifies as a CFC with a foreign business establishment4. is subject to a high level of tax in a country other than RSA [75% of RSA tax]

FOREIGN INVESTMENT ENTITYas defined in S1 of the ITA –not taking into account any activity that constitutes:

1. Financial Services as per the FAIS Act2. services incidental to financial services where product is exempt from FAIS3. Financial Services provider as per the FAIS Act in terms of licence issued under

S8 of the FAIS Act.



PERSONS LIABLE FOR TAX

Classification of Taxpayers

Natural PersonsIndividuals

partnership Special Trusts (Deceased Estates)

Non-Natural PersonsCompanies/ CC’s

Trusts

Small Business (S12E of the ITA) Micro Business (6th Schedule to ITA) REIT (S 25BB as of 1/4/2013)

Watch out for :- Personal Service Providers >80 % income from one ‘client’ (para 1 of the 4th schedule and Section 23(k) of the ITA)

Natural Persons Sliding scale 18-40%

Trusts 40%

Non Natural Persons 28%

Turnover tax for Micro Business Scale

Small Business Scale

Now – to understand how the taxes are applied for each entity – we need to first understand who qualifies . We need only explore Small Business and Micro Business requirements:



SMALL BUSINESS CORPORATION

What is a Small Business Corporation? [s12E]

Any co-op, private company or cc All shareholders must be natural persons & cannot own shares in any other company/cc

(only listed company or CIS*/ shareblock) Gross income cannot exceed R20 million

Investment income & personal service income cannot collectively exceed 20% of gross income {refer to micro business professional

service definition} Cannot be Personal Service Provider

Investment income? Dividends, foreign dividends, royalties, rental derived from immovable

property, annuities or income of a similar nature interest as in 24J [interest bearing arrangements] Proceeds derived from investment or trading in financial instruments

(incl futures/ options/ derivatives), marketable securities or immovable property

IF YOU QUALIFY FOR SBC – YOU TAKE TAXABLE INCOME AND APPLY THE TAX TABLES


R

0

R 67 111

R 365 000

= nil

= 7% > 67 112= 21% > 365

R550 001 and above = 28% > 550 001+ 59 702


R

0

= nil

= 7% > 70 700= 21% > 365 000 + 20 601= 28% > 550 001 + 59

-R 67 112 -R 365 001 -

-R 70 701 -R 365 001

R 70 700R 365 000

R550 001 and

MICRO BUSINESS FOR TURNOVER

What is a Micro Business? [6th Schedule] natural person or company (requirements)

Qualifying Turnover does not exceed R1 million Must have February year end

[Vat requirement deleted as from 1/3/2012]

Thought?

Qualifying turnover ‘means the total receipts from carrying on business activities EXCLUDING any:

Amounts of a capital nature andAmounts exempt from normal tax :

Government grantsImport incentive rebates andState subsidies for the promotion of film production

Would I consider receipts of activities outside of SA for the purpose of the above?

Who does not qualify to register as a Micro Business? Professional service : accounting; architecture; auditing; financial service broking; consulting;

education; real estate; sport; research…to name a few! Personal service provider or non-exempt labour broker If proceeds from disposal of business assets used mainly for business purposes > R1.5 mill over

3 years (or shorter) Person holds any shares/interest in a company other than permitted shares and interests (para

4 of 6th schedule) Natural Person : Professional service: If more than 20% total receipts from rendering service! In relation to a company :

o Shareholders not a natural persono Shareholders hold shares/equities in company other than permitted investments

(excludes not trading & > R5000 or winding up/liquidatingo Is a PBOo Is a recreational clubo Where more than 20% of total receipts is investment income and income from

rendering a professional service o year end other than the last day of February of a year

In relation to a partnership o If any partner in partnership are not natural personso That person is a partner in more than one partnership

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o Qualifying turnover of partnership exceeds R1 million.

Permitted Investments ?Shares in listed companiesPortfolio in collective investment schemesInterest in body corporates and share blocksInterest in venture capital companies< 5% interest in social consumer co-op< 5% interest in primary saving co-op banksInterest in friendly society

Investment Income? in relation to a company for Micro Business Includes only:

income in form of annuities, dividends, interest, rental derived from immovable property, royalties or income of a similar nature and

Any proceeds derived from the disposal of financial instruments

What amounts are included and or excluded from TAXABLE TURNOVER ?

all amounts not of a capital nature, received from carrying on business activities in SA

BUT SPECIFIC INCLUSION:

50% of proceeds on sale of a capital asset Investment income of a company

TURNOVER SPECIFICALLY excludes:

Investment income of natural persons (partnership/sole) Government grantsExport incentive rebates and state subsidies for film productionOut of Investment Income – exclude dividends and foreign dividends [1/4/2012] for a company

ie: investment income is INCLUDED – but do not take into account local or foreign dividends

Other important notes relevant to Micro Business

Dividend Tax – R200 000 exemption



Received not accrued.Excessive Capital Receipts > R1 500 000 of assets mainly used for business

Voluntary registrationVoluntary deregistration must be after 3 years

Compulsory deregistration cannot come back in

Thought?

How would we treat the deduction of retirement annuities and medical aid for an individual who is registered as a Micro Business for trade purposes?

Could you have the situation where a natural/person has to submit two types of assessment?

IF YOU QUALIFY FOR A MICRO BUSINESS – YOU DETERMINE TURNOVER AND APPLY THE TAX

TABLES 2012/2013 and 2013/2014 Tax Tables AND 2014/2015 TABLES

R0 – R150 000 0%

R150 001 – R300 000 1% of amount above R150 000

R300 001 – R500 000 R1 500 + 2% of amount above R300 000

R500 001 – R750 000 R5 500 + 4% of the amount above R500 000

R750 001 and above R15 500 + 6% of the amount above R750 000



INCOME TAX – PRINCIPLES

REVENUE VS CAPITAL

Revenue: amount, cash or otherwise, received /accrued, excluding capital receipts/accruals, but including specific amounts

Income Tax applies

Capital: no real definition – comes down to intention – is the sale a realisation of capital or was the sale in the course of carrying on a business?

Capital Gains applies

During 2010 Mr Nkosi bought a house for R535 000 in JHB as he had relocated from Port Elizabeth . He lived in the house until 2013, then sold it for R1 385 000. He sold the house because he had been offered a job with RMB to head up its KZN division in Durban. He moved to Durban in March 2014 – and subsequently purchased another house to live in down in DBN.

You are required to discuss whether the purchase and sale of the house has any income tax consequences.

Thought?

What if Mr Nkosi decided to keep the house in JHB and rent it out. He now needs to paint this residence.

Would this be a revenue or capital expense?

INCOME TAX – FRAMEWORK

NON NATURAL PERSONS - TRUSTS, COMPANIES, CLOSE CORPS

INCOME R XXXXXXXX

EXEMPTIONS (R XXXXXXXX)13/28 x dividend foreign

LESS EXPENSES AGAINST TRADE INCOME (R XXXXXXXX)

ADD CAPITAL GAIN R XXXXXXXX

TAXABLE INCOME R XXXXXXXX

AT TAX RATE 28% / 40% / SBC SCALE R XXXXXXX = TAX LIABILITY





NATURAL PERSONS

INCOME (S1) RXXXX = GROSS INCOME

Less Exemptions (S10) (RXXXX) = INCOME

Less Deductions (S11)

Expenses (S11(a)) (RXXXX)

Pension (S11(k)) (RXXXX) = TAXABLE INCOME

RA (S11(n)) (RXXXX)

– ADD ALLOWANCES (S8) RXXXX

– (add Capital Gain for calculation purposes)

Donations (S18A) (RXXXX)

ADD capital gain to taxable income RXXXX

= TAXABLE INCOME RXXXX

– Tax according to scale– Less rebates– Less medical credit rebates (if applicable) = TAX PAYABLE– LESS MEDICAL EXPENSES CREDITS

Although the above ‘framework’ looks simple and oh so neat!...it is the detail under each section / component above – that matters!

So – let us look a little closer and breakdown in detail what is included in each section…..



next page………….

THIS IS A MORE DETAILED FRAMEWORK TO THE ONE ABOVE!INCOME

Salary CommissionMedical Aid Fringe Benefit Company Car Fringe Benefit Insurance Fringe Benefit Trade IncomeLocal Interest Foreign Interest Local Dividend Foreign Dividend Insurance proceeds Pension incomeCompulsory annuities Linked annuities Restraint of tradeetc

GROSS INCOME R XXXXXEXEMPTIONS

Local dividends 10(1)(k) Foreign Dividends 10B

25/40 x div received natural 13/28 x div received non natural

Local interest (< 65 and > 65) 10(1)(i) Voluntary annuity capital element 10A Compulsory annuity exemption 10C Insurance proceeds 10(1)(gG)CIS 10 (1)(iB)

INCOME

(R23 800 / R 34 500)

R XXXXX



DEDUCTIONSExpenses against trade S11(a)

Pension fund contributions s11(k)>of 7.5% of RFI or R1750

AND arrear contributions of R1800 pa

Retirement Annuity contributions S11(n)

>of:15% of NRFI or3500 less pension contributions or R1750

AND arrear contributions of R1800 pa

ADD Section 8 allowances:Taxable portion of car allowanceEntertainment allowanceTaxable portion of subsistence allowance

= taxable income at this

stage Less Donation S 18A

ADD Taxable Capital Gain

R XXXXX

R XXXXX

R XXXXX

R XXXXXX

R XXXXXX

R XXXXXX

R XXXXXX

R XXXXXXTAXABLE INCOME R XXXXXXTAX AS PER THE TABLES R XXXXXXLESS REBATES: Primary rebate (all) 12 726

+ Secondary rebate (>65) 7 110+ Tertiary rebate (>75) 2 367

LESS MEDICAL CREDIT (contribution)

LESS MEDICAL EXPENSES CREDIT (>65 OR < 65 OR DISABILITY)

R257 1st Member & 2nd eachR172 for each additional dependant

TAX LIABILITY / CREDIT

ABOVE APPLIES TO THE 2014/2015 TAX FRAMEWORK

Below the age of 65Jane and Tom, married with 3 children – are all on Tom’s medical aid plan. Tom is 45 years old and they have no disability. The medical contribution for the year has been R 56 000 and they have had out of pocket expenses, not refunded by the medical aid, of R 15 000. Tom’s total earnings for the year is R300 000.



LET US LOOK AT THE MEDICAL CREDITS IN MORE DETAIL WITH A COMPARISON TO THE DEDUCTIONS THAT TOOK PLACE IN THE 2013/2014 TAX YEAR AND NEW TABLES WITH INFLATIONARY RELIEF

MEDICAL CREDITS: FOR….SOMEONE…

2013/2014 Year end of assessment [S18 of ITA] 2014/2015 Year end of assessment [S6A & B of ITA]

Income: 300 000 Income: 300 000

Medical deduction allowed: Taxable Income 300 000 Contributions that exceed4x credit rebate: Tax on income 64 14756 000 -46 560 = 9 440 Less primary rebate (12 726)

Less medical credit (12 360)Plus medical expenses9 440+ 15 000 = 24 440 Less additional medical

Expenses credits:The amount that exceeds7.5% of 300 000 Contributions that

exceed4 x credit rebate24 440 – 22 500 = 1 940 56 000 – 49 440] = 6 560

(1 940)Plus medical expenses

Taxable income 298 060 6 560 + 15000 = 21 560

Tax on income 64 889 The amount that exceedsLess primary rebate (12 080) 7.5% of 300 000Less medical rebate (11 640) 21 560 – 22 500 = 0

Tax payable 41 169 25% of 0 = ( 0)

Tax payable 39 061

TAX PAYABLE 41 169 TAX PAYABLE 41 266ADDITIONAL TAX OF R97 IF DIRECT COMPARISON TO LAST YEAR TABLES



MEDICAL CREDITS FOR SOMEONE:

Above the age of 65Jane and Tom, married with 3 children – are all on Tom’s medical aid plan. Tom is 66 years old . The medical contribution for the year has been R 56 000 and they have had out of pocket expenses, not refunded by the medical aid, of R 15 000. Tom’s total earnings for the year is R400 000.


Income: 400 000 Income: 400 000Medical deduction allowed:

Taxable Income 400 000 Full medical contributions (56 000)Full medical expenses (15 000) Tax on income 95 274.50

Less primary rebate &Taxable income 329 000 Secondary rebate (19 836)

Less medical credit (12 360)Tax on income 74 171Less primary & secondary Less additional medicalrebate (18 830) Expenses credits:

33.3% of contributionsT ax payable 55 341 That exceed 3 x credit rebate

56 000 – 37 080 =18 920X 33.3% ( 6 300)

33.3% of medical expenses33.3% x 15 000 (4 995)

Tax payable 51 783.50

TAX PAYABLE 55 341 TAX PAYABLE 55 081REDUCTION IN TAX OF R260 IF DIRECT COMPARISON TO LAST YEAR’S TABLES



MEDICAL CREDIT FOR SOMEONE WHO IS:

DISABLEDJane and Tom, married with 3 children – are all on Tom’s medical aid plan. Tom is 45 years old . The medical contribution for the year has been R 56 000 and they have had out of pocket expenses, not refunded by the medical aid, of R 15 000. 1 child is disabled as defined. Tom’s total earnings for the year is R300 000.


Income: 300 000 Income: 300 000

Medical deduction allowed: Taxable Income 300 000 Contributions that exceed4x credit rebate: Tax on income 64 14756 000 -46 560 = 9 440 ( 9 440) Less primary rebate (12 726)

Less medical credit (12 360)Plus medical expensesIn full (15 000) Less additional medical

Expenses credits:

Taxable income 275 560 33.3% of contributionsThat exceed 3 x credit reb

ateTax on income 58 139 56 000 – 37 080 =21 080Less primary rebate ( 12 080) X 33.3% ( 6 300)Less medical rebate ( 11 640)

33.3% of medical expense

sT ax payable 34 419 33.3% x 15 000 (4 995)

Tax payable 27 766

TAX PAYABLE 34 419 TAX PAYABLE 29 736REDUCTION IN TAX OF R4683 IF DIRECT COMPARISON TO LAST YEAR’S TABLE

2013 /2014 tax tables



SO – what we will be doing now is looking even in more detail of some of the components of above - ie when we look at income – there are some ‘inclusions’ that require calculations to determine the rand value that is included:………

INCOME

All income received or accrued, whether in cash or otherwise

Fringe Benefits Basic SalaryCommission Rental IncomeInterest Consulting fees/ trade incomeDividends AnnuitiesRestraint of trade Shares (if trading and incentive schemes)

and so on and so forth…

FRINGE BENEFITS OF IMPORTANCE

1. Company Car

Value of vehicle plus VATx 3.5% or 3.25% if maintenance = monthly valueless consideration paid by employee - except if payment by employee is in respect of the license, insurance, maintenance or fuel.x 12 = annual cash equivalent

At end of year:IF accurate records of business km were kept, then:reduce the cash equivalent as follows: cash equivalent x business km / total km

IF the commissioner is satisfied that accurate records of private kms were kept – and the following payments were made by the employee, then the cash equivalent of the private use is also reduced by the:

license cost paid by employee x pvt km / total km insurance cost paid by employee x pvt km / total km maintenance cost paid by employee x pvt km / total kmprivate mileage x tariff per km in respect of fuel cost as a fixed rate

2. Accommodation(A-B) X C/100 X D/12 A – remuneration factor B – R67 111 (2013 = 63 556)

C = 17 or18 if at least 4 rooms & unfurnished & power/fuel supplied by employer OR Furnished but power/fuel not supplied by employer19 if at least 4 rooms if furnished and power/fuel supplied by employer

EXEMPTIONS FOR 2014/2015

Local Dividends [s10(1)(k)]

Foreign Dividends 25/40 for natural and 13/28 for other persons [s10B]

Interest < 65 R 23 800 pa [S10(1)(i)]> 65 R 34 500 pa

Voluntary Annuities - Capital element only [s10A]

Formula

y = a/b x

Where:A - cash considerationB - total payment expected from assurer of life of annuitant or term of annuity C -the amount of the annuityY – capital element which is exempt

Male aged 69 purchases a life annuity for R60 000. Annuity received R7 500pa.

What is his life expectancy?: 11.37What are the total payments that can be expected:? 11.37 x 7500 = 85275

Apply formula to determine the capital amount:60 000 / 85275 x 7500 = 5277 capital element that is exempt

OR

Cash consideration / life expectancy or term

Apply short cut formula to above example:60 000 / 11.37 = 5277 capital element that is exempt



Commutation of Voluntary Annuities

Section 10A(3)(c) The commuted value is taxable as Gross Income less an exempt amount

as per formula:

X = A-D x exempt amount

Where:A : the amount of the total cash consideration given by the purchaser under the contract; andD : the sum of the capital elements of all annuity amounts payable under the annuity contract prior to the commutation

Mr purchased an annuity for R50 000. Annuity is R7000 of which capital element is R4000. After 3 years annuity is commuted and annuitant receives a commuted value of R41 000. What amount is part of GI?

Exemption:

50 000 – (4000 x 3 = 12000) = 38 00041 000 – 38 000 = 3000 taxed amount

Compulsory Annuities – Exemption of ‘non-deductible contributions’ {1/4/2014}

Your client made the following contributions that did not rank for deductions over the years:

Contributions toRA 170 000PENSION 250 000PROVIDENT 150 000

TOTAL 570 000

Your client decided to retire and has following values: THE FUND:

THE TOTAL 1/3RD VALUE FROM RA ANDPENSION TAKEN IN CASH 333 333PROVIDENT TAKEN IN FULL 175 000



RA 500 000PENSION 500 000PROVIDENT 175 000

TOTAL 508 333

BUT LESS PREVIOUS CONTRIBUTIONS (570 000 ) OBVIOUSLY LIMITED TO TAXABLE AMOUNT

IF ONLY R508 333 WAS TO BE TAXED BUT I HAD R570 000 IN CONTRIBUTIONS THAT COULD BE USED TO REDUCE THE TAXABLE- CAN YOU SEE THAT I HAVE EFFECTIVELY ‘LOST’ R61 667?

[ 570 000 - 508 333]

NOW WE ASSUME THE THE 2/3RD'S FROM ABOVE GENERATES AN ANNUITY OFOF R100 000 A YEAR. AT THIS STAGE THE FULL ANNUITY (IRRESPECTIVE THAT I HAVE LOST' R 61 667 IN DEDUCTIONS) IS FULLY TAXED AS INCOME

AS FROM 1/4/2014

IF WE TAKE THE ABOVE SCENARIO AND ASSUME THAT THERE ARE NO OTHER LUMP SUMS ETC THAT BECOME PAYABLE

01/04/2014 YEARLY ANNUITY 200 000LESS 'non deductible contribution' (61 667)

Tax for income 138 333

IF FULL ANNUITY (IE NOTHING TAKEN AS CASH )FULL ANNUITY 570 000 WERE CONTRIBUTIONS PREVIOUSLY DISALLOWED

ASSUMPTION THAT YEARLY ANNUITY WOULD BE: 200 000LESS 'non deductible contribution' (570 000)

NIL to tax and R 370 000 carried over to next year

YEARLY ANNUITY 210 000LESS 'NDC' (370 000)

Nil to tax and R 160 000 carried over to next year

etc

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Overseas pensions to residents –if as a result of prior non-residency [S10(1)(gC)]

Interest received by foreign persons if exempt under S37K.[S10(1)(h)] ** 1 July 2013{not physically present in SA for more than 183 days in aggregate in 12 month period and not trading}

SA resident that works outside of our borders [S 10(1)(0)]‘for a period/s exceeding 183 full days in aggregate during any period of 12 months AND for a continuous period exceeding 60 full days during that period of 12 months

DEDUCTIONSevery = expenses

11(a) the general deduction formula but limited by S23(g) . (23m also important)All expenses and losses incurred in the production of income – actually paid in the same year of assessment – not of a capital nature – whether in part or in full.

politician = pension

11(k) pension fund contributions allowed up to the greater of 7.5% of pensionable salary / non-retirement funding income or R1 750limited to actual contributions

AND Arrears max of R1800 pa

receives = retirement annuity

11(n) retirement annuity contributions to the greater of: 15% of non retirement funding incomeR3500 – pension contributions OR R1750

Arrears R1800 pa

YOU CANNOT TAKE LUMP SUMS FROM RETIREMENT FUNDS AND OR SEVERANCE BENEFIT.



ALLOWANCES THAT HAVE TO BE ADDED

Car allowances: portion related to private is part of taxable income : Entertainment allowances (if not commission earner)Subsistence allowances

donated = donations

S18A DONATIONSLimited to 10% of taxable income at this point - BUT includes capital gain and business allowances

REBATES

Primary rebate for all

2013/2014

R12 080

2014/2015

R12 726Secondary rebate >65 <75 R18 830 R19 836Tertiary rebate > 75 R21 080 R22 203

Medical credit rebates

1st member 2nd member3rd member onwards

R242 R242 R162

R257 R257 R172

2012/2013 TAX TABLESTAXABLE INCOME RATES OF TAXR R0 – 160 000 0 + 18% OF EACH R1160 001 - 250 000 28 800 + 25% of amount > 160 000250 001 - 346 000 51 300 + 30% of amount > 250 000346 001 - 484 000 80 100 + 35% of amount > 346 000

2014/2015 TAX TABLES



484 001 - 617 000 128 400 + 38% of amount > 484 000617 001 AND ABOVE 178 940 + 40% of amount >

2013/2014 TAX TABLESTAXABLE INCOME RATES OF TAXR R0 – 165 600 0 + 18% OF EACH R1165601 - 258 750 29 808 + 25% of amount > 165 600258 751 - 358 110 53 096 + 30% of amount > 258 750358 111 - 500 940 89 904 + 35% of amount > 358 110500 941 - 638 600 132 994 + 38% of amount > 500 940638 601 AND ABOVE 185 205 + 40% of amount > 638 600

TAXABLE INCOME RATES OF TAXR R0 – 174 550 0 + 18% OF EACH R1174 551 - 272 700 31 419 + 25% of amount > 174 550272 701 - 377 450 55 957 + 30% of amount > 272 700377 451 - 528 000 87 382 + 35% of amount > 377 450528 001 - 673 100 140 074 + 38% of amount > 528 000673 101 AND ABOVE 195 212 + 40% of amount > 673 100



Examples for practice

Example 1 – Residency test

Mr Smith is a British Citizen who has a house in London. He bought a house in Cape Town after spending a holiday there. In the 2014 year of assessment he spent the whole year in his house in Cape Town.Even though he spends a lot of time in CT he still regards London as ‘his home’ because he had always worked there & only started visiting CT after he had retired. His presence in SA over the last 5 years is as follows:

2013 200 days 2012 85 days

2011 165 days 2010 250 days

2009 30 days

You are required to determine whether or not Mr Smith is a resident of SA for tax purposes for year ending 2014

Example 2 – Residency Test

Darren Mansfield emigrated from SA 10 yrs ago but retained some of his business interest in the Republic & consequently visits his country of birth regularly. Over the past 10 yrs, Darren has spent the following number of days in SA:

2007: 98

2006: 232 2007: 144 2008: 153

2009: 191 2010: 197 2011: 238

2012: 132 2013: 203 2014: 92

You are required to determine for which of the last 4 of the above mentioned years of assessment he would NOT have been regarded as a resident for income tax purposes? (6)

Example 3 – Residency testRadox Offshore Ltd is a Cayman Island Company, some of the shareholders of which live in SA. The Directors of the company live in the UK and are employees of Barclays Bank. You are required to determine whether or not the company is a resident for SA Tax purposes

Example 4 – Residency test

Tom, an ordinarily resident in the United States, earns he following income:

Which, if any, of the above income will be taxed in RSA? Is there any other potential tax implications onany of the above receipts?

Salary

Dividends

$40 000

$2 000 derived from RSA

Interest

Income

$5 000 derived from UK

$12 000 derived from his involvement

Interest $1 000 derived from RSAwithin an established RSA Company.



Example 5 – Turnover taxa) If I carry business activities outside of SA, would I qualify for turnover tax?

b) I operate a business through a trust – can I qualify as a micro business?

c) If I am a registered Micro Business – which taxes am I exempt from?

Example 6 – Turnover tax

On 1/3/2013 Mohammed, 25 yrs old, started a new business as a company producing & selling candles. He never registered as a vat vendor therefore qualifies as a Micro Business and registered as such in March 2014.The following information is relevant to his 2014 year of assessment – calculate his turnover tax liability for 2014.

Cash Receipts R 380 000 Interest – bank account R 25 000 Dividends from listed shares R 250 Proceeds - sale of a mixer R 20 000 Expenses – purchase of mixer R 35 000 Normal Trading expenses R 105 000

Example 7 – Turnover tax

Use the same facts as above but, assume that he is trading as a sole trader = what would be different?



Total travel 43 000 KM of which 31 000 KM was business and 12 000 KM was private.He paid R7 800 towards maintenance of the vehicle as well as fuel which amounted to R38 000 for the year.Calculate the annual fringe benefit value that is included in gross incomeCalculate the reductions that he will be able to claim at the end of the year of assessment

Example 8 – Company CarTom joined a company in March 2014. Part of the package is the use of a company car to the value of R450 000 VAT excluded but R 45 000 finance charges are include. The company however purchased this car in March 2012. There is no maintenance plan.

In the 2014/2015 year of assessment – Tom noted the following mileage:



the company car to the value of R 5 000 pa.

Calculate the annual fringe benefit if:

(a) accommodation is owned by the employer(b) accommodation is rented by the employer from a 3rd party at a cost of R10 000 per year.

Example 10 Retirement fund calculations

Chris (40) ,a sales consultant with a large company received the following income during the year of assessment:

Commission of R300 000 . This is retirement funding income Expenses of R25 000 incurred in the production of commission. He is a member of a pension fund- in terms of the rules he contributed 8.5% of his commission

income earned. Interest of R20 000 An annuity of R30 000 from a voluntary purchased annuity - the capital element of the annuity is

R11 000 Rental income of R100 000 in respect of farm property

During the year he incurred expenses of R30 000 in respect of the construction of soil erosion works on the farm property. These expenses are deductable in terms of section 17A

Dividends of R34 000 He speculates with residential fixed property and made a profit of R150 000 on the sale of a

house (no CGT as profit is taxable) . He had expenditure of R30 000 in the production of this income

He also received a bonus of R45 00 from his employer - this is no retirement funding income He contributed R3 000 to an RA during the year and his medical contributions were R19 000 pa He also donated R5000 to a PBO. He made a taxable capital gain of R 40 000



a) What is his maximum allowable RA deduction?b) Calculate the amount of Pension Fund contributions allowed as a deduction ?



Example 11 – Taxable portion of car allowance

Tom receives an annual allowance of R75000. He recorded total mileage of 35000km of which 20000km was business. He has spend: R52 000 fuel, R450 licence, R62 000 lease, R23 000 maintenance.

Calculate the taxable portion that has to be included into taxable income.a) as per the facts aboveb) assuming no record of expenses were kept



Example 12- Medical Aid Credits

John, 59 years of age, earns R650 000, has 7 members – himself, wife and kids. He is self-employed and does not belong to a medical aid at all! One of the children are disabled.He contributes R1000 to a pension fund, R3500 to a Retirement Annuity, Donated R800 to the SPCA, earns rental income of R45 000 and incurred rental expenses of R5000.He incurred medical expenses of R74 000 and made a capital gain of R30 000. Calculate the medical credits applicable if taxable income was R 350 000.

Example 13 - Medical credits

Tammy earns R 650 000, is 68 years old and has 7 members (herself, husband and kids). She is self employed, but does not belong to a medical aid.She contributes R 1 800 to a retirement annuity, earns rental income after expenses of R40 000. She incurred medical expenses of R60 000 . She made a taxable gain of R30 000.

Calculate the medical credits assuming taxable income is R 250 000.



Example 14 Medical deductions

Chris earns R650 000, he is 66 years of age, has 7 members – himself, wife and kids.His company contributed 50% of his total contributions - total contributions are R 64 000. Chris contributes R 3 500 to a retirement annuity, 7.5% of his earnings to a pension fund. He incurred medical expenses not refunded (out of pocket expenses) of R40 000 and made A capital gain of R30 000.

Calculate the medical credits.

Example 15 – Medical credits

Vanessa is 36 years old and earns R 350 000. She has only herself and husband on a medical aid which totals to R 56 000 annually. Her employer contributes an amount of R 30 000 on her behalf (of the R56 000). She earns no other income but, contributes 7.5% of her salary to a provident fund.She incurred out of pocket expenses in the same year of assessment of R 49 000.

Calculate the medical credits allowed.



Example 16 – Comprehensive examples

Mr Mabena lives in Johannesburg. He is 24 years old and is a salesman for IBM. He sells computers & earns commissions. He does not receive a salary, all commission based. For the tax year ended February 2015 he earned the following amounts:

Commissions R320 000 Dividends listed on the JSE R 6 200

For the same tax year he incurred the following Expenses:

Telephone expenses in contacting customers: R8 340 Petrol Expenses: R18 000 Interest on loan from Nedbank: R3 520 (He obtained this loan in order to purchase JSE shares as a long-term investment & earns dividends ) Restaurant expenses in entertaining potential customers: R6 300

He uses his own car to visit potential and actual customers. He purchased the vehicle at the beginning of the tax year for an amount of R220 000 including VAT.

Based on the above information, you are required to calculate Ms Yusuf’s taxable income for the tax year ended 28 February 2015



Example 17 – Comprehensive examples

Mr and Mrs Wetlevrede are married in of community of property. He is 60 years old and employed by Afrox Ltd as an accountant. She is 59 years old and carries on a very successful business in her own name manufacturing outdoor furniture – not a small or micro business registered. They provide the following information:

Mr Weltevrede Salary: R224 000 Taxable fringe benefits: R16 000 Interest Income: R4 800 Pension Fund contributions R16 800 Retirement annuity contributions R4 800

Mrs Weltevrede : Gross turnover(excl VAT) from trade: R300 000 Tax deductible expenditure incurred in

Connection with that trade: R60 000 Income from dividends: R1 600 Retirement annuity contributions: R6 000

Based on the above information, you are required to calculate the Welteverde’s taxable incomes for the 2015 tax year of assessment.



Example 18 – Comprehensive Examples

Mrs Taxpayer is 60 years old & married in community of property. She receives the following income: Pension: R250 000 Dividends(from a South African source) R20 000 Interest(from a foreign source) R 3 800 Interest(from South African source) R 40 000

She incurred the following expenses: Contributions to medical aid for her & her husband: R18 000

Other medical expenses R 4 500 Donated to the SPCA, a public Benefit organization R 5 000

Calculate the tax payable by Mrs Tax Payer’s for the 2014/2015 year of assessment



Example 19Choose correct option and motivate!

1. Which 1 of the following statements regarding ‘gross income’ is true:A. capital receipts are never taxableB. The salary a sole trader pays himself for running his sole-trader business forms part of

his gross income.C. All physical receipts received by a taxpayer that are not of a capital nature will be

included in the recipient’s GID. The pre -ample to the so-called special inclusions to the definition of ‘GI’ results in an

amount that is of a capital nature being included in gross income.November 2011 exam paper

THAT IS IT FOR NOW!!! HOPE YOU ENJOYED….DON’T GIVE UP YET!!!!



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