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PPEERRSSOONNAALL TTAAXX WWOORRKKSSHHOOPP
((VVeerrssiioonn 1111..44))
One day workshop where the ins and outs of personal tax are covered,
providing the participant with an awareness and specific skills, with the aim of
improving the tax efficiency of their personal tax liabilities.
Tax is an integrated discipline, and it is essential to understand the rules
around tax implications leading to taxable income, to ensure that the taxpayer
minimises their tax liability as optimally as possible.
After completing this course, the client will:
1. Understand how their personal taxable income is calculated, including
how to account for any business profits and losses incurred.
2. Have a holistic view of the tax framework.
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Presented by: Gavin Beretta FCIS, MBA, CMT
GPG Financial Services
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Other workshops and services provided by the Bizfacility team:
Workshops:
Using Financial Statements (Module 1)
A two day workshop on how to read, understand and use Financial
Statements to manage your business more effectively.
Consists of notes and an excel analysis worksheet
Target audience: entrepreneurs, managers and bookkeepers
Understanding your personal tax obligations
A one day workshop wherein personal tax framework is discussed and how
to calculate your taxable income is discussed.
Consists of notes and a personal tax calculator workbook
Target audience: entrepreneurs, managers and bookkeepers
Company Tax
A one day workshop wherein corporate tax issues are discussed and
determination of the legal entities taxable income is calculated.
Consists of notes and a corporate tax framework.
Target audience: entrepreneurs, managers and bookkeepers
Value Added Tax
A one day workshop wherein output and input tax is explored, as well as
completion of the VAT returns.
Consists of notes and worked examples
Target audience: entrepreneurs, managers and bookkeepers
Business Valuation (Module 2)
A one day workshop on how to value a business, using Discounted Cash
Flow.
Consists of notes, worked examples and an excel valuation worksheet
Target audience: entrepreneurs, managers and consultants
Strategic and Tactical methodologies in generating more value in your
business (Module 3)
One day workshop that will provide you with tools and strategic insights on
how to optimise opportunity both from your supply chain and your client
base.
Target audience: entrepreneurs, managers and consultants
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Services:
Business Valuation
BizFacility provides a service to both sellers and buyers around
valuation of уουr business – using latest methodology; we will
determine a value for уουr business using a number of methodologies
that will withstand scrutiny from any prospective buyer / seller аѕ thе
case mау bе.
Financial Analysis
Using the methodology taught in the Financials Workshop, we provide a
regular analysis of your business, highlighting the areas of focus.
All – in – One Accounting and Tax services
Bizfacility provides the following “one – stop” personal relationship based
services:
1. Preparation of Annual Financial Statements that comply with GAAP and IFRS requirements 2. Performance of independent review as required by the Companies Act, where required 3. Lodgement of Annual Return to CIPC as required by Companies Act 4. Calculation of your annual Public Interest Score 5. Preparation of company’s/ business’s Annual Tax Return and submission 6. Calculation and submission of Provisional Tax Returns 7. Quarterly or monthly Management accounts 8. Formal Financial Analysis of your company on a 6 monthly basis to highlight areas of concerns and to initiate corrective action. 9. Ongoing advice from our professional accountants and tax practitioners to enable forward planning 10. STC and VAT return submissions
11. Auditing services where required by the Companies Act.
Debt Recovery Service (licensed in terms of Debt Recovery Act)
BizCollect is a licensed Debt Recovery service provider, and specialises in debt
recovery resulting from trade receivables, unblocking the client’s cash flow.
We strive for professionalism and look after the interest of our clients and their
relationships with their customers.
Please contact the Bizfacility team, either on email at [email protected], or on 021 913 6099 for
further information or to make an appointment, or see our web site, www.bizfacility.com for further
details. We operate nationally.
Bizfacility accountants are registered to perform public practice services and are registered with
SARS as tax practitioners.
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OBJECTIVE
To provide both awareness, and some specific tools to the taxpayer, both individual as well as small
/ medium business owners, to enable the taxpayer to claim all legitimate deductions from their
income, in order to arrive at Taxable Income.
Completion of this workshop will enable the taxpayer to confidently claim business expenses,
medical expenses, business mileage against a travel allowance, retirement annuity contributions and
how to treat income received from lump sums.
This will achieve two objectives:
i) to be aware of the relevant income and expenses and how to go about claiming deductions
and
ii) Enable the taxpayer who uses the services of a tax practitioner, to discuss and understand
their completed tax submission.
Due to the complexity of the tax legislation however, it is recommended that the taxpayer obtain
the advice of a tax practitioner to optimise the taxpayer’s tax affairs.
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Understanding Your personal Tax Liabilities
Rates and amounts used are for the 2011 tax year, ended 28 February.
Contents The Basics – the Tax Framework and Income Tax Act ........................................................................ 6
Gross Income ...................................................................................................................................... 9
Exempt income ................................................................................................................................. 10
Deductions – individuals and business owners ................................................................................ 11
Pension and Retirement Annuity Fund Contributions ...................................................................... 12
Medical Expenses and Contributions ................................................................................................ 14
Home Office – what can you claim? ................................................................................................. 16
Business Expenses ............................................................................................................................. 18
Capital Allowances ............................................................................................................................ 21
Capital Gains Tax (CGT) ..................................................................................................................... 25
Vehicle Allowances and Company vehicles ...................................................................................... 27
Lump Sums from retirement funds and other service payments ..................................................... 30
Provisional Tax – who and when ...................................................................................................... 32
2012 year updates (budget speech) ................................................................................................. 34
Share trading and tax implications ................................................................................................... 39
WORKED EXAMPLES ......................................................................................................................... 43
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The Basics – the Tax Framework and Income Tax Act
Normal Tax is levied on a taxpayer’s Taxable Income.
SA resident Taxpayers pay tax on their worldwide income, regardless of its source
Non resident SA Taxpayers pay tax on their income derived from a source within South
Africa
The Income Tax Act contains the rules in terms of which taxable income is calculated.
Tax is an integrated field – VAT, Estate Duty, Capital Gains Tax, Donations Tax etc.
Source of tax law:
Income Tax Act and other statutory acts such as the VAT Act. Many Acts are interrelated.
Court decisions - prior court judgements are an important part of tax law and set precedent.
SARS Practice Notes which set out how SARS interprets and applies certain sections of the
Income Tax Act
Disputes:
The sequence in a dispute is: Tax Board (<R500k), Tax Court and finally the High Court
Some important definitions:
Person: includes natural persons, insolvent and deceased estates, trusts, legal persons (companies
and close corporations) and partnerships.
Gross Income: the total amount received by or accrued to any resident, and any amount received or
accrued to a non resident from a source within or deemed to be within South Africa.
Income: Gross income less exempt income
Resident: a person ordinarily resident within SA / legal entities incorporated in SA, or its effective
management is within SA
Non-resident: has spent NOT more than 91 days in total in SA, in each of the current and previous 5
years, and more than 915 days in total during the previous 5 years.
Avoidance: minimising your tax liability using legal means. Taxpayers have the right to pay the
minimum tax due.
Evasion: the use of illegal means to reduce your tax liability. Is a criminal offence.
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How to calculate your tax liability:
The Tax Framework:
Gross Income
Less: Exempt income (Section 10)
INCOME
Add: Income from trading activities (sole trader, partnership)
Less: Deductions (Section 11)
Capital allowances (e.g. wear & tear allowance)
Add: Reimbursive allowances (e.g. vehicle travel allowance)
Taxable portion of capital gains (Schedule 8)
TAXABLE INCOME
Notes:
a. Taxable Income is the amount on which normal tax at the applicable rate is calculated
refer the Natural persons Tax tables ( refer page 25)
b. All natural persons are entitled to deduct a rebate from the tax calculated for the year
(page 21).
Lump sum receipts from a retirement fund are taxed in terms of their own tables (Schedule 2) and
then added onto the tax liability calculated above.
Note that an important amendment was made for the 2012 year iro non retirement lump sums.
The sequence in calculating Taxable Income is as follows:
Examine the taxpayer’s income to establish whether it constitutes gross income.
Next, determine if any of the income included in gross income, is exempt (section 10).
Deduct expenses allowable (section 11)
Determine if there are any Capital Gains to be included in income. (schedule 8)
Deduct from income, any losses or allowances which may be claimed to arrive at taxable
income.
Calculate your tax payable using the relevant tax table
Deduct from this the rebate allowance
Add tax payable from any lump sums (Schedule 2)
Total tax liability due to SARS or due to the taxpayer
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REBATES
Applicable to natural persons only.
Once Taxable Income has been determined, the tax payable is determined from the appropriate Tax
table.
The Tax Payable is then reduced by allowable Rebates, as follows:
Rebates:
These are fixed amounts deductible by a natural person from tax calculated per the tax tables:
1. Primary rebate: R10,260 (R 9,756)
2. Secondary rebate: R 5,675 (R 5,400) - 65 years and older only.
Generally these rebates are not apportioned for partial years of assessment, other than in the year
of death, where apportionment applies.
Natural persons cannot create an assessed loss from applying these rebates. (Taxable income is then
limited to Nil).
NATURAL PERSON TAX TABLES:
March 2010 to 28 February 2011 Individuals and special trusts
Taxable Income (R) (R + %)
Rate of tax (R)
0 - 140 000
18% of each R1
140 001 - 221 000 25 200 + 25% of the amount above 140 000 221 001 - 305 000 45 450 + 30% of the amount above 221 000 305 001 - 431 000 70 650 + 35% of the amount above 305 000 431 001 - 552 000 114 750 + 38% of the amount above 431 000 552 001 and above 160 730 + 40% of the amount above 552 000
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Gross Income
The total amount in cash or otherwise, received or accrued to or in favour of, a resident of South
Africa, and in the case of a non resident person, from a South African source or deemed source,
other than receipts or accruals of a capital nature.
Special inclusions:
Annuities
Services rendered
Restraint of trade
Lump sum benefits
Leasehold improvements
Fringe benefits
Dividends
Key-man insurance policies
Recoupment’s
Some specifics:
Leasehold improvements:
o Improvements made by the lessee, to the leased property (land and buildings), in
accordance with the lease agreement, are included in the lessors gross income.
o Improvements made voluntarily by the lessee, are not included in the lessors
income.
o The lessor is allowed as a deduction, the discounted value of the improvement
against this benefit received, based on the length of the lease.
Restraint of Trade:
o Payment for not undertaking services
o Normally limited to a maximum of three years
o Is of a capital nature and are normally excluded from taxation.
o Restraints paid to:
Natural persons
Labour broker without an exemption certificate
Personal service provider
are included into Gross Income and into taxable income.
o Where the recipient is taxed on the restraint, the payer deducts the restraint over
the period of the restraint, subject to a minimum period of 3 years.
Key-man policies
o The insurance payout to the employer is included into Gross Income.
o The premiums are deductable expenses
o The employer must be the owner and recipient of the policy.
o For the premium to be deductable by the employer there must be no scheme or
arrangement where the proceeds are paid over to the employee.
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Exempt income (Section 10)
There are two elements to exemptions:
i) Exempt bodies
ii) Exempt income.
Exempt bodies:
Recreational clubs, sectional title bodies, share block entities and other associations of persons
(which manage the collective interest of its members such as collection of levies and administration
services).
Note that Clubs and Charitable Organisations may have partial exemption – other trading income is
subject to tax at 28% (in excess of 5% or R 150,000 of membership fees)
Exempt income:
foreign pensions deemed not to be from a source in SA
Workman's compensation and death benefits
UIF benefits
Interest:
65 years and older R 32,000 (R 30,000);
younger than 65 years R 22,300 (R 21,000)
Dividends from South African companies, except for dividends from listed property shares,
which are treated as interest income.
Dividends from foreign companies may be exempt from tax, but are required to meet
certain requirements.
Bursaries and scholarships granted to assist persons to study at recognised educational or
research institution.
Maintenance granted from a judicial order of divorce
Relocation or transfer costs where the employee is moved at the insistence of the employer
and the employer bears these costs
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EXAMPLE 1 – INTEREST EXEMPT INCOME
Deductions – individuals and business owners (Section 11)
Deductions:
Natural persons are limited to pension and retirement annuity contributions, medical scheme
contributions and possibly medical expenses.
Home office expenses may be claimed under certain conditions.
Persons carrying on a business, (sole proprietors and partnerships) in addition to the above, are
allowed to claim expenses incurred in the production of that income, including capital assets that
meet the requirements of the wear & tear allowance.
Specific deductions discussed:
1 Natural persons
1.1 Pension Fund and RA Contributions
1.2 Medical Contributions
1.3 Medical Expenses
1.4 Home Office Expenses
2 Business Expenses (sole traders and partnerships):
2.1 General Deduction formula and specific expenses
2.2 Capital Allowances (wear & tear)
1. Exempt Income
(page 6)
Interest
A taxpayer under 65 years of age, has income of 250,000, and earns a further R65,000 in interest and 25,000.
from dividends from local companies. Calculate the taxpayer's Taxable Income.
Income 250,000
Add Interest earned 65,000
Dividends received 25,000
Gross income 340,000
less dividend exemption 25,000
less Interest exemption 22,300
Income 292,700
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Pension and Retirement Annuity Fund Contributions
Natural persons only
Contributions to Pension and Retirement Annuity Funds:
(Note that Provident Fund contributions are not deductable)
The deductions against income are limited as follows:
Pension Funds: the greater of:
a) R1,750
b) 7.5% of retirement funding income (RFI)
Note that any disallowed portion may not be carried forward.
RFI = Employee’s remuneration subject to PAYE and is a member of a retirement fund established
for the benefit of employees.
It excludes therefore that part of a taxpayer’s income not taken into account in calculating the
contributions.
Retirement Annuity Funds: a deduction is allowed from income, as follows:
the greater of:
a) R1,750
b) R3,500 less any amount allowed for current pension contributions
c) 15% of income from non retirement funding sources, after deducting allowable
expenses, but before medical expenses and contributions.
Note: Capital gains and lump sums from retirement funds must be excluded from
income in determining the RA threshold.
Any disallowed portion is carried forward to the next year and claimed as a
deduction.
Arrear contributions of R1,800 may be claimed for both categories. Any excess may
be carried forward to the next year as a deduction.
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2. Pension Fund deductions
(page 8)
Taxpayer A earns a salary of R 560,000 pa, and makes contributions to the company's pension fund
of R 44,800. She also earns a non pensionable bonus of 50,000.
Salary 560,000
Bonus 50,000
Gross Income 610,000
Deductions
- Pension, limited to 7.5% of retirement funding income.
7.5% x 560,000 = 42,000
Taxable Income 568,000
The excess contribution of R 2,800 is not deductable and falls away. It cannot be carried forward
to the next fiscal year.
3. Retirement Funding Income deduction
(page 8)
Taxpayer B is a sole trader and earns R 700,000 income for the year. He contributes R140,000
to a RA Fund.
Income from business 700,000
less RA contributions, limited to:
- 15% of non retirement funding income:
Limit 15.0% x 700,000 = 105,000 105,000
Contributions: 140,000
Excess carried forward to the next fiscal year 35,000-
Taxable Income 595,000
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Medical Expenses and Contributions
1.2 Medical contributions:
Contributions made to a registered medical aid may be deducted subject to limits as follows:
R 670 (R 625) per month, for sole member
R 1,340 (R 1,250) per month, for member and one dependent
R 410 (R 380) per month, per additional dependent.
Usually, the employer makes a contribution to the medical aid on behalf of the employee – this
portion is treated as a fringe benefit and subject to tax in the hands of the employee.
The benefit is deemed to be medical scheme contributions made by the employee.
The employee deducts the contributions made by him and the employer, up to the above limits.
Any contributions made that exceed the above limits, are then carried forward into medical
expenses, as deemed expenditure. (see below).
1.3 Medical expenses:
Any amounts paid to a registered medical practitioner, pharmacist or nursing home, provided said
amount has not been recovered from the medical aid or an insurance policy, plus any excess
contributions made (as described above).
However, this expenditure is limited as follows:
Limitations:
a) Taxpayer of the age of 65 and older may claim all medical expenses and contributions i.e. no limit.
b) Taxpayers under the age of 65 with no disabled family members:
Expenses, plus contributions not allowed as a deduction:
A deduction is allowed if such expenditure exceeds 7.5% of the taxpayer’s taxable
income, before taking into account any income from retirement lump sums.
The effect of the above is that expenses below this threshold will not be deductible, if the
taxpayer is younger than 65 years.
Physical impairment and disability expenses may be claimed without any limits, (Includes
alterations made for disabled persons) iro the taxpayer, his / her spouse, child or dependent.
Disability = moderate to severe limitation on a person’s ability to function or perform daily activities
and the disability has lasted or will last for more than a year. The disability must be diagnosed by a
registered medical practitioner, and approved by SARS.
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4. Medical contributions and expenses
(page 10)
Taxpayer A contributes R2,000 per month to a medical aid, and incurred a further R20,000 medical expenses
not recovered from the medical aid. Taxpayer A is married with no children
She earns R 560,000 pa.
Remuneration 560,000
less:
Medical contributions - note 1 16,080 a
Taxable income before medical expenses 543,920
Medical expenses - note 2 - c
Taxable income 543,920
Note 1 - medical contributions
Annual medical aid contributions 24,000
Deduction limited to 2 x 670 x 12 mths 16,080 a
excess: 7,920 b
Note 2 - medical expenses
excess contributions carried forward 7,920
medical expenses 20,000
deemed medical expenses 27,920
deduction threshold / cap:
7.5% x taxable income, after medical contributions
543,920 x 7.5% 40,794
Therefore deduction is Nil nil c
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Home Office – what can you claim?
1.4 Home Office Expenditure
Taxpayers, who work from home or regularly work from home, will be permitted to claim certain
expenditure as a deduction.
The portion used for the home office, must be used exclusively used for trade purposes.
The portion deducible is calculated using floor area.
Salaried employees may claim office expenditure if their work is performed mainly outside of an
office supplied by their employer.
Expenses that may be deducted are:
- Rates and taxes,
- electricity,
- levies,
- dwelling repairs and maintenance,
- telephone,
- house cleaning (chars)
- interest on housing bond or rental of hired property
- Household insurance premiums
- Garden maintenance
The amount claimable as a deduction is the proportion as calculated using floor space.
The residence must be registered in the taxpayer’s name in order to claim this deduction, if the
residence is not rented.
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Note: property utilised to claim office deductions may be subject to a proportionate Capital gains
Tax implication on disposal of the said property at time of disposal.
The tax free (CGT) allowance on Residual Property is reduced by the amount calculated using the
proportion used to claim home expenses.
5. Home office expenditure
(page 10)
Taxpayer B works from home and reflects the following taxable income before deduction of home
office expenditure:
taxable income 540,000
Bond interest 80,000
rates & taxes 5,400
electricity 4,800
repairs to roof 25,000
Telkom phone bill 28,600
maid expenses 36,000
total home expenses 179,800
The office floor area is 25% of the dwelling floor area.
Income: 540,000
deduct home office expenses
Expenses 179,800 25% 44,950
Taxable Income 495,050
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Business Expenses
2.1 Expenses incurred in the production of income
Natural persons carrying on a business such as a sole trader or as a partnership are allowed to claim
expenses incurred in the production of that income, including capital assets that meet the
requirements of the wear & tear allowance sections.
The General Deduction Formula: (Sections 11(a) and 23(g) which must be read together):
Section 11(a) General deductions allowed in determination of taxable income: Any person carrying
on any trade, there shall be allowed as deductions from income, expenditure and losses actually
incurred in the production of that income, provided such expenditure and losses are not of a capital
nature.
Section 23(g) Deductions not allowed in determination of taxable income: any moneys, to the
extent to which such moneys were not laid out or expended for the purposes of trade.
Trade: includes every profession, trade, business, employment, calling, occupation or venture
including the letting of property.
General Framework for sole traders and partnerships:
Sales revenue
Less: deductable expenses:
Cost of sales
Administration and selling expenses
Wear & Tear allowances
Add: interest received
Taxable Income
The taxable income from trading activities is then included into the taxpayers taxable income.
For partnerships, the proportion as contained within the partnership agreement is included in each
individual taxpayer’s taxable income.
Note that legal entities such as companies, close corporations and trusts will incur tax at applicable
rates within the legal entity.
The accounting profit and taxable income the business may not be the same, as different accounting
treatment of items, such as depreciation and lease expenses, are not tax deductable.
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Specific expenditure that may be deducted:
Legal expenses
Bad debts: iro amounts previously included in income.
Doubtful debts: 25% of a list of doubtful debtors is usually allowed
Contributions made to pension, provident and benefit funds (subject to a maximum
of between 10% and 20% of employee remuneration).
Key – man policies: provided the policy belongs to the employer and the beneficiary
is the employer.
Restraint of trade payments (if taxable in recipients hands)
Repairs and maintenance of capital equipment, property and plant.
Lease payments (fax, printers, vehicles)
Rentals (property, equipment etc)
Leave pay provisions – may be deductable, but only if the accrued leave is reflected
on the employee’s payslip.
6. Business Expenses deductable
(page 11)
Taxpayer B, incurs bad debts of 150,000, of which R20,000 was an employee loan. In addition, his business has a list of
doubtful customers amounting to R 125,000. The list was R 200,000 the previous fiscal year.
Income 495,050
less:
- bad debts 150,000
(excludes employee loan) 20,000 130,000
Doubtful debtors allowance:
Customers Allowance 25.0%
this year: 125,000 31,250 31,250
last year 200,000 50,000 50,000-
Taxable income 383,800
Note: the employee loan cannot be deducted, as the amount was never included in income in prior periods.
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SARS is very mindful of the fact that some business expenditure incurred in arriving at accounting
profit is not fully used for business purposes. It is good practice to reflect some of this spend as
“private”.
The use of the taxpayer’s vehicle is a good example of how private usage is to be treated for tax
purposes:
Example:
The taxpayer uses her vehicle for business purposes, and travels 30,000 km per annum.
Of this, 20,000 km’s are used for business purposes, as verified by her log book.
Her costs for the year are as follows:
Vehicle expenses
Fuel & oil 24,000
maintenance 5,000
capital allowance ( wear & tear) 20,000 (1)
total annual expense: 49,000
business km's travelled 20,000
total km's travelled 30,000
% business km's: 66.7%
32,667
Capital allowance calcualtion:
cost of vehcile: 100,000
w&t rate: 20.0%
w&t allowance 20,000 (1)
Therefore total amount allowable as a
tax deduction is:
The effect of the above is that the private spend of R 16,333 (R 49,000 – R 32,667) be written back to
income in arriving at taxable income.
21
Capital Allowances (Section 11(e))
2.2 Capital Allowances
The general deduction formula does not allow capital expenditure (capex) as a deduction.
Section 11 (e ) allows the taxpayer to claim wear & tear on capital assets owned or purchased under
instalment credit agreements, which are used in the production of income.
Normally no allowance is granted for buildings or other structures of a permanent nature.
The allowance must be apportioned for asset brought into use part way in the year.
Either the reducing balance or straight line method may be used. (where possible, always use
Straight Line to obtain faster write off).
Small item assets that cost less than R7, 000 per asset, may be written off directly to income.
Assets sold may result in a recoupment of previously allowed w&t, and if the sales price is greater
than original cost, a Capital Gains Tax transaction may be triggered.
Assets acquired from connected persons – cost is original cost less accumulated w&t to time of
acquisition.
Some industries receive special allowances (Hotel and Air Carriers) as well as manufacturing plants
The difference between Capex and M&R (Maintenance & Repairs):
•Section 11(d) allows for the deduction of M&R to a capital asset which is used in the
production of income.
•A repair is a restoration by renewal or replacement of a subsidiary part of the whole. The
asset is merely put back into its original condition.
•An upgrade or reconstruction of an asset is deemed to be of a capital nature, as this results
in an improved asset e.g. improved capacity or output.
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The rate of w&t is set by SARS. Some common assets and their rates are:
Factory plant
Brought into use 1 July 1995 to 30 September 1999 - new 33.33% p.a.
Brought into use on or after 1 March 2002 - new and unused
• First year 40%
• Years 2 to 4 20% p.a
Other 20% p.a.
Factory buildings
Erected during 1 July 1996 to 30 September 1999 10% p.a.
Other 5% p.a.
Urban development zones
New commercial and residential buildings
• First year 20%
• Thereafter 8% p.a.
Refurbishments of commercial and residential buildings 20% p.a.
Research and development expenditure
• Current research and development expenditure 150%
• Capital expenditure on research and development 50% 30% 20%
Small business corporations1
Manufacturing plant 100%
Other assets 50% 30% 20%
Computers
Computers (mainframe) 20% p.a.
Computers (personal computers) 33.33% p.a.
Computers software (mainframes)
• Purchased 33.33% p.a
• Self developed 100%
Computers software (personal computers) 50% p.a
Vehicles
Delivery Vehicles 25% p.a.
Passenger Vehicles 20% p.a.
Trucks (heavy duty) 33.33% p.a.
Trucks (other) 25% p.a.
Other
Furniture & fittings 16.67% p.a.
Telephone equipment 20% p.a.
Photocopying equipment 20% p.a.
Commercial buildings
Commercial buildings (newly constructed and updated) 5% p.a.
23
7. Capital Allowances
(page 12)
Taxpayer B purchased plant used in a manufacturing plant of R500,000. His business has other equipment , which SARS
allows a 20% pa write off, of R160,000. This equipment has a net tax value of R96,000.
Income is R 383,800.
Income 383,800
less: wear and tear allowances:
Cost Rate
Net tax value
before this years
allowance
Plant - year 1 500,000 40% 500,000 200,000
Other equipment 160,000 20% 96,000 32,000
Taxable income 151,800
Note that the taxpayer is using the straight line method of w&t, allowed by SARS.
Leasehold improvements
The lessor includes the amount of stipulated lease improvements on land and buildings as part of
the lessor’s gross income.
Normally, the lessee is not able to deduct expenses incurred on an asset not owned by the taxpayer.
However, the lessee (taxpayer) is able to claim the stipulated improvements as follows (s11(g)):
o Annually
o Spread over the period of the initial lease or 25 years, whichever is shorter
o Reduced for a partial year,
Provided that the land and buildings are used in the production of the lessee’s income.
If the lease agreement is terminated, the balance of the lease improvements may be deducted
by the lessee.
The lease cannot claim more than that stipulated by the lease agreement, even if the lessee
spends more than the agreed amount.
Note that if the agreement does not stipulate that improvements must be carried out, the lessee
cannot claim a deduction iro the improvements so made, and the lessor does not include this in
their gross income.
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9. Leasehold improvements
the lessee enters into a lease contract of land and buildings for a period of 5 years.
The lease contract stipulates that the lessee must effect improvements to the leased
property totalling R 150,000.
The lessee is allowed by s11g, to claim the following deduction:
Leasehold improvements - amount spend: 150,000
s11(g) deduction: 150,000/5 years 30,000
The deduction can only be claimed after the improvements have been completed.
Note, the lessor includes this into his gross income as follows:
Leasehold improvements: 150,000
s11(h) deduction:
150,000 discounted at 6% pa over 5 years: 112,089
Amount included in taxable income: 37,911
25
Capital Gains Tax (CGT)
The 8th Schedule of the Income Tax Act regulates the calculation of CGT in South Africa.
Basic principle:
A capital asset sold for a profit triggers CGT, while a capital asset sold for a loss is deducted
from other capital gains.
If there are no other capital gains, the loss is transferred to the next year.
Income from the sale of a share held for 3 years or longer, is deemed to be of a capital nature – S9C.
The share must be an equity share i.e. excludes non participating preference shares. The taxpayer
does not have an election and the disposal is automatically a CGT transaction.
CGT was effective from 1 October 2001. Assets acquired prior to this date require valuation of their
base cost to determine the portion of the gain arising post 1 October which is then taxable.
Usually time apportionment is used to determine that portion of the gain that accrued post 1
October 2001.
Post this date the base cost is simply the cost of acquisition of the asset.
CGT Calculation
Proceeds from sale of capital asset: 1,000,000
Less: Base cost of asset: 700,000
Gross Capital gain: 300,000
Less: annual exclusion: 17,500 (1)
Less: assessed capital loss from prior year, if any: 80,000
Net Capital Gain: 202,500
Inclusion rate: 25% of Net Capital Gain:
Capital Gain included in Income, taxed at marginal rate: R 50,625
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Notes:
In the year of death, the exclusion amount is increased to R 120,000. (1)
The exclusion amount reduces both gains and losses.
The exclusion amount is applicable to natural persons only.
The Inclusion rate for Companies and Trusts is 50%.
The following transactions are excluded from CGT:
On a primary residence – o Sales >= R 2m: R 1,5 million of the gain is exempt in respect of properties sold for
more than R 2 million. o Sales < R2m : There is a full exemption for property sold for R2 million or less,
subject to certain conditions: One residual property at any one time Taxpayer must be resident in the residential property
Personal use assets (motor vehicles, furniture etc)
Retirement benefits
Gains from life policies
Gambling and competitions
Effective capital gains tax rates
Taxpayer Maximum effective rate (%)
Individuals and special trusts (25% x 40%) 10.0
Other trusts (50% x 40%) 20.0
Companies
Ordinary (50% x 28%) 14.0
Branch of foreign company 16.5
Personal service provider company (50% x 33.3%) 16.5
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Vehicle Allowances and Company vehicles (7TH Schedule of the Income Tax Act)
The taxpayer receives a travel allowance to defray the expenses of running his private vehicle, for
business purposes.
The allowance may not be excessive; otherwise it will be treated as normal salary.
The employer is to include 80% of the travel allowance in Remuneration when calculating
PAYE deductions.
The amount to be included in taxable income is that amount which was not actually expended on
business travel – i.e. allowance less (business km’s travelled x cost / km).
There are two methods of determining business travel cost / km:
1. Actual business km’s travelled and actual vehicle expenses incurred.
2. Actual business km’s travelled and a deemed cost per km.
A log book recording business km’s is mandatory under both methods.
(Note that the third method, that of using deemed km and deemed costs has fallen away from
March 2010).
Deduction from taxable income - Calculation of Business km’s:
Method 1: Actual km, actual cost / km
Actual km travelled 36,000
Less: actual private km: 12,000
Actual Business travel: 24,000
Calculation of deduction against Travel allowance: 24,000 x actual cost per km
Method 2: Actual km, deemed cost / km
Actual km travelled 36,000
Less: actual private km: 12,000
Actual Business travel: 24,000
Calculation of deduction against Travel allowance: 24,000 x deemed cost per km
(as calculated from the gazetted rates table – obtained from SARS website or from Bizfacility).
Note: a loss cannot be created from the allowance.
28
Thus if the business travel deduction exceeds the allowance, the deduction against the Travel
Allowance is limited to the Allowance.
Calculation of deemed cost per km, is the sum of:
Fixed cost per gazetted table, divided by the total km’s travelled.
Fuel cost per gazetted table, where the taxpayer has born the full cost of fuel
Maintenance cost per gazetted table, where the taxpayer has born the full cost of repairs
and maintenance
The costs referred to above, vary depending on the value of the vehicle, which is inclusive of VAT.
From 1 March 2010 the 'deemed kilometres' option falls away and the taxpayer must maintain a record reflecting details of business and total kilometres travelled in order to substantiate any deduction against a travel allowance.
Value of the vehicle (including VAT) Fixed cost Fuel cost Maintenance cost
R R c c
0 - 40 000 14 672 58.6 21.7
40 001 - 80 000 29 106 58.6 21.7
80 001 - 120 000 39 928 62.5 24.2
120 001 - 160 000 50 749 68.6 28.0
160 001 - 200 000 63 424 68.8 41.1
200 001 - 240 000 76 041 81.5 46.4
240 001 - 280 000 86 211 81.5 46.4
280 001 - 320 000 96 260 85.7 49.4
320 001 - 360 000 106 367 94.6 56.2
360 001 - 400 000 116 012 110.3 75.2
exceeding 400 000 116 012 110.3 75.2
Source: SARS
Note: The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.
From 1 March 2010, 80% of the travel allowance is subject to PAYE (pay as you earn).
Alternatively:
Where the distance travelled for business purposes does not exceed 8 000 kilometres per annum, no tax is payable on an allowance paid by an employer to an employee, up to the rate of 292 cents per kilometre regardless of the value of the vehicle.
This alternative is not available if other compensation in the form of an allowance or reimbursement is received from the employer in respect of the vehicle.
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8. Vehicle Travel Allowance
Taxpayer A receives an annual allowance of R 60,00 to defray all of her vehicle costs. A maintains accurate records of her
vehicle expenses and km's travelled. Her income is R 543,920
The cost of her vehicle, including vat was R 364,800,which was purchased during February.
8.1 Method 1 - actual costs
Income 543,920
Fuel 31,200 travel allowance 60,000
Maintenance 9,500 Income 603,920
40,700
less: travel deduction
Vehicle w&t
33.3% Allowance: 60,000
364,800 121,478 Business costs 94,812
Total cost R 162,178 Deduction limited to: 60,000
Taxable income 543,920
Total KM travelled: 39,000
Business km's travelled 22,800
Cost per total km: 4.16
Business km x cost / km 94,812
8.2 Method 2 - deemed costs
Income 543,920
Fuel 110.3 travel allowance 60,000
Maintenance 75.2 Income 603,920
cents / km 185.5
less: travel deduction
Capital cost
Fixed cost 116,012 Allowance: 60,000
Fixed cost per total km's 297.5 Business costs 110,116
Deduction limited to: 60,000
Taxable income 543,920
Total cost: cents / km 483.0
Total KM travelled: 39,000
Business km's travelled 22,800
Cost per total km: 4.83
Business km x cost / km 110,116
Scale of taxable benefits - employer owned vehicles
Where an employee receives the benefit of an employer owned vehicle, the “fringe benefit” value is determined as follows:
Taxable value is 2.5% of the determined value (usually the cash cost excluding VAT) per month.
Where a second (and further) vehicle is made available to an employee or his or her family, and the vehicle is not used primarily for business purposes, the benefit is:
o 2.5% per month on the vehicle with the highest value; and o 4% per month on the remaining vehicle/s.
Where the employee bears the cost of all fuel used for the purposes of the private use of the vehicle (including travelling between the employee's place of residence and his or her place of employment) the monthly percentage to be applied is reduced by 0,22 percentage points.
30
If the employee bears the full cost of maintaining the vehicle (including the cost of repairs, servicing, lubrication and tyres) the monthly percentage to be applied is reduced by 0,18 percentage points
Lump Sums from retirement funds and other service payments (2nd Schedule of the Income Tax Act)
1 Retirement Funds
Remember, annuities from pension and retirement annuity funds, fall into the definition of
Gross Income, and are taxed according to normal source tax rules i.e. natural persons tax
table.
Lump sums from pension, preservation, provident and retirement annuity funds arise in one
of three ways:
Resignation (treated as a withdrawal and taxed less favourably)
Retirement (taxed favourably)
Death (taxed favourably)
Lump sums from retirement funds fall into the definition of Gross Income, however, the 2nd Schedule
of the Act allows varying degrees of tax relief, depending on the reason for the lump sum payment.
There are two types of lump sum tax tables, and the lump sum will be taxed differently, depending
on what triggered the lump sum:
1. Retirement, death or retrenchment – the first R 300,000 is taxed at 0%.
2. Withdrawal or divorce – the first 22,500 is taxed at 0%.
Note, that limited deductions may be offset against these receipts and the resultant taxable amount
taxed.
Contributions made to the fund, not allowed as deductions are deducted from the lump
sum, in arriving at taxable income.
Deductions include amounts (contributions to a fund) that were not allowable as a
deduction e.g. provident fund contributions. The taxpayer must ask the provident fund
administrator for a schedule of contributions made to the fund, in order to claim this as a
deduction.
No tax is payable if the lump sum is paid to a preservation fund (treated as a deduction from
the lump sum).
The resultant tax is not reduced by the rebates and is therefore added onto the after rebate tax
calculated for income from other sources.
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2 Termination of service lump sums
Termination lump sums, not from a retirement fund, fall into the definition of Gross income.
Where the lump sum is in respect of termination of office or employment, the first R30,000 is
exempt. (S 10 ) subject to below:
Qualifying criteria:
Persons age must be 55 years or older, or
The termination of service is due to ill health or infirmity, or
The termination of service is due to retrenchment (some holders of senior office are not
eligible)
In addition, the above lump sums will be taxed in terms of the Section 5(10) Rating Formula. This
formula effectively taxes the lump sum at the taxpayer’s average tax rate.
PLEASE NOTE, FOR THE 2012 TAX YEAR, TERMINATION LUMP SUMS WILL BE TAXED IN LINE WITH
RETIREMENT FUNDS, AND THIS CALCULATION THEN FALLS AWAY.
Section 5(10) Rating Formula.
Y = [({ A / (B+D-(C + L))} x (B – L)) + (L x R)]
Y = tax to be determined
A = tax before rebates on B + D – (C + L)
B = total taxable income for the year
C = certain lump sums resulting from farming and mining
D = Retirement Annuity Fund contributions
L = the lump sum
R = {F / ((B + D – (C + L+G))}
F = amount of normal tax before rebates on B + D – (C+ L+ G)
G = amount of any capital gain included in taxable income
Note: R must be calculated for the current and previous year, and the greater amount to be used.
The rate calculated via this formula, cannot be less than 18%
32
Provisional Tax – who and when
A provisional taxpayer includes:
1. Any company (and close corporation)
2. Any person who derives non remuneration income.
3. Any person notified by SARS
Non remuneration income is that income that excludes:
salary and wages,
bonuses commissions etc.,
allowances,
pensions annuities etc.,
retirement lump sums,
fringe benefits,
share options etc.
Thus, rental income, interest from investments, income from business and dividends are therefore
included in the definition of non remuneration income.
In addition, taxpayers who earn non-remuneration below certain thresholds are further excluded
from the definition of Provisional Taxpayers:
1. Natural persons under the age of 65, who’s taxable income:
Is not from a business,
and receives income from interest, dividends or rental income,
and which taxable income does not exceed R20,000 pa
2. Natural persons over the age of 65, other than a director, who's taxable income:
Is not from a business ,
and will only be from remuneration, interest, dividends or rental from letting of
property,
and will not exceed R120,000,
The process:
Two compulsory payments are required:
1st payment at the end of the first 6 months of the year (normally end August)
2nd payment no later than by the year end (normally end February)
If the provisional payments are late, the taxpayer will incur both interest which runs until the
payment is made, and a penalty (described below).
33
If after the 2nd provisional tax payment is made, the taxpayer calculates that there will be an
under estimation, a 3rd “top up” payment can be made before end of September to avoid
interest being levied on the shortfall.
If the shortfall is greater than the tolerance discussed below, penalty of 20% of the shortfall
will still apply.
Calculation of provisional Tax
First payment (end August):
Estimate the total expected taxable income for the year
Calculate the tax payable on this amount, after deducting rebates
Divide the amount by two
Pay this amount, less any PAYE deducted in the first 6 months.
The payment may not be less than the Basic Amount. This is the taxable income reflected in the
most recent assessment received from SARS.
The basic amount must exclude lump sum payments and capital gains.
Where the most recent assessment is older than a year of the current provisional tax being
estimated, the basic amount must be increased by 8% pa.
Second payment (end February)
•Estimate the total expected taxable income for the year
•Calculate the tax payable on this amount, after deducting rebates
•Pay this amount, less any PAYE deducted for the 12 months, and the 1st provisional tax
payment.
Notes:
Where the actual taxable income for the year is more than R 1 million, the estimate of taxable
income must be based on a serious calculation (i.e. the basic amount cannot be used).
Penalties for under estimation : 20% penalty on the shortfall between actual and estimate, as
follows:
o Taxable income less than R 1m : if tax paid is less than the basic amount or 90% of
actual taxable income
o Taxable income greater than R 1m: if tax paid is less than 80% of actual taxable income.
34
2012 year updates (budget speech)
(in 2011)
1 March 2011 to 29 February 2012 Individuals and special trusts
Taxable Income (R) (R + %)
Rate of tax (R)
0 – 150 000
18%
150 001 – 235 000 27 000 + 25% of the amount above 150 000
235 001 – 325 000 48 250 + 30% of the amount above 235 000
325 001 – 455 000 75 250 + 35% of the amount above 325 000 455 001 – 580 000 120 750 + 38% of the amount above 455 000 580 001 and above 168 250 + 40% of the amount above 580 000 Trusts other than special trusts 40% of each R1
Tax rebates and deductions 2012 2011 Rebates R R
Primary rebate – Individuals (excl trusts) 10 755 10 260
Additional rebate – Persons over 65 6 012 5 675
Tertiary – Persons over 75 2 000 -
Deductions
Medical expenses
Under 65 (i)
Over 65 & disabled persons
Fully deductible
Pension contributions (ii)
Retirement Annuity Contributions
(iii)
Exemptions
In respect of taxable interest (iv)
Under 65 22 800 22 300
Over 65 33 000 32 000
Tax threshold
Under 65 59 750 57 000
Over 65 – 74 93 150 88 528
Over 75 104 261
-
35
Notes
i. Medical expenses: From 1 March 2011 taxpayers under 65 will be entitled to a basic deduction for contributions by the taxpayer to a medical aid scheme of R720 (2011: R625) each for the taxpayer and R720 (2011: R670) for the first dependant, and R440 (2011: R410) for each additional dependant thereafter.
Any portion of the contributions not allowed as part of the basic deduction, together with qualifying medical expenses, will be allowed as an additional deduction to the extent that it exceeds 7.5% of taxable income (before the medical deduction). Contributions by an employer to the medical aid scheme will go to reduce the deduction. (See also fringe benefits-medical aid).
ii. Pensions: A person’s current year contributions, limited to the greater of R1 750 or 7.5% of retirement funding remuneration, are tax deductible.
iii. Retirement annuities: A person’s current year contributions are deductible, limited to the greater of R1 750, or R3 500 less the allowable deduction for contributions to a pension fund or, 15% of the taxpayer’s taxable income (before certain deductions such as medical expenses are taken into account), excluding income from retirement-funding employment.
iv. Exemptions: A maximum exemption of R3 700 (2010: R3 700) out of the total exemption is available for foreign dividends and foreign interest.
Schedule of values for travelling allowances
As from 1 March 2010 the ‘deemed kilometres’ option fell away and the taxpayer must maintain a record reflecting details of business and total kilometres travelled in order to substantiate any deduction against a travel allowance.
Value of the vehicle (including VAT) Fixed cost Fuel cost Maintenance cost
R R c c
0 – 60 000 19492 64.6 26.4
60 001 – 120 000 38 726 68.0 29.2
120 001 – 180 000 52 594 71.3 31.9
180 001 – 240 000 66 440 77.7 35.0
240 001 – 300 000 79 185 87.0 44.7
300 001 – 360 000 91 873 93.9 54.2
360 001 – 420 000 105 809 100.9 65.8
420 001 – 480 000 119 683 113.1 67.6
36
Value of the vehicle (including VAT) Fixed cost Fuel cost Maintenance cost
R R c c
exceeding 480 000 119 683 113.1 67.6
Source: SARS
Note: The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.
From 1 March 2011, 80% of the travel allowance is subject to PAYE (pay as you earn), unless the employer is satisfied that at least 80% of the use of the motor vehicle will be for business purposes, in which case the percentage is reduced to 20%.
Alternatively:
Where the distance travelled for business purposes does not exceed 8 000 kilometres per annum, no tax is payable on an allowance paid by an employer to an employee, up to the rate of 305 cents (2010 : 292 cents) per kilometre regardless of the value of the vehicle.
This alternative is not available if other compensation in the form of an allowance or reimbursement is received from the employer in respect of the vehicle.
Fringe benefits tax
Scale of taxable benefits – employer owned vehicles With effect from 1 March 2011 company cars will be subject to tax based on a fringe benefit of 3, 5% per month of the determined value of the vehicle (3,25% if the car is subject to a maintenance plan). The determined value is normally the cash cost of the vehicle including VAT.
There is a reduction in the fringe benefit on assessment for business use, provided accurate records of the business mileage have been maintained. The reduction is calculated by applying the ratio of business kilometres to total kilometres for the year, to the fringe benefit.
Where an employee bears the full amount of one or more costs in respect of the license, insurance or maintenance, the fringe benefit is further reduced by an amount that is determined by applying the ratio of private kilometres to total kilometres for the year, to the actual cost borne (provided the employee keeps accurate records of private kilometres travelled).
Where the employee bears the full cost of fuel for private purposes, the fringe benefit is further reduced by an amount that is determined by multiplying the private kilometres travelled by the applicable rate published in the Government Gazette (provided the employee keeps accurate records of private kilometres travelled).
37
The employer must deduct PAYE on 80% of the fringe benefit unless he is satisfied that at least 80% of the employee’s travel is for business purposes, in which case the PAYE deduction is based on 20% of the benefit.
Capital gains tax
Effective 1 October 2001
Tax base
Residents – disposal of assets worldwide (sale, death, emigration and donations) Non-residents – disposal of business assets of a permanent establishment in South Africa,
fixed property and certain shares in companies owning fixed properties Gains/losses made in the sale of shares held longer than 3 years treated as capital gains or
losses
Deductions and exemptions
Value of assets at 1 October 2001 or cost of assets acquired thereafter On a primary residence – R1,5 million of the gain is exempt in respect of properties sold for
more than R2 million. There is a full exemption for property sold for R2 million or less, subject to certain conditions
For a natural person – R20 000 (2010 : R17 500) (in the year of death: R200 000 (2010 : R120 000))
For special trusts – R20 000 (2010 : R17 500) Capital losses brought forward Small business exclusion for individuals of R900 000
Exclusions
Personal-use assets Domestic insurance and endowment policy pay-outs to original beneficial owner or
dependant only Compensation for injury, illness or defamation Retirement benefits
Effective capital gains tax rates
Taxpayer Maximum effective rate (%) Individuals and special trusts 10.0 Other trusts 20.0 Companies
Ordinary 14.0
Branch of foreign company 16.5
Personal service provider company 16.5
WORKED EXAMPLES
38
1. Worked example 1 – calculation of personal taxable income
2. Worked example 3 – determination of business expenses (including wear & tear)
3. Worked example 2 – calculation of vehicle business expense (travel allowance)
4. Worked example 4 – calculation of Capital Gains Tax (CGT)
5. Worked example 5 – calculation of tax on lump sums
39
Share trading and tax implications INTENTION
Intention: The dominant intention with which a taxpayer acquires an asset determines whether it is
capital or revenue. (case law precedent).
The reason for the purchase of the asset determines the initial intention.
Capital (investment) intention: to acquire and hold an asset as an income producing asset – to earn
a flow of future income. The benefit arises out of holding the asset, not its disposal. The benefit can
be of any kind, not just income i.e. capital growth.
Speculation intention: to acquire an asset as trading stock, with the intention of resale at a profit.
The sale of such an asset generates a revenue profit. If the taxpayer is carrying out a “scheme for
profit making”, the intention is one of speculation.
Subsequent change in intention: the realization of a profit does not indicate a change in intention,
but “something more” is required. (conduct and methods used have changed).
Onus to prove intention lies with the taxpayer (S82).
Factors that will assist in determining intention: are
Taxpayers’ intention: the taxpayer’s word
Length of time: the longer the asset held, the more the probability of being capital in nature and visa
versa.
Frequency: if the taxpayer frequently buys and sells assets, this usually indicates a revenue nature.
However, if a scheme of profit making is demonstrated, frequency is not relevant and the
transaction is one of speculation.
Income stream: if no or a negligible income stream is apparent, this will be concluded that the
intention is speculative in nature.
Nature of the taxpayers business: if the taxpayer normally deals in shares, the exclusion of profits
from any share trading activities will be very difficult to demonstrate.
Note: the above factors are not conclusive, and each case is treated on its own merits.
40
EXEMPT
Share trading and tax implications
Dividends
All Dividends are included in Gross Income (paragraph k of the Gross Income definition)
A dividend is any amount distributed by a company to its shareholders, or by a close corporation to
its members.
The general principle is that: South African dividends are exempt from tax, while foreign dividends
are subject to tax with certain exceptions.
South African dividends (S 10,1,k) – are exempt from tax, excluding:
1. Dividends received from listed property companies (but then subject to the interest
exemption )
2. Buy back schemes
Foreign dividends: - are taxable, unless the following is applicable:
1. Dividends are paid out of income taxed in South Africa
2. Dividends from duel listed companies if one of the listings is on the JSE (e.g. BAT, Anglo)
3. Dividends paid out from profits from a foreign controlled company which are included in a
taxpayers income in terms of S9D
4. Dividends paid to a shareholder who holds more than 20% of the foreign company’s shares
and voting rights.
Share trading and tax implications
Share trading activities – TRADING INCOME
Profits and losses incurred from the buying and selling of shares, warrants, CFD’s and or SSF’s
(instruments), and which meet the requirements of trading income, fall into the definition of Gross
Income.
The amount included in income, must have been realised i.e. sold. Instruments purchased not yet
sold, are included in stock on hand.
Instruments not sold at the reporting period, are included as stock on hand, and are allowed as a
deduction from income.
The effect is that only realised profits and losses are taxed.
Share traders will be required to reflect their realised profits and losses in Gross Income, and to
reflect the value of their stock on hand under their Assets.
41
Expenses incurred in generating these profits and losses may be deducted from the share trading
profit, or added to the share trading loss.
DEDUCTIONS
1.1 Share Trading Expenses
Taxpayers who earn income through a trade or profession enjoy many deductions, provided the
expenses are incurred in the production of that income.
Expenditure that may be deducted by share traders are:
- All expenses and losses actually incurred in dealing in shares, CFD’s etc. not of a
capital nature e.g. interest and commissions paid on CFD transactions.
- Subscription fees to data providers and market letter writers
- Computer software (charting software) – claimed over three years
- Printing and stationery materials
- Training courses and workshops relating to share trading
1.2 Capital Allowances for share traders:
• The general deduction formula does not allow capital expenditure as a deduction.
• Section 11 (e ) however, allows the taxpayer to claim wear & tear on capital assets
owned or purchased under instalment credit agreements, which are used in the
production of income.
• The rate of w&t is set by SARS.
• Share traders may claim the following w&t allowances:
Computers and printers – 3 years,
Furniture - 5 years,
Software – 3 years
• Either the reducing balance or straight line method may be used.
• Small item assets that cost less than R7,000 per asset, may be written off directly to
income.
• Assets sold may result in a recoupment of previously allowed w&t.
42
Gavin Beretta FCIS, MBA, CMT
Mobile: 082 872 6946
Office: 021 913 6099
Email: [email protected]
Web: www.gpgfinancialservices.co.za and www.bizfacility.com
Gavin has held a number of senior positions in medium and large organizations over the past 25
years, including that of Finance Manager, Finance Director and Senior Procurement Manager Africa.
His experience included valuing business’ for takeover, providing finance leadership to various
management teams, and embedding operational efficiency in procurement activities across Africa.
He currently provides tax and accounting services to small and medium sized business, as well as
individuals.
He is a Fellow of the Institute of Chartered Secretaries Southern Africa and obtained an MBA in
2003, specializing in international Finance and Financial Risk Management. Gavin is a member of the
Institute of Tax Practitioners.
He is also a member of the New York Market Technicians Association and holds a degree in using
technical analysis to invest in equities, both locally and internationally.
Gavin has recently obtained certification from SAIPA (SA Institute of Professional Accountants) to
perform Independent Reviews as required by the Companies Act.
43
BIZFACILITY
WORKED EXAMPLES THESE WORKED EXAMPLES ARE DESIGNED TO SURFACE THE PRACTICAL CONTENT OF THE THEORY
44
QuestionsWorked examples
Calculation of personal TaxExercise 1The taxpayer is in private practice, and has the following income and expenses for the 2011 tax year:
Rands
Income from practice: 257,929
Home office expenditure:
SARS allows the taxpayer to claim 25% of the home office spend. 192,160
RA contributions 67,017
Medical expenses and contributions, included in practice costs above
- contributions 12,062
- expenses 46,449
the taxpayer is single and has no dependents
Calculate the taxable income of the taxpayer
TAX CALCUALTION
for the year ended 28 February 2011 Rands
Profit from business activities -
add back: medical expenses -
: Pension Fund contributions -
Less:
-
home office expenditure: -
deductible: 25% -
-
Pension Contributions
Non retirement funding income: -
7.5% - -
contributions: -
Excess not deductible: -
Retirement and income protection contributions
current Retirement Annuity Contributions -
Amount brought forward from previous year: -
-
Deduction:
Limited to the greater of:
15% of gross non-retirement funding income, R1750 or R3500
less pension fund contributions
Gross non-retirement funding income: -
deduction: 15% - -
balance carried forward to next year: -
Arrear RA fund carried forward from prior year: -
deduction -
amount carried forward to next year -
-
-
Medical deductions:
Contributions to Medical Aid - -
capping amount - deductible: - a
Contributions in excess of capping amount: -
Expenses not recovered from Medical Aid -
contributions in excess of capping amount: -
-
7,5% limitation taxable income: -
7.5% -
Amount allowable as a deduction: - b
Total medical deduction: - a+b
TAXABLE INCOME -
45
Calculation of Capital Gains tax (CGT)Worked example 3
the taxpayer is a long term investor, and has made the following purchases and sales of shares.
calculate the amount to be included into taxable Income, as a capital gain
1. Calculation of Capital Gains Tax 2011
Rands
Shares sold during the year:
Base cost
Proceeds
Capital Gain / (loss): -
Annual exclusion: 17,500
Net Capital Gain: -
Taxable Income amount: 25% -
Shares sold
sale date Qty sold Unit cost Cost
Unit
proceeds Proceeds Gain / (loss)
Anglo 06/03/2010 104 337.00 35,048 545.31 56,712 21,664
AngloPlat 20/02/2010 104 299.32 31,129 441.58 45,925 14,796
Impala Plat 11/04/2009 1,600 74.98 119,968 335.97 537,552 417,584
ImpalaPlat 20/02/2010 1,600 333.25 533,200 134.99 215,989 -317,211
Northam 20/02/2010 7,000 13.93 97,518 22.98 160,853 63,334
- - - -
816,863 1,017,030 200,167
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Calculation of tax on Lump Sums
Worked example 4
4.1 Withdrawal Benefit
The taxpayer res igns from his employment, and is pa id out his pens ion fund va lue (provident fund), of R 1,100,000
the taxpayer does not reinvest the funds into a preservation fund, but uti l i ses the lump sum for other goals .
The contributiosn to teh providenmt fund not a l lowed as a deduction, over th l i fe of the plan, amounts to R 216,000.
Calculate the amount that i s to be included into taxable income
Rands
Lump sum amount: -
deductions :
taxable income -
Taxable income from Rates of tax
lump sum benefi ts
0 - R22500 0%
R22,501 - R600,000 R0 plus 18% of taxable income in excess of R22,500
R600,001 - R900,000 R103,950 plus 27% of taxable income in excess of R600,000
R900,001 - R184,000 plus 36% of taxable income in excess of R900,000
4.1 Retirement Benefit
The taxpayer reti res from his employment at age 63, and is pa id out his pens ion fund va lue (provident fund), of R 1,100,000
the taxpayer does not reinvest the funds into a preservation fund, but reinvests the lump sum in other income generating instruments .
The contributiosn to teh providenmt fund not a l lowed as a deduction, over th l i fe of the plan, amounts to R 216,000.
Calculate the amount that i s to be included into taxable income
Rands
Lump sum amount: -
deductions :
taxable income -
Taxable income from Rates of tax
lump sum benefi ts
0 - R300,000 0%
R300,001 - R600,000 R0 plus 18% of taxable income in excess of R300,000
R600,001 - R900,000 R54,000 plus 27% of taxable income in excess of R600,000
R900,001 - R135,000 plus 36% of taxable income in excess of R900,000
47
Determination of Business expenditureWorked example 5
The taxpayer, registered as a Close Corporation, estimates the following expenses and income for the full year.
Determine the taxable income of the entity, as well as the amount to be paid over as provisional tax
for the half year period.
The last assessment received from SARS, reflects R1,000,000 as the taxable income of the entity.
The assessment is for the prior tax year.
Rands
Sales 35,000,000
Cost of sales: 25,000,000
Gross Margin 10,000,000
Expenses 8,440,000
Legal fees 120,000
Administration 2,500,000
Marketing 1,050,000
Salaries and related costs 3,500,000
Depreciation 520,000
Repairs and maintenance 750,000
Estimated Profit before taxation 1,560,000
Notes:
The wear and tear calculation, amounts to R 800,000 for the full year.
There is a further R 60,000 which needs to be written off against income as minor
equipment (individually, these items cost less than R7,000 each).
Calculation of Taxable Income for the year:
Net income before taxation, as per the financial statements
add back non fiscal items: -
depreciation
-
less tax allowances:
wear & tear -
minor equipment -
Taxable Income -
Calculation of 1st Provisional Tax payment
taxable income as per calculation -
Tax payable for the year 28.0% -
Basic Amount: 1,000,000.00
Tax payable on the basic amount: 28.0% 280,000.00
48
ANSWERS
Exercise 1
Answer
TAX CALCUALTION
for the year ended 28 February 2011 Rands
Profit from business activities 257,929
add back: medical expenses 58,511
: Pension Fund contributions -
Less:
-
home office expenditure: 192,160
deductible: 25% 48,040
268,400
Pension Contributions
Non retirement funding income: -
7.5% - -
contributions: -
Excess not deductible: -
Retirement and income protection contributions
current Retirement Annuity Contributions 67,017
Amount brought forward from previous year: -
67,017
Deduction:
Limited to the greater of:
15% of gross non-retirement funding income, R1750 or R3500
less pension fund contributions
Gross non-retirement funding income: 268,400
deduction: 15% 40,260 40,260
balance carried forward to next year: 26,757
Arrear RA fund carried forward from prior year: -
deduction -
amount carried forward to next year -
-
228,140
Medical deductions:
Contributions to Medical Aid 12,062 42,004
capping amount - deductible: 670 x 12 (8,040) a
Contributions in excess of capping amount: 4,022
Expenses not recovered from Medical Aid 46,449
contributions in excess of capping amount: 4,022
50,471
7,5% limitation taxable income: 220,100
7.5% 16,508
Amount allowable as a deduction: 33,964 b
Total medical deduction: 42,004 a+b
TAXABLE INCOME 186,137
49
Calculation of Capital Gains tax (CGT)
Worked example 3
ANSWER
the taxpayer is a long term investor, and has made the following purchases and sales of shares.
calculate the amount to be included into taxable Income, as a capital gain
1. Calculation of Capital Gains Tax 2011
Rands
Shares sold during the year:
Base cost 816,863
Proceeds 1,017,030
Capital Gain / (loss): 200,167
Annual exclusion: 17,500
Net Capital Gain: 182,667
Taxable Income amount: 25% 45,667
Shares sold
sale date Qty sold Unit cost Cost
Unit
proceeds Proceeds Gain / (loss)
Anglo 06/03/2010 104 337.00 35,048 545.31 56,712 21,664
AngloPlat 20/02/2010 104 299.32 31,129 441.58 45,925 14,796
Impala Plat 11/04/2009 1,600 74.98 119,968 335.97 537,552 417,584
ImpalaPlat 20/02/2010 1,600 333.25 533,200 134.99 215,989 -317,211
Northam 20/02/2010 7,000 13.93 97,518 22.98 160,853 63,334
- - - -
816,863 1,017,030 200,167
50
Calculation of tax on Lump Sums Worked example 4
Answer
4.1 Withdrawal Benefit
The taxpayer resigns from his employment, and is paid out his pension fund value (provident fund), of R 1,100,000
the taxpayer does not reinvest the funds into a preservation fund, but utilises the lump sum for other goals.
The contributions to the provident fund not allowed as a deduction, over the life of the plan, amounts to R 216,000.
Calculate the amount that is to be included into taxable income
Rands
Lump sum amount: 1,100,000
deductions: 216,000
taxable income 884,000
portion taxed at 0%: 22,500
Tax payable 180,630 20.4%
103,950
76,680 27.0% 600,000
Taxable income from Rates of tax
lump sum benefits
0 - R22500 0%
The taxpayer retires from his employment at age 63, and is paid out his provident fund benefit, of R 1,100,000R0 plus 18% of taxable income in excess of R22,500
the taxpayer does not reinvest the funds into a preservation fund, but reinvests the lump sum in otherR103,950 plus 27% of taxable income in excess of R600,000
income generating instruments. R184,000 plus 36% of taxable income in excess of R900,000
R900,001 -
4.1 Retirement Benefit
The taxpayer retires from his employment at age 63, and is paid out his provident fund benefit, of R 1,100,000
the taxpayer does not reinvest the funds into a preservation fund, but reinvests the lump sum in other
income generating instruments.
The contributions to the provident fund not allowed as a deduction, over the life of the plan, amounts to R 216,000.
Calculate the amount that is to be included into taxable income
Rands
Lump sum amount: 1,100,000
deductions: 216,000
taxable income 884,000
portion taxed at 0%: 300,000
Tax payable 130,680 14.8%
54,000
76,680 27.0% 600,000
Taxable income from Rates of tax
lump sum benefits
0 - R300,000 0%
R300,001 - R600,000 R0 plus 18% of taxable income in excess of R300,000
R600,001 - R900,000 R54,000 plus 27% of taxable income in excess of R600,000
R900,001 - R135,000 plus 36% of taxable income in excess of R900,000
51
Determination of Business expenditureWorked example 5
The taxpayer, registered as a Close Corporation, estimates the following expenses and income for the full year.
Determine the taxable income of the entity, as well as the amount to be paid over as provisional tax
for the half year period.
The last assessment received from SARS, reflects R1,000,000 as the taxable income of the entity.
The assessment is for the prior tax year.
Rands
Sales 35,000,000
Cost of sales: 25,000,000
Gross Margin 10,000,000
Expenses 8,440,000
Legal fees 120,000
Administration 2,500,000
Marketing 1,050,000
Salaries and related costs 3,500,000
Depreciation 520,000
Repairs and maintenance 750,000
Estimated Profit before taxation 1,560,000
Notes:
The wear and tear calculation, amounts to R 800,000 for the full year.
There is a further R 60,000 which needs to be written off against income as minor
equipment (individually, these items cost less than R7,000 each).
Calculation of Taxable Income for the year:
Net income before taxation, as per the financial statements 1,560,000
add back non fiscal items:
depreciation 520,000
2,080,000
less tax allowances:
wear & tear 800,000
minor equipment 60,000
Taxable Income 1,220,000
Calculation of 1st Provisional Tax payment
taxable income as per calculation 1,220,000
Tax payable for the year 28.0% 341,600.00
Basic Amount: 1,000,000.00
Tax payable on the basic amount: 28.0% 280,000.00
The Entity can pay over the basic amount as the 1st provisional tax payment, but when making the 2nd payment,
it must ensure that the payment, plus the 1st payment is not less than 80% of the actual full year amount due.
1st Provisional payment amount is therefore: 140,000.00
(50% of the basic amount)
52
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