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1|Page Income Tax 301 INDIVIDUALS own notes.

Quick Reference Rand Amounts:.....................................................................................4


I. Deductions for individuals: ch 8..........................................................................................4
II. Employment & fringe benfits:.............................................................................................5
III. PARTNERSHIPS................................................................................................................7
IV. INDIVIDUALS – RETIREMENT BENEFITS & PLANNING......................................................7
A. LUMP SUM ON TERMINATION OF SERVICE – PAID BY EMPLOYER..............................................................7
1. For employers :...............................................................................................................................7
2. For employess:................................................................................................................................7
B. Pension,pension preservation,provident,provident preservation,retirement annuity funds............................8

Questions to Ask Lecturer...............................................................................................9


C. Ch 8 individuals..................................................................................................................................9
D. Employement & fringe benefits.............................................................................................................9
E. Ch9 partnerships:.............................................................................................................................10
F. Ch 21 individuals retitrement benefit..................................................................................................10

TERMS...........................................................................................................................13
CH1 INTRODUCTION.....................................................................................................14
I. Terms and definitions:......................................................................................................14
II. TAXATION IN SA...............................................................................................................14
III. TAX MAXIMS..................................................................................................................14
IV. SARS..............................................................................................................................15
V. ANNUAL BUDGET:...........................................................................................................15
VI. TYPES OF TAX................................................................................................................15
1. ANNUAL AMENDING ACTS.................................................................................................15
VII. YEAR OF ASSESSMENT...................................................................................................15
VIII................................................................................................................INCOME TAX ACT
15
IX. ESTATE DUTY.................................................................................................................16
X. INDIRECT TAXES............................................................................................................16
XI. INTERPRETATION OF STATUTES:...................................................................................16
XII. COURT DECISIONS:........................................................................................................16
A. TAX BOARD :...................................................................................................................................16
B. TAX COURT......................................................................................................................................16
XIII..........................................................................................................Interpretation Notes:
16
Ch 8 –INDIVIDUALS......................................................................................................17
TERMS...................................................................................................................................17
I. CALCULATION OF AN INDIVIDUALS TAX LIABILITY..........................................................17
II. TAX TABLEs......................................................................................................................18
III. TAX COLLECTION...........................................................................................................18
IV. NORMAL TAX REBATES...................................................................................................18
A. Normal Tax Rebates..........................................................................................................................18
B. Tax Threshholds...............................................................................................................................18
2|Page Income Tax 301 INDIVIDUALS own notes.

C. Partial Period of Assessment:.............................................................................................................18


V. TAXATION OF MINOR CHILDREN;...................................................................................19
VI. TAXATION OF MARRIED PERSONS..................................................................................19
A. ANTI-AVOIDANCE SECT. 7.2..............................................................................................................19
B. COMMUNITY OF PROPERTY sect 7.2a ,7.2b ,7.2c................................................................................20
VII. ANTEDATED SALARY OR PENSION..................................................................................20
VIII........................................................................EXEMPTION OF DIVIDENDS AND INTEREST
20
IX. DEDUCTIONS FOR INDIVIDUALS....................................................................................21
A. Medical,dental and physical impairment or disability expenses. S18........................................................21
1. MEDICAL AID CONTRIBUTIONS BY INDIVIDUAL:...............................................................................21
2. MEDICAL AID CONTRIBUTIONS BY EMPLOYER...................................................................................21
3. MEDICAL AID EXPENSES WHICH QUALIFY FOR DEDUCTION:..............................................................22
4. NON-SOUTH AFRICAN MEDICAL EXPENSES:.....................................................................................22
5. PHYSICAL IMPAIRMENT OR DISABILITY:...........................................................................................22
6. LIMITATION OF MED AID EXPENSES DEDUCTION:.............................................................................22
7. PENSION ,PROVIDENT & RETIREMENT FUND CONTRIBUTIONS:...........................................................22
8. DONATIONS TO PUBLIC BENEFIT ORGANISATIONS:..........................................................................23
X. FINAL DEDUCTION SYSTEM............................................................................................23
XI. DIVORCED PERSONS......................................................................................................23
Ch 20 EMPLOYMENT AND FRINGE BENEFITS.................................................................25
I. INTRODUCTION................................................................................................................25
II. GROSS INCOME DEFINITION: PARA C AND N....................................................................25
A. Paragraph (n) ALLOWANCES:.............................................................................................................25
III. REIMBURSIVE ALLOWANCES..........................................................................................25
A. TRAVEL ALLOWANCE.........................................................................................................................26
B. VEHICLE LEASED TO EMPLOYER BY EMPLOYEE.....................................................................................30
C. SUBSISTENCE ALLOWANCE...............................................................................................................30
D. OTHER ALLOWANCES (INCL. ENTERTAINMENT ALLOWANCES)...............................................................31
E. HOLDERS OF PUBLIC OFFICE.............................................................................................................31
IV. TAXABLE BENEFITS DERIVED BY REASON OF EMPLOYMENT OR THE HOLDING OF ANY
OFFICE..................................................................................................................................31
A. ACQUISITION OF AN ASSET AT LESS THAN ACTUAL VALUE (PARA 2A &5)...............................................31
B. BRAVERY AND LONG SERVICE AWARDS..............................................................................................31
C. RIGHT OF USE OF MOTOR VEHICLE....................................................................................................32
D. LOW INTEREST LOANS......................................................................................................................35
E. SUBSIDIES......................................................................................................................................35
F. MEDICAL AID CONTRIBUTIONS..........................................................................................................36
G. SPECIAL UNIFORMS EXEMPTION........................................................................................................36

CHAPTER 9: PARTNERSHIPS.........................................................................................38
I. INTRODUCTION:...............................................................................................................38
1. ANY PROPERTY:..........................................................................................................................38
2. TYPES OF PARTNERSHIP:................................................................................................................38
3. FUNNY THINGS:............................................................................................................................38
4. FAMILY PARTNERSHIPS:.................................................................................................................38
II. TAXATION OF A PARTNERSHIP:........................................................................................39
1. 3 SECTIONS IN THE ACT DEAL WITH PARTNERSHIPS :.......................................................................39
2. LIMITED PARTNERS........................................................................................................................40
3|Page Income Tax 301 INDIVIDUALS own notes.

3. ACCRUAL......................................................................................................................................40
4. YEAR END OF PARTNERSHIP...........................................................................................................40
III. CONNECTED PERSONS....................................................................................................41
IV. NOTES............................................................................................................................41
V. CAPITAL GAINS TAX.......................................................................................................42
VI. VAT................................................................................................................................42
A. GENERAL –PARTNERSHIP VAT SEC 51.(1) of VAT ACT...........................................................................42
B. RENTAL POOL SCHEMES:...................................................................................................................43

CHAPTER 21 RETIREMENT BENEFITS & PLANNING.......................................................44


I. GENERAL :........................................................................................................................44
II. THE TAXATION OF AMOUNTS RECEIVED AS A RESULT OF RETIREMENT............................44
A. ANNUTIES :from employer direct........................................................................................................44
B. LUMP SUMS ON TERMINATION OF SERVICE: from employer direct.........................................................44
1. TAX IMPLICATIONS FOR THE EMPLOYEE...........................................................................................44
2. TAX IMPLICATIONS FOR THE EMPLOYER...........................................................................................46
C. PENSION , PENSION PRESERVATION, PROVIDENT, PROVIDENT PRESERVATION, AND RETIREMENT ANNUITY
FUNDS..................................................................................................................................................48
1. Types of fund:...............................................................................................................................48
D. TAXATION OF ANNUITIES:Pension Funds etc.......................................................................................48
E. TAXATION OF LUMP SUMS: Pension Funds Etc.( See : S9.1.g & also para e of definition of gross Income. . .48
1. TAXATION OF LUMP SUMS : SECOND SCHEDULE REQUIREMENTS.......................................................49
2. RETIREMENT BENEFIT ie: RETIREMENT FUND LUMP SUM BENEFITS : Retirement , Death , Retrenchment –
para 2.1.a of 2nd Sched........................................................................................................................49
3. WITHDRAWAL BENEFITS : Withdrawal , Divorce or Transfer between funds – para2.1..b of 2nd Sched......50
4. MULTIPLE FUNDS:.........................................................................................................................51
5. EXTRAORDINARY LUMP SUM PAYOUTS:............................................................................................52
6. WITHHOLDING TAX ON LUMP SUMS.................................................................................................52
7. RETIREMENT , STATE AND LOCAL AUTHORITY PENSION FUNDS..........................................................52
8. PROVIDENT FUND RETIREMENT.......................................................................................................52
F. DIVORCE.........................................................................................................................................52
1. MAINTENANCE...............................................................................................................................52
2. LUMP SUM....................................................................................................................................53
LUMP SUM
4|Page Income Tax 301 INDIVIDUALS own notes.

Quick Reference Rand Amounts:

I. Deductions for individuals: ch 8


REMEMBER TO SCAN IN ALL THE EXAMPLES 1 BY 1 FOR EACH CHAPTER SO FAR. – MAYBE IN A DIFFERENT FILE SO
THIS ONE IS NOT JAMMED UP WITH SCANS.

The Method of calculating an individuals tax liability is as follows


Salary
Dividends
ALL interest RECEIVED AT ALL
ETC etc etc.
GROSS INCOME (s1)
Less : EXEMPT INCOME (s10)
=INCOME
Less : DEDUCTIONS (mainly s11 to s20 &23)
Add : TAXABLE PORTION OF ALLOWANCES PER (s8.(1)(a))
: and TAXABLE PORTION OF CAPITAL GAINS (s 26 A)
=TAXABLE INCOME
Tax per the table calc., based on taxable income (s5 & tax
table)
Less: Rebates (s6)
=NORMAL TAX PAYABLE

1. The Primary Rebate = 9756


2. The Secondary Rebate = 5400
This becomes a tax threshold of 54200 > 65 & 84200 < 65

1. MEDICAL AID CONTRIBUTIONS BY INDIVIDUAL:


1.1. To any medical scheme (per medical schemes act) or any similar scheme in another country
1.2. In respect of taxpayer & wife & child & any dependant of taxpayer admitted as dependant under med scheme
1.3. Limits (taxpayer under 65):
1.3.1.625 per mnth if Only taxpayer
1.3.2.1250 if taxpayer + 1 dependant
1.3.3. 380 on top of 1250 per additional dependant per month.
2. MEDICAL AID CONTRIBUTIONS BY EMPLOYER
2.1. Usually rules of med scheme say ½ to be paid by employer ½ by employee, but it may vary depends on fund
2.2. Rules for 2010 : Any amount below the limits above paid by employer is not taxed as a fringe benefit, any
amount above is, which extra amount is then deemed to be a ‘medical expense’ paid by the
employee. The employees med aid contr. Deduction is reduced by the tax free part of the amount paid by
the employer- so if employee can still deduct his own contributions if any part of the tax free limit above is
still left.( only [employer contribution minus deduction allowed off] balance is added to ‘taxable income’ as a
fringe benefit). (Any med aid employee paid which is not deductable MAY be deemed as a “medical expense”)
2.3. Rules for 2010 from March 1: it was simplified : The full amount paid by employer is taxed as a fringe
benefit. Then the employee deducts the amount paid [by him + by employer] up to the allowed normal
limit. No extras paid by employer are deemed to be ‘med. Expenses paid by employee ’’, anymore. ALSO
any MedAid contributions paid by employee himself MAY be deemed to be a “Medical Expanse”
2.4. So up to 2010 Mar the balance is a fringe benefit, but after 1Mar it is All a fringe benefit)
3. LIMITATION OF MED EXPENSES DEDUCTION:
3.1. The Limits Apply To 3 Situations :
3.1.1.Taxpayers over 65
3.1.1.1. No limits on deduction, exept that recoverable from med.aid
3.1.2.Handicapped persons or Persons with disability
5|Page Income Tax 301 INDIVIDUALS own notes.

3.1.2.1. Self or wife,child,dependant is handicapped –no limit – even if the expense was for a person other
than the disabled person- it need not be for the disabled person.
3.1.3.Taxpayers under 65 with no disabled family members
3.1.3.1.Med Aid contributions – as set out earlier
3.1.3.2.Other med expenses + Med Aid contributions not allowed as deduction.: any amount ABOVE 7.5%
of TAXABLE INCOME is deductable.: (before 7.5% but after deductable med aid contribution is taken
off taxable income but after fringe benefits are added((also taxable income must EXCLUDE 2nd
schedule retirement lump sums & retirement fund withdrawal benefits, but INCLUDES taxable
portions of Capital Gains.)(ALSO after the deduction of donations and after RFA and after Med Aid ,
after everything –at end-last of all!!!! ) of taxpayer as calc. before allowing any deduction under
sec.18A or sec 18.
3.1.3.2.1.A specific sequence of deduction should be applied when taxpayer contributed to a
retirement annuity fund,received a taxable allowance per sec 8.1.a,made a taxable capital
gain,made deductable donation to an organization under sec 18.a,contributed to a med aid
scheme & paid med expenses per sec 18. This sequence is illustrated by example pg 225.

1. DIVIDENDS & INTEREST :


1.1. Per sec 10.1.i all taxpayer who are natural persons, are exempt from dividends + interest as follows:
FOR THE YEAR ENDED 28 Feb 2010 as follows:
1.1.1. >65 : 30 000
1.1.2. <65 : 21 000
1.1.3.The first 3500 applies to foreign dividends&interest and the rest to SA dividends&interest. BUT if there
are only SA dividends&interest involved then it ALL applies to the SA part.
1.1.4.All SA dividends are exempt(NOT JUST 21000) , but foreign dividends are only exempt to first 3500 of
above total figures. Exeption : BUT SA dividends received by a sharedealer in pursuance of a share buy
back are not exempt.

2. PENSION ,PROVIDENT & RETIREMENT FUND CONTRIBUTIONS:


2.1. Provident Fund : are not deductable , it is accumulated and deducted from the lump sum on retirement.
2.2. Pension Contributions: per 11.k -limited to greater of 1750 or 7.5% of pensionable salary.(means
excl.interest+rental+business income) any disallowed excess cannot be carried over to next year.
2.3. Retirement Annuity Funds (RAF): limited to 1750 or [3500-deductable pension contributions] or 15% of
taxable income from non-pensionable income before deducting
MedAid+MedExpense+TaxDeductDonations+certain farming expenses.ANY DISALLOWED PORTION CAN BE
CARRIED FORWARD TO NEXT YEAR OF ASSESSMENT subject to it must then still all be under the limits above
the next year once added to deductions the next year.(details ch 6.12)

3. DONATIONS TO PUBLIC BENEFIT ORGANISATIONS:


3.1. S 18.A – To any public Benefit Organisation(PBO) registered under Part II of the Ninth Schedule (see ch10)
and certain other bodies & institutions which must all also be approved by commissioner per sec30, and
must issue a tax deduction certificate to donor.
3.2. Limited to 10% of taxable income before sec 18 deductions(medical) and excluding any taxable income from
any retirement lump sum benefit (on retirement,death,or withdrawal from fund)
3.3. It seems like churches are not exempt.
4.

I. Employment & fringe benfits:

1. METHOD : there are 3 + 1 = 4 methods currently allowed to calculate this travel allowance deduction.
1.1. USING ACTUAL FIGURES :
1.1.1.If can furnish acceptable calc. based on data acceptable to the commissioner.: He can deduct the actual
cost of his business travel for the year.
1.1.2.You can say all costs to person incl. licence,maintenance,fuel,finance charges(for a max 400000car)
MULTIPLIED BY x [business km’s / {total business + Private km’s} ]
1.1.3.The value of vehicle is limited to 400 000 (2010). Depreciation must be done over 7 years per
s8.1.b.iiia. Finance charges are limited as if it had a cash cost of max 400000. For a Leased vehicle,
installments themself for the year cannot exceed the fixed cost per the standard “table” issued by
minister” on that vehicles ‘cash cost’.( I think cash cost is also limited to 400 000 here too)
6|Page Income Tax 301 INDIVIDUALS own notes.

1.2. USING ACTUAL BUSINESS KILOMETERS TRAVELED AND A DEEMED COST PER Km.
1.2.1.Actual km recorded for year LESS Actual private Travel = actual business travel.(proved to
satisfaction of commissioner) The travel allowance will be the actual business travel X rate per km in
table. (Note: in this case actual Km are not limited to 32000.)\

1.3. USING A DEEMED FIGURE FOR BOTH BUSINESS Km AND THE COST PER Km.
1.3.1.Rate per km is taken from the table.
1.3.2.18000 km private travel is deemed to have been used - BUT pro-rata if only used for a portion of
year/365. (Fractions Rounded up)
1.3.3.The total km traveled (private +business= whats on the clock) is limited to 32000, pro-rata for part
of year used/365 days. (Fractions Rounded up)
1.3.4.More than 1 vehicle used – you must add 18000km separately PER vehicle. , and also the 32000 total
km traveled limit applies separately per vehicle – so each vehicle is calc. separately and each gets a
fresh 18000 & 32000 limit.
1.3.5.1Mar 2010 :The use of DEEMED km will FALL AWAY on 1 Mar 2010.

1.4. NOTE: 4TH POSSIBLE METHOD : If the travel for business purposes does not exceed 8000km per year, he
can deduct 292 cents per km if he so wishes. It can only be used if employee receives NO OTHER
reimbursement or travel allowance.

2. USING THE TAX TABLE FOR TRAVEL ALLOWANCES:


2.1. The Gov Gazette fixes the Tax Table every so often.(currently Year2008 no 30796 is used) applies from
1Mar2008 onwards.
2.2. Note : business km’s
2.2.1.are apportioned by months , not ever days, so it is always : 2/12 or 6/12 etc X DEEMED TOTAL km’s
minus 2/12 or 6/12 etc DEEMED PRIVATE km’s= business km’s. So your final answer below is
multiplied by this km’s , but rem the fixed cost calc. below works on ???days, not months, rounded up??
Always???
2.2.2.Rem : for the total km’s here you always use the deemed km’s , never the actual km’s, if you are pro-
rata ‘ing it at all. This is because of the way SARS made the formula – it works like that. Even if the total
actual kms traveled is less than the Max 32000 deemed, you still ONLY use the 32000 Deemed for a pro-
rata. HOWEVER, if it is not to be pro-rata then you use the Actual if it happens to be below the 32000
limit. This is a funny thing – be careful – statistics in action.
2.3. The schedule states the rate per km will be the SUM OF THE FOLLOWING amounts together:
2.3.1.Fixed Cost: per table divided by total km travelled that year for both [business+private use] X 100 X
365/365 = ANSWER .If vehicle is used for business purposes for a period of less than 1 year the fixed
costs on the table must be reduced pro-rata/365 (not to exclude weekends or anything, but meaning if
only used for ½,or ¼ of year etc.) before it is multiplied by the km’s.Remember if they say ¾ of a year,
first X ¾ x365 to get the days out of 365, don’t just use ¾, because you may get 273,7 days and have
to round it off to 274 days- so this will give you a different answer completely to if you used ¾.( rem to
X answer by 100 to convert from rands to cents – otherwise your answer will be in rands for this one. IF
YOU DAYS ARE a fraction you round off upwards (or is it as normal.ie: round 0.5 and over up and under
0.5 down???)
2.3.2.Fuel Cost : per table where recipient has borne the full cost of the fuel used.
2.3.3.Maintenance Cost : per table where recipient has borne the full cost.
2.3.4.The 3 costs above Depend on the Value of the Vehicle :
2.3.4.1.Vehicle acquired under bona-fide agreement of sale at arms length: value= amount paid
INCLUDING Vat, but EXCLUDING finance charges or interest.
2.3.4.2.Vehicle Held by recipient under a lease (as contemplated in definition of installment credit
ageement in the Vat Tax Act), or was held by him under such a lease and acquired by him after the
lease: value is:
2.3.4.2.1.Where the lessor is a banker or financier:[cost to banker + any VAT or sales tax.]
2.3.4.2.2.Where the lessor is a dealer :price normally sold for cash +sales tax +VAT.
2.3.4.2.3.Any other case : value = market value of vehicle at time + Vat +sales tax on this amount
that would have been payable at the time at old VAT rates.

1. The monthly value of benefit is 2,5 % of value of car ,also Pro-Rata in half months, less any consideration
PAID by the employee to the employer for it.
1.1. If more than 1 vehicle was used then the vehicle with the highest value is the one you use to calc. unless
commissioner directs otherwise.
7|Page Income Tax 301 INDIVIDUALS own notes.

1.2. If more than 1 vehicle is used at the same time(eg spouse&employee) then it is 2.5% of highest value
vehicle and 4% of each next vehicle.
1.3. You can reduce the value of the car by 15 % depreciation for each year beteen employer got it and employee
got it from employer- but after that it stays same-does not reduce each year at all.

1.3.1.MAINTENANCE & FUEL COSTS: if employee gets the right to use employers car
1.3.1.1.If worker pays for fuel & maintenance the “value for private use 2.5% figure” you use in the calc.
to determine the deemed fringe benefit per month can be reduced by :
1.3.1.1.1.FUEL : 0.22%
1.3.1.1.2.MAINTENANCE: 0.18%
1.3.1.1.3.Eg : 2.5% -0.18% -0.22%= 2.1% is what to use if both are paid for by worker.

2. Med aid contributions For before this date : 1Mar 2010(after this date it is considered a contribution
by employee himself to his med aid – he applies his own deductions then)
2.1. The amount by which any contributions to a med aid by employer exceeds following, is taxable so add to
gross income:
2.1.1. 625 employee no dependants OR
2.1.2. 1250 employee with 1 dependant
2.1.3. 380 for each additional dependant
2.2. If the exact amount cannot be determined it is worked out as : total paid by employer / no of
employees, regardless of no. of dependants.
3. Bravery Awards :The value of the benefit is 1-market value or 2-cost to employer of acquiring asset whichever
is appropriate, reduced by the lesser of R5000 or the aggregate cost of all such awards given to the employee
during the year.(so for the first award that year it is the lesser of award value or 5000.)
4. SUBSISTENCE ALLOWANCE:
4.1. If employee pays , he can deduct any of it it from what his employer gave as an allowance,but limited to his
allowance.
4.2. If employer pays for accommodation, employee can deduct ‘incidental costs-R80’ or ‘meals &incidental costs
R260’ from his allowance. It is here that the subsistence allowance is set.
5.

I. PARTNERSHIPS
1. Pension funds/Retirement : If a new member of a PARTNERSHIP was part of a Pension Fund before he joined
the new partnership :
1.1. His contributions are limited to 7.5% of his salary in the 12 mnths preceding date he became a partner.
1.2. Definition of retirement funding employment provides that it is restricted to his share of the profits/
salary/etc that does not exceed his pensionable emoluments in the 12 mnths prior to becoming a partner.
1.3. So the limit as per S 11(k) is the greatest of 1750 or 7.5% of earnings as explained above.

I. INDIVIDUALS – RETIREMENT BENEFITS & PLANNING

A. LUMP SUM ON TERMINATION OF SERVICE – PAID BY EMPLOYER

1. For employers :
1. Deduction NOT allowed unless:
1.1. It is written in the service contract of employee
1.2. It acts as an incentive to other staff (it must be PART OF company policy )
1.3. If it is for good service it is not allowed, ie: on the whole basicly if it is not an expense incurred in generating
income, it is not allowed..

1. For employess:
1. Employee may deduct R30 000 of this lump sum from his gross income = and the s5.10 rating formula below
only applies after the 30000 is deducted : if he is :
8|Page Income Tax 301 INDIVIDUALS own notes.

1.1.1.Over 55
1.1.2.Superannuation(too old for type of work he was doing) OR ill health OR infirmity
1.1.3.Retrenchment OR
1.1.4.Business is closing down
1.1.5.AS LONG AS :
1.1.5.1.Person does not hold >5% of issued shares capital
1.1.5.2.Person was Not a director

2. :SECTION 7A(4A) Rating Formula: the rating formula of S5(10) must be applied if :
2.1.1.Similar to above provisions exept :
2.1.1.1.Commissioner must be satisfied that if it is for either : 1-redundancy or 2-closing business : that
circumstances of case warrant concession
2.1.1.2.Director or >5% shareholder clauses do not apply here at all though

3. RATING FORMULA s5(10):


1. This RATING FORMULA is used basically to reduce the tax effect of extraordinary amounts received. Basically
what it eventually does is bring down the tax bracket from a high one (the one you would have landed in for
the lump sum) to your normal one (you usually pay), in a complicated way.
2. L= lump sum:
2.1. is limited to lesser of 3x average annual salary BEFORE begin of year lump sum is received.If you must
use this 3X formula instead of actual lump sum, then you do NOT subtract the 30 000 from it first
before it goes in formula.
2.2. L=lump sum is the total after you have deducted the 30 000 deduction as per SEC 10.1.x.
3. The tax rate arrived at CANNOT BE LOWER THAN the lowest current tax rate = currently 18%(you must work
this out after you get the answer, to see if your answer is not lower)

1. L= lump Sum (after the 30 000 deduction )


2. A= NORMAL tax BEFORE REBATES on B+D –(C+L)
3. C = rubbish
4. D= RAF deductions made arising only from getting “lump sum benefit =L( less possible 30 000)” from
employer so = lump sum x 15%
5. B= total taxable income less retirement fund lump sum things (less 30000 deduction)
6. G= capital gains
7. F= (similar to A but includes G) : ie B+D- (C+L+G)
8. R= HIGHER of this year & last year using R formula

RAF deduction : limited to 15 % of non-retirement funding income = “interest income AFTER 21000 deduction” +
“lump sum after 30000 deduction” but not capital gains and not salary and not pension fund lump sum

A. Pension,pension preservation,provident,provident preservation,retirement annuity


funds

1. The General Rules :


1.1. The only previously received lump sum benefits which apply to this method must have been after the
following dates:
1.1.1.Retirement Fund Lump Sum Benefits (from any type of fund on Retire/Death/Retrench): received on or
after 1 OCT 2007
1.1.2.Withdrawal benefits (?? Is it only from a retirement annuity fund ONLY(not from any other type fund eg
provident??very unclear in book see page 611 ) :received on or after 1 Mar 2009
2. Before 1 Mar 2009, lump sums paid to a non-member ex spouse were taxed in the hands of the MEMBER , but
from that date it is taxed in the hands of the NON-MEMBER , as a withdrawal benefit.
2.1.



9|Page Income Tax 301 INDIVIDUALS own notes.

Questions to Ask Lecturer.


A. Ch 8 individuals
1. See pg 214- example at bottom- why is it 120000 for x 120000 for y – what happened to the other 240 000.
2. To determine if liable for tax - A child who would not be liable for tax were it not for the site provisions,is not
regarded as being liable for the payment of of normal tax .- page 223 top ii)
3.
DONATIONS TO PUBLIC BENEFIT ORGANISATIONS:
S 18.A – To any public Benefit Organisation(PBO) registered under Part II of the Ninth Schedule (see ch10) and
certain other bodies & institutions which must all also be approved by commissioner per sec30, and must issue a
tax deduction certificate to donor.
Limited to 10% of taxable income before sec 18 deductions(medical) and before other donations deductions, BUT
AFTER retirement fund deductions(???and any other type of deductions????).and excluding any taxable income
from any retirement lump sum benefit (on retirement,death,or withdrawal from fund)
It seems like churches are not exempt. Q pg227 bottom
4. Retirement Annuity Funds (RAF): limited to 1750 or [3500-deductable pension contributions] or 15% of
taxable income from non-pensionable income(????or non-retirement funding income????)before deducting
MedAid+MedExpense+TaxDeductDonations+certain farming expenses. ANY DISALLOWED PORTION CAN BE
CARRIED FORWARD TO NEXT YEAR OF ASSESSMENT subject to it must then still all be under the limits above the
next year once added to deductions the next year. – can it go on for the next 100 years till it’s finished or just 1
year then gone?(details ch 6.12)
5. What is the method to calc. the thing – like it shows in ch 1 or pg 225 ie: is less;RAF& add:capital gains & add:taxable travel
allowance ALLWAYS before less:donations etc.
6. What does; non-retirement funding mean??same as non-pensionable ?? see page 225 Q top
7. Taxpayers under 65 with no disabled family members ---just the part in yellow ask---
7.1. Normal Med Aid contributions may be deducted as set out earlier
7.2. Other med expenses allowed as an extra deduction.: any amount ABOVE 7.5% of TAXABLE INCOME is
deductable.:
7.2.1.The 7.5 % is calc. as follows : before the 7.5% but after :
7.2.1.1.INCLUDES taxable portions of Capital Gains
7.2.1.2.INCLUDES : fringe benefits
7.2.1.3.INCLUDES : Any med aid contributions NOT included – ie that were over the limit –of the normal
allowed Med Aid Deductions- may be added here to the Medical Expenses amount.
7.2.1.4.EXCLUDES: Deductable med aid contribution is taken off
7.2.1.5.EXCLUDES :first deduct donations to PBOrganisations
7.2.1.6.EXCLUDE 2nd schedule Any retirement lump sums & retirement fund withdrawal benefits
7.2.1.7.So calculating this deduction caomes last after all the other deductions AND additions –right at the
end basicly.????is it always right at the end?
7.2.2.A specific sequence of deduction should be applied when taxpayer contributed to a retirement annuity
fund,received a taxable allowance per sec 8.1.a,made a taxable capital gain,made deductable donation to
an organization under sec 18.a,contributed to a med aid scheme & paid med expenses per sec 18. This
sequence is illustrated by example pg 225.
8. Why on page 229 is interest income NOT included in the medical expanses calculation, but capital
gains & travel allowances are 1 or 2 pages before????
9. Page 558 Q 3 – why do they use 3200,not28000, on page before they used 28000???
10. What is aggregate on page 565? A bit stupid? Why is it there?error in book?

A. Employement & fringe benefits


1. Ask yellow :USING THE TAX TABLE FOR TRAVEL ALLOWANCES:
1.1. The Gov Gazette fixes the Tax Table every so often.(currently Year2008 no 30796 is used) applies from
1Mar2008 onwards.
1.2. The schedule states the rate per km will be the SUM OF THE FOLLOWING amounts together:
1.2.1.Fixed Cost: per table divided by total km travelled that year for both [business+private use] X 100 X
365/365 = ANSWER .If vehicle is used for business purposes for a period of less than 1 year the fixed
costs on the table must be reduced pro-rata/365 (not to exclude weekends or anything, but meaning if
only used for ½,or ¼ of year etc.) before it is multiplied by the km’s.9ps rem to X answer by 100 to
convert from rands to cents – otherwise your answer will be in rands for this one. IF YOU DAYS ARE a
fraction you round off upwards (or is it as normal.ie: round 0.5 and over up and under 0.5 down???)
10 | P a g e Income Tax 301 INDIVIDUALS own notes.

A. Ch9 partnerships:
1. See Pg 236, 9.7, “notes” 6th arrow = chipkin ??what does this mean?? No idea!!!!
2. .(???must the seller pay the buyer transfer duty on property value only, or also on value of car, desks and
goodwill.2-is it sellerpay buyer or not? 3- if the seller was personally registered for vat, must he charge buyer vat
and thus get exemption –is vat charged on sale of shares or only on value of property included in the share
value????)
3. S14.4 Vat Act : If a partner transfers property to partnership for its use, but even still keeping it registered in
his own name, any VAT paid by partner himself previously when he bought the property, is reclaimable as Vat
input by the partnership in the period of the ‘transfer’. (what if he already claimed input vat on it when he bought
it?)
3.1.1.SEC 10.4 Vat Act : if a partner takes asset out of partnership, and he would not have been able to
claim Vat on the asset if he had bought it – The asset is DEEMED to have been sold at MARKET VALUE to
partner and partnership must account for /pay output vat to the SARS. : BECAUSE the partner is a
connected person in relation to the partnership. –avoidance measure.???If he would have been able to
claim input vat on it if he had bought it then partnership would not be liable for output vat on it Yes or
No -make this part of note if yes-?? Why?? What if he did not claim input vat when he originally bought
it?? ???It seems if he could have claimed vat input then entity does not have to account for output
vat???? Pg 240 last para.
3.2. However : IF A PARTNER sells his share of a partnership to another partner, and the company owns
land, then the seller must pay the BUYER (note : not buyer pays seller) transfer duty. This must happen even
if the partnership itself is a Vat vendor, because it is not the partnership selling the shares , it is the old
partner selling to the new partner. So , because NO VAT was charged on the sale of the shares, transfer duty
equal to the pro-rata portion of the Fixed Property Value per the number of shares sold, is charged by buyer
to seller of the shares in the partnership.(???must the seller pay the buyer transfer duty on property value
only, or also on value of car, desks and goodwill.2-is it sellerpay buyer or not? 3- if the seller was personally
registered for vat, must he charge buyer vat and thus get exemption –is vat charged on sale of shares or
only on value of property included in the share value????)
3.3.
YEAR END OF PARTNERSHIP
1. What happens, do they just hand in late ?for their 28 feb year of assessment if before sept, or use old method if
after sept. ONCE ONE GETS THIS PERMISSION.
2. After introduction of s24H.5, SARS changed rules so that , if a company has a year end on 31 june, and
partner does his tax year end on 28 Feb, then partner is liable for personal tax for his share of all income less
expenses earned by partnership up to 28 feb , ie half way through entities year but at the end of his personal tax
year.- as long as the partnership accounts for profit annually and not other times??? What if monthly? Before
SARS changed this the tax on the net income of partnership at its year end would only have had to have been
paid by each partner on 28 feb of following year – ie at their first tax date in the future – meaning the net income
from business was only ‘accrued’ to them at year end of entity,after it was all worked out.
3. It seems that the partners may still continue in the same old way if they get permission from sars, but then the
previous years rates& rebates must be used, and not the current years one’s – I think for only that portion which
fell into the previous years tax assessment of the partners themselves + the part which fell into the current years
tax assessment of the partners after feb 28 must use that years RATES & REBATES . . , but maybe both portions
should be done at last years rate&rebates , not sure.!!
4. A taxpayer,incl. (individual, partnership of individuals, or trust) may apply to commissioner to submit a return for
a date other than the end of February, for less or more than 12 mnths, if there is a problem with??what? different
year ends?? Or what??) determining income etc from a specified matter during the normal period .A person with
different sources of income may apply for different dates for each source of income – ???is it to change the date
of fin year end and assessment, or to something else???

A. Ch 21 individuals retitrement benefit


1. S11(m) : 11 General deductions allowed in determination of taxable income ( very unclear –who can deduct here : the taxpayer or the
employee/partner who received it)
Cases
For the purpose of determining the taxable income derived by any person from carrying on any trade , there shall be allowed as deductions from the
income of such person so derived-
1.1. any amount paid by way of annuity during the year of assessment by any taxpayer-
11 | P a g e Income Tax 301 INDIVIDUALS own notes.

(i) to a former employee who has retired from the taxpayer's employ on grounds of
old age, ill health or infirmity; or
(ii) to a person who was for a period of at least five years a partner in an undert aking carried on by the taxpayer and who retired
from the partnership in respect of that undertaking on grounds of old age, ill health or infirmity, provided that the
amount so paid to such person is reasonable, having regard to the services rendered by such person as a partner in such
undertaking prior to his retirement and the profits made in such undertaking, and that the said amount does not represent
consideration payable to such person in respect of his interest in the partnership; or
[Sub-para. (ii) substituted by s. 9 (1) (f) of Act 113 of 1993.]
(iii) to any person who is dependent for his maintenance upon a former employee or a
former partner in an undertaking carried on by the taxpayer or (where such former
employee or former partner is deceased) was so dependent immediately prior to
his death:
Provided that the deduction under subparagraph (iii) shall not exceed in respect of the
persons so dependent on any one retired or deceased employee or former partner, the sum of R2 500;
6.1. There is a provision in 5.10.f.i.bb that makes lump sums cumulative – so the previous years must be
included ( ?don’t understand this?) see page 603 no.3
7. For what the employer may deduct from giving any lump sums to employees : what does this mean : (pg605 top) Provided that the deduction
under subparagraph (iii) shall not exceed in respect of thePersons so dependent on any one retired or deceased employee or former partner, the
sum of R2 500; ?? GROSS INCOME deduction per yr or per mnth or the eventual EFFECT on the tax to be paid itself. Also , does oit
mean the employer may deduct it as salaries ie an expense , from the profit , ot what exactly???
8. For the formula R= .. what if they say the man is 53 years old(under 55) and he is retired – how do you know
if it is superannuation or ill health etc , so how do you know to apply the formula or not? What would one do in
this case specifically?
9. THE TAXATION OF AMOUNTS RECEIVED AS A RESULT OF RETIREMENT
ANNUTIES :from employer direct
1. Resident of S.A.: Annuities are taxed in full in the hands of a resident
1.1. IT SEEMS (from employer direct pg 600&606) is this EXEMPT : Any pension direct from employer not pension
fund from source outside SA in consideration of employment outside SA, not deemed to be from a source in
SA per S.9.1.g. , is it exempt or not – or just for pension funds only?
2. See yellow : Retirement Fund Lump Sum Benefits : Retirement , Death , Retrenchment(business
closesORperson redundant) – para 2.1.a of 2nd Sched. Often called ‘ retirement benefits’.
If this benefit is paid out for a Director/or Ex-Director nor a person who held more than 5% of shares in company
or CC, due to ‘Retrenchment” – he cannot claim any concession at all here – he must pay the full tax.???true???
see pg 608
3. See yellow : Method : Para 5 of 2nd schedule : Deductions from Retirement Benefit :
3.1. Start with Lump Sum :
3.1.1.Deduct -1-: Taxpayers Own Contributions to any fund which did not rank for deduction –even if he is
still a member of that fund.( all provident fund contributions +??any pension&retirement funds over the
limit allowed that year and never deducted?? Yes or no??) pg 608 – (can you deduct contributions to a
pension/provident fund he is a member of from a withdrawal from a RAF fund or something?)
4. For the Retirement lump sum benefits : None of the above must have been allowed as a tax deduction by any
2nd Schedule before .( ??like a transfer to another fund – you can only transfer the same amount ONCE to another
fund like a pension to a another pension fund , or to a provident fund etc. – next time you must pay full tax on
the transfer?? Is this true)
5. Deduct -3-Transfer : by member from any 1 fund to another where he is/was member of both funds. per
para2..1.b.ib. (except ONLY pension to provident –does not count you must pay tax)-are all the others disallowed
for ‘transfer’ above – what is the difference between the 2 see pg 609&610 2X yellow.-for a withdrawal from a
fund_
6. See yellow for question: MULTIPLE FUNDS:
1. Where the taxpayer belongs to more than 1 fund or received more than 1 retirement or withdrawal benefit
in his lifetime, the tax in terms of the above tables is meant to be cumulative. It does not matter this time
though, whether you previously received a retirement or a withdrawal benefit – which ever you received you
will still have to include it in your calculation.
2. The general rules are as follows:
2.1. The only previously received lump sum benefits which apply to this method must have been after the
following dates:
2.1.1.Retirement Fund Lump Sum Benefits (from any type of fund on Retire/Death/Retrench): received
on or after 1 OCT 2007
2.1.2.Withdrawal benefits (?? Is it only from a retirement annuity fund ONLY(not from any other type
fund eg provident??very unclear in book see page 611 ) :received on or after 1 Mar 2009
1.
12 | P a g e Income Tax 301 INDIVIDUALS own notes.
13 | P a g e Income Tax 301 INDIVIDUALS own notes.

TERMS
1. Direct Tax : Is a tax levied on persons. (incl. income tax, levied on SA residents & foreigners who earn any income from in
SA.)
2. Indirect tax: Is a tax levied on Transactions : (when a person spends money in SA, eg VAT, transfer duty, securities transfer
tax, customs duties, fuel levies.)
3. Person: 1- Natural person + 2-Legal persons eg Companies + 3-Arrangements defined as persons eg trusts, deceased
estates, insolvent estates. Also in ‘Definitions Act” it says : divisional council, municipal council, village management
board,any body of persons ‘corporate or unincorporated’. ”A body of persons unincorporated includes a Partnership”
4. Partnership : 1- For income tax its partners are individually taxed , 2- for vat it is taxed as an entity.
4.1. Settlement : gratitious disposal of property subject to specific terms & conditions usually to trustees of a
trust.
4.2. Donation : per roman-dutch law it is disposal of property for no consideration
4.3. Other Disposition : means any disposal gratioutously,out of liberality or generosity of the dispenser. Eg
interest-free loan.
4.4. Spouse: defined in sec 1 of act as the partner of a person -
4.4.1.In a marriage or customary union recognized by the laws of the republic
4.4.2.In a union recognized as a marriage in accordance with the tenets of any religion.
4.4.3.In a same sex or heterosexual union which the commissioner is satisfied is intended to be permanent.
5. DEFINITION :CHILD :for purposes of section ON Med Aid expenses: will qualify for deduction if
5.1. 1) <18 & unmarried
5.2. 2)18-21 & unmarried &wholly or partially dependant on & not liable for normal tax in that year in his own
right.
5.3. 3)21-26 &full time student at educational institution of a public character & unmarried &wholly or partially
dependant on & not liable for normal tax in that year in his own right.
5.4. 4)any age iincapacitated by mental/physical infirmity from maintaining himself, wholly/partially dependant
for maintenance on taxpayer & not liable normal tax for year
5.5. ALSO: child must have lived for part of year
5.6. To determine if liable for tax - A child who would not be liable for tax were it not for the site provisions,is not
regarded as being liable for the payment of of normal tax .
6. Public Benefit Organisation(PBO) registered under Part II of the Ninth Schedule (see ch10) (ie :approved by
commissioner per sec30 and certain other institutions) and must issue a tax deduction certificate to donor.\
7. Pensionable Salary.-(or Non-retirement funding income)(.(means excl.interest+rental+business income-
does not include travel allowances or capital gains)
8. Non- Pensionable Salary. (or Non-retirement funding income) (.(means excl.interest+rental+business
income-does not include travel allowances or capital gains)
14 | P a g e Income Tax 301 INDIVIDUALS own notes.

CH1 INTRODUCTION

I. Terms and definitions:


1. Direct Tax : Is a tax levied on persons. (incl. income tax, levied on SA residents & foreigners who earn any income from in
SA.)
2. Indirect tax: Is a tax levied on Transactions : (when a person spends money in SA, eg VAT, transfer duty, securities transfer
tax, customs duties, fuel levies.)
3. Person: 1- Natural person + 2-Legal persons eg Companies + 3-Arrangements defined as persons eg trusts, deceased
estates, insolvent estates. Also in ‘Definitions Act” it says : divisional council, municipal council, village management
board,any body of persons ‘corporate or unincorporated’. ”A body of persons unincorporated includes a Partnership”
4. Partnership : 1- For income tax its partners are individually taxed , 2- for vat it is taxed as an entity.
4.1. Settlement : gratitious disposal of property subject to specific terms & conditions usually to trustees of a
trust.
4.2. Donation : per roman-dutch law it is disposal of property for no consideration
4.3. Other Disposition : means any disposal gratioutously,out of liberality or generosity of the dispenser. Eg
interest-free loan.
4.4. Spouse: defined in sec 1 of act as the partner of a person -
4.4.1.In a marriage or customary union recognized by the laws of the republic
4.4.2.In a union recognized as a marriage in accordance with the tenets of any religion.
4.4.3.In a same sex or heterosexual union which the commissioner is satisfied is intended to be permanent.
5. Definition :Child :for purposes of section on med Aid expenses : will qualify for deduction if 1) <18 & unmarried
2)18-21 & unmarried &wholly or partially dependant on & not liable for normal tax in that year in his own right.
3)21-26 &full time student at educational institution of a public character & unmarried &wholly or partially
dependant on & not liable for normal tax in that year in his own right. 4)any age iincapacitated by
mental/physical infirmity from maintaining himself, wholly/partially dependant for maintenance on taxpayer &
not liable normal tax for year
5.1. ALSO: child must have lived for part of year
5.2. To determine if liable for tax - A child who would not be liable for tax were it not for the site provisions,is not
regarded as being liable for the payment of of normal tax .
6. Public Benefit Organisation(PBO) registered under Part II of the Ninth Schedule (see ch10) (ie :approved by
commissioner per sec30 and certain other institutions) and must issue a tax deduction certificate to donor.\
7. Pensionable Salary.-(or Non-retirement funding income)(.(means excl.interest+rental+business income-
does not include travel allowances or capital gains)
8. Non- Pensionable Salary. (or Non-retirement funding income) (.(means excl.interest+rental+business
income-does not include travel allowances or capital gains)
9.

I. TAXATION IN SA
1. Tax IS the means whereby the state collects funds from persons to pay for its administration & benefits it provides its citizens.
2. Important parts of ch.: Types of taxes levied ; Framework for calc. of normal tax. ; difference direct/indirect tax ; year of
assessment ; definition of person.
3. Direct&Indirtect taxes are collected by SARS for the State, & paid into the National Revenue Fund.
4. Shortfalls are funded by borrowings
5. Local Authorities collect their own tax in form of rates on fixed property.(land&buildings)

I. TAX MAXIMS
By Adam Smith – in The Wealth of Nations 1776
1. In Proportion :The subjects of a State should contribute towards the support of the Gov. in proportion to their revenue they
enjoy, same as the tenants of a great estate contribute toward management of it in proportion to their interests.
2. Certain : The tax each individual must pay should be Certain, not Arbitrary
15 | P a g e Income Tax 301 INDIVIDUALS own notes.

3. Convenient : Ought to be levied at the Time and Manner most convenient for contributor to pay it.
4. As little to others exept State:, Each Tax should be formulated to take out and keep out of the pockets of the people as
little as possible over and above what what it brings to the public treasury.

I. SARS
1. Income tax act administered by Commissioner for the SARS, known as CSARS, under the Minister of Finance.
2. It is an organ of the state but outside the public service- so it can employ people etc. per its own rules, not the public service’s

I. ANNUAL BUDGET:
1. Gov fiscal year is 1 Apr to 1 31 Mar. Min. of Finance presents Annual budget each year in Feb- sets out expenditure for next
year & manner it will be funded- 1st by tax, 2nd sundry income(fines, sales of goods etc) and Loans.
2. SA budgeted tax collections was 643 billion 2009/2010

I. TYPES OF TAX

1. ANNUAL AMENDING ACTS.


1. EACH YEAR all the tax laws are amended. After the budget speech a number of amending acts are passed by parliament,
mainly the taxation laws amending act & Revenue laws amending act. Before it is passed it is in the form of a Bill
accompanied by an explanatory memorandum. In SA the practice is to pass 2 in july( rates & routine matters) & 2 in dec-feb.
(major law changes)
2. Any Act dealing with tax is called a money bill, it must be passed in entirety or rejected as a whole.
3. They become effective on the date of publishing in the Gov. gazette, or on date specified in the bill.

I. YEAR OF ASSESSMENT
1. Normal Tax is calc. on annual basis, covers the ‘Year of Assesment’
2. For Individuals & Trusts : 28Feb
3. For Companies etc : at date of Fin Year End. Of specific company.

I. INCOME TAX ACT


1. Income tax first introduced in SA in 1914.
2. The present Act is the INCOME TAX ACT NO.58 of 1962, as Amended.
16 | P a g e Income Tax 301 INDIVIDUALS own notes.

3. It contains provisions for 5 different types of taxes ( plus 1 = dividends tax – to come into effect second half 2010)
3.1. Normal Tax
3.2. Turnover Tax
3.3. Withholding tax
3.4. Secondary tax on Companies
3.5. Capital Gains Tax

I. ESTATE DUTY
1. It is a DIRECT TAX - +/- 20% after deducting 3.5mil.

I. INDIRECT TAXES
1. VAT
2. Transfer Duty
3. Securities Transfer Tax

I. INTERPRETATION OF STATUTES:
1. Tax law is interpreted the same as any other law, EXCEPT that as tax needs to be certain, and as the law is drafted by the
legislature, the LITERAL TRANSLATION IS THE STARTING POINT.
2. Contra fiscum rule : The full maxim is “in dubio contra fiscum” which means when in doubt, interpret the law in favour of
the tax payer if possible. In other words tax law works like this : ‘allways give the benefit of the doubt to the taxpayer’.
3. The Intention of the Iegislature is always what is to be considered when interpreting legislation. This refers to their
meaning in their context and in the context of the act as a whole. See ITC(1984 , 47 SATC 141) and also (1962(1)SA458
(AD) at 476Wessels AJA ) for judgements relating to interpreting tax laws, concerning usage of words and interpretation
thereof.
4. Word interpretations : first check 2- “Income Tax Act the definitions sect. 1 of act ” , then 2-check “The Definitions Act “
itself ,then normal dictionary meaning.
4.1. No word may be seen as superfluous
4.2. Sect. 1 of act also says defined meaning must not be used where context inticates a different meaning.
5. The constitution – must also be kept in mind legally when interpreting any law
6. Person: 1- Natural person + 2-Legal persons eg Companies + 3-Arrangements defined as persons eg trusts, deceased
estates, insolvent estates. Also in ‘Definitions Act” it says : divisional council, municipal council, village management
board,any body of persons ‘corporate or unincorporated’. ”A body of persons unincorporated includes a Partnership”
7. ANTI-AVOIDANCE: these sections are interpreted a bit differently, it is basicly not illegal to avoid tax, so an anti avoidance
section does not contain penalties, it just allows the person to be taxed as if the avoidance measure was not entered into.

I. COURT DECISIONS:
1. If a taxpayer is not satisfied with his assessment and his objection has been overruled, he may apply to the Tax Court. Any
decision of the Tax Court is subject to an appeal to the high court. The taxpayer has the option of entering into an alternative
dispute resolution process(ADR) prior to resorting to the courts.
2. Any high court decision has ‘stare decisis’ ie it is binding on the courts below it. Only another decision of the same level can
change a previous one.

A. TAX BOARD :
1. Deals with appeals of 500 000 or less. The loser May appeal to the tax court.

A. TAX COURT
1. Judgements here do NOT create legal precedent, only high court judgements do.(they may only be persuasive)They are not
pub;lished in the SA Law Reports, but may be published in the SA Tax Cases Reports.

I. Interpretation Notes:
1. SARS issues “interpretation notes” to explain how certain parts of the act are to be interpreted. (previously called Practice
Notes)( these do not have force of law and may be challenged by the taxpayer in court)
2. SARS also issues guides & Media releases to just generally inform the public.
17 | P a g e Income Tax 301 INDIVIDUALS own notes.

Ch 8 –INDIVIDUALS
Quick reference Rand Amounts:

1.1. Med Aid Limits (taxpayer under 65):


1.1.1.625 per mnth if Only taxpayer
1.1.2.1250 if taxpayer + 1 dependant
1.1.3. 380 per additional dependant per month.

TERMS
1. Direct Tax : Is a tax levied on persons. (incl. income tax, levied on SA residents & foreigners who earn any income from in
SA.)
2. Indirect tax: Is a tax levied on Transactions : (when a person spends money in SA, eg VAT, transfer duty, securities transfer
tax, customs duties, fuel levies.)
3. Person: 1- Natural person + 2-Legal persons eg Companies + 3-Arrangements defined as persons eg trusts, deceased
estates, insolvent estates. Also in ‘Definitions Act” it says : divisional council, municipal council, village management
board,any body of persons ‘corporate or unincorporated’. ”A body of persons unincorporated includes a Partnership”
4. Partnership : 1- For income tax its partners are individually taxed , 2- for vat it is taxed as an entity.
4.1. Settlement : gratitious disposal of property subject to specific terms & conditions usually to trustees of a
trust.
4.2. Donation : per roman-dutch law it is disposal of property for no consideration
4.3. Other Disposition : means any disposal gratioutously,out of liberality or generosity of the dispenser. Eg
interest-free loan.
4.4. Spouse: defined in sec 1 of act as the partner of a person -
4.4.1.In a marriage or customary union recognized by the laws of the republic
4.4.2.In a union recognized as a marriage in accordance with the tenets of any religion.
4.4.3.In a same sex or heterosexual union which the commissioner is satisfied is intended to be permanent.
5. DEFINITION :CHILD :for purposes of section ON Med Aid expenses: will qualify for deduction if
5.1. 1) <18 & unmarried
5.2. 2)18-21 & unmarried &wholly or partially dependant on & not liable for normal tax in that year in his own
right.
5.3. 3)21-26 &full time student at educational institution of a public character & unmarried &wholly or partially
dependant on & not liable for normal tax in that year in his own right.
5.4. 4)any age iincapacitated by mental/physical infirmity from maintaining himself, wholly/partially dependant
for maintenance on taxpayer & not liable normal tax for year
5.5. ALSO: child must have lived for part of year
5.6. To determine if liable for tax - A child who would not be liable for tax were it not for the site provisions,is not
regarded as being liable for the payment of of normal tax .
6. Public Benefit Organisation(PBO) registered under Part II of the Ninth Schedule (see ch10) (ie :approved by
commissioner per sec30 and certain other institutions) and must issue a tax deduction certificate to donor.\
7. Pensionable Salary.-(or Non-retirement funding income)(.(means excl.interest+rental+business income-
does not include travel allowances or capital gains)
8. Non- Pensionable Salary. (or Non-retirement funding income) (.(means excl.interest+rental+business
income-does not include travel allowances or capital gains)

I. CALCULATION OF AN INDIVIDUALS TAX LIABILITY

The Method of calculating an individuals tax liability is as follows


GROSS INCOME (s1)
Less : EXEMPT INCOME (s10)
=INCOME
Less : DEDUCTIONS (mainly s11 to s20 &23)
18 | P a g e Income Tax 301 INDIVIDUALS own notes.

Add : TAXABLE PORTION OF ALLOWANCES PER (s8.(1)(a))


: and TAXABLE PORTION OF CAPITAL GAINS (s 26 A)
=TAXABLE INCOME
Tax per the table calc., based on taxable income (s5 & tax
table)
Less: Rebates (s6)
=NORMAL TAX PAYABLE

I. TAX TABLEs

1. The tax tables for individuals and special trusts is set out tin the tax table for each year of assessment.People with higher
income pay more, those with less pay less.
2. AVERAGE RATE OF TAX : means the one on the tax table itself shown
3. MARGINAL RATE OF TAX : means the effective rate as worked out after the whole thing

I. TAX COLLECTION

1. Tax is collected by:


1.1. Various WITHHOLDING TAXES
1.2. PROVISIONAL TAX
1.3. WHEN AN ASSESMENT IS ISSUED FOR THE YEAR
2. REGISTRATION:
2.1. Every person must apply to SARS within 60 days of becoming liable to be a taxpayer.(sect 67)
3. EMPLOYEES TAX:
3.1. 4th schedule to INCOME TAX ACT provides that : Employers must deduct a % of each employees tax , for SARS, each
month. The First part up to 60000 is called SITE(standard tax on Employees) the balance after 60 000 is called PAYE.
Both taxes are credited against the final TAX ASSESMENT but where the assessed tax is lower than SITE NO REFUND will
be made. Persons earning lower than 60 000 are not subject to assessment and do not have to register as taxpayers.
4. PROVISIONAL TAX :
4.1. Persons with non-remuneration income may be subject to this- an advance payment is made on or before 31 Aug and a
second not later than last day of Feb. A topping –up provisional tax payment may be made not later than 7 mnths after
year-end.
5. ASSESSMENT:
5.1. All persons other than those registered solely for SITE (below 60 000) must render a return of income & deductions each
year. From this SARS raises an assessment showing the tax due for year. The amount due is reduced by employees tax &
provisional tax already paid.
5.2. Normally people earning income not subject to SITE or PAYE must register as provisional taxpayers.

I. PAYE and SITE


1. All SITE and PAYE that is deducted by the employer must get deducted again from the final tax answer you get in
any question. The reason is it has already been paid to SARS and thus you can deduct it from anything you work out that
you owe SARS.
2. EMPLOYEES TAX:
2.1. 4th schedule to INCOME TAX ACT provides that : Employers must deduct a % of each employees tax , for SARS, each
month. The First part up to 60000 is called SITE(standard tax on Employees) the balance after 60 000 is called PAYE.
Both taxes are credited against the final TAX ASSESMENT but where the assessed tax is lower than SITE NO REFUND will
be made. Persons earning lower than 60 000 are not subject to assessment and do not have to register as taxpayers.

I. NORMAL TAX REBATES

A. Normal Tax Rebates


1. The primary rebate is claimable by all,
2. The Secondary rebate is ADDED to the primary if the person is 65 or older on last date of year of assessment. If
person dies but would be 65 before last day of year of assessment, then the secondary rebate is still added but
would be apportioned as it would be in respect of a partial period of assessment.( see : sec. 6(4))
19 | P a g e Income Tax 301 INDIVIDUALS own notes.

2.1. The Primary Rebate = 9756


2.2. The Secondary Rebate = 5400

A. Tax Threshholds
1. Tax Threshold : the point at which tax becomes payable: as a result of the rebates, persons are not liable for tax
if the tax payer the table is equal to or less than the rebates to which they are entitled.
2. For 2010 year of assessment the tax thresholds are as follows :
2.1. >65 = 84200 ( 2009 =74000)
2.2. < 65 = 54200(2009=46000)

A. Partial Period of Assessment:


1. A partial period of assessment is one which is less than 12 mnths.
2. The rebates are REDUCED proportionately.(sec 6.4)
3. It can arise ONLY in year person
3.1.born
3.2.died
3.3.went Insolvent
4. There is NO PARTIAL PAYMENT in the year person starts working OR stops working OR immigrates OR emigrates.

I. TAXATION OF MINOR CHILDREN:


1. A MINOR CHILD is CLASSIFIED AS MINOR IF THEY ARE UNDER 18 as per the act. (before 1July 2007 it
was under 21) .The definition includes 1- adopted child 2-minor stepchild
2. Minor children are taxed in their own name unless Section 7 deems the income to be received by their parents.
3. SECTION 7.3 : If a parent has made a Donation, Settlement or similar Disposition to their minor child,
which has resulted in
3.1.1.1.The minor child receiving income
3.1.1.2.Or income accruing to OR in favour of the child
3.1.1.3.Income which has been expended for the maintenance , education or benefit of that
minor child
3.1.1.4.Or income which has accumulated for the benefit of that minor child
3.1.2.SUCH INCOME WILL BE DEEMED TO BE THE INCOME OF THE PARENT WHO MADE THE
DONATION
3.2. It must have had ‘some appreciable element of gratuity in it’ , eg if father sells property to son at market
value there is no ”donation,settlement or other disposition” and Sec.7(3) will not apply. BUT if property is
sold on interest free loan account , the interest free loan is gratituous and IF THERE IS ANY INCOME FROM
THE PROPERTY ,THE FATHER WILL BE TAXED ON IT.
4. SECTION 7.4 The Income of a minor child is deemed to be the parents income if that parent has made
a donation ,settlement or other disposition ,or given some other consideration, to some other person
or that persons family in return for a donation , settlement or other disposition by that person to the
parents minor child.

I. TAXATION OF MARRIED PERSONS


1. GENERAL : Since 1992 married persons are taxed separately on their income .Each spouse is registered as a
sparate taxpayer – subject to / unless section 7.2 applies:which is an anti-avoidance measure.
1.1. Spouses married in community of property are taxed equally on their investment income (interest and rental)
because they own the assets (bank accounts and fixed property) jointly.

A. ANTI-AVOIDANCE SECT. 7.2


1.1. It is an anti-avoidance measure aimed at preventing tax reduction by splitting income between spouses.
1.2. It is basicly that you cannot contrive to move income between spouses to reduce your tax liability –so in
effect income of one spouse could be deemed by SARS to be the income of the other spouse if you do this.
1.2.1.Provisions summarized as follows:
1.2.1.1.Applies to any income accrued to or received by any person(the RECIPIENT)
20 | P a g e Income Tax 301 INDIVIDUALS own notes.

1.2.1.2.Such income is deemed to be the income of such persons spouse (the DONOR) in 1 of 2
situations:
1.2.1.2.1.Situation 1 :The income was derived in consequence of a donation , settlement, or other
disposition, OR by reason of a transaction operation or scheme carried out by the donor, : all
on or after 20 Mar 1991, the sole or main purpose of which was the reduction ,postponement
or avoidance of the donors liability for any tax,levy,or duty in terms of any act administered by
the commissioner.
1.2.1.2.2.Situation 2 :the income was derived from any trade carried on by recipient in partnership or
association with their spouse,or which is connected with the trade of the spouse,
OR
The income was derived from the 1- spouse , or from a 2- partnership in which the spouse is
a member, or from a 3-private company in which the spouse is a sole or main or one of
the principal shareholders
AND
Such income exceeds an amount that the recipient may reasonably be expected to earn having
regard to 1- the nature of the trade 2-the extent of the recipients participation 3-any other
relevant factor.
1.3. Note : (the sect .7.2 does not affect the taxability of donations between spouses- it will still be exempt from
donations tax.)
1.4. This section works in both directions : if husband works for wife, any excessive income he earns will be
deemed to be his wife’s income for tax purposes.

A. COMMUNITY OF PROPERTY sect 7.2a ,7.2b ,7.2c


1. General principle is
1.1. INVESTMENT income accrues equally to each spouse as they own the underlying property jointly.
1.2. TRADE INCOME accrues to the spouse that earned it.
1.3. TRADE INCOME EARNED BY BOTH SPOUSES accrues to each spouse in the proportion determined by them in
terms of the agreement which regulates the trade – if there is no agreement then the amount is split
according to 1- amount each is entitled to having regard to the trade 2- extent of participation 3- services
rendered 4-any other relevant factor BUT this split is subject to anti-avoidance rule sect.7.2b.
1.4. INCOME FROM LETTING FIXED PROPERTY OR ANY INCOME OTHERWISE THAN FROM A TRADE –is deemed to
accrue in equal shares to each spouse.
1.5. INCOME THAT DOES NOT FALL LEGALLY INTO THE JOINT ESTATE of the spouses is deemed to be the income
of the spouse who is entitled thereto.
1.6. AMOUNTS PAID OR PAYABLE TO A SPOUSE IN HIS OR HER CAPACITY AS MEMBER /PAST MEMBER : of
following funds are deemed to be the income of that spouse -7.2.c.a : Pension fund ; Provident or Provident
preservation fund ; Benefit fund ; Retirement annuity fund ; Any fund of a similar nature.
1.7. ANNUITY WHICH IS AN ANNUITY FOR PURPOSE OF S10A OF ACT : is deemed to be the income of the
spouse who is entitled thereto
1.8. INCOME FOR RIGHT TO USE OF PATENT ; TRADEMARK ; design, copyright,or other property or right ; is
deemed to be income of the spouse who is holder or owner.
2. NOTE:
2.1. Sec 7.2b deems any allowable deduction or allowance which relates to income deemed to be a spouses,is to
be deductable in that spouses hands
2.2. Settlement : gratitious disposal of property subject to specific terms & conditions usually to trustees of a
trust.
2.3. Donation : per roman-dutch law it is disposal of property for no consideration
2.4. Other Disposition : means any disposal gratioutously,out of liberality or generosity of the dispenser. Eg
interest-free loan.
2.5. Spouse: defined in sec 1 of act as the partner of a person -
2.5.1.In a marriage or customary union recognized by the laws of the republic
2.5.2.In a union recognized as a marriage in accordance with the tenets of any religion.
2.5.3.In a same sex or heterosexual union which the commissioner is satisfied is intended to be permanent.

I. ANTEDATED SALARY OR PENSION(back pay received in a later year for services in a past
year)
1. Accrual period: the period in respect of which an antedated salary or pension has become payable.
21 | P a g e Income Tax 301 INDIVIDUALS own notes.

2. IF ACCRUAL PERIOD COMMENCED 2 YRS OR LESS before commencement of current year : employee may
choose to have antedated amount spread over 2 yrs. The assessment for each accrual period is re-opened and
the ante-dated amount is taxed in those periods per rules active in that period.
3. IF MORE THAN 2 YEARS BEFORE COMMENCEMENT OF TAX YEAR in which back-pay is received: taxpayer
CAN ELECT (not must) to have the lump sum taxed in ONLY 3 equal installments - 1/3 per year –not more or
less installments allowed.

I. EXEMPTION OF DIVIDENDS AND INTEREST


1. Per sec 10.1.i all taxpayer who are natural persons, are exempt from dividends + interest as follows:
1.1. >65 : 30 000
1.2. <65 : 21 000
1.3. The first 3500 applies to foreign dividends&interest and the rest to SA dividends&interest. BUT if there are
only SA dividends&interest involved then it ALL applies to the SA part.
2. Dividends are generally exempt from tax per s10.1.k but certain dividends ie: foreign dividends, and dividends
received by a sharedealer in persuance of a share buy-back, are not exempt.

I. DEDUCTIONS FOR INDIVIDUALS


1. A person who carries on business as a sole proprietor is elegible for all the deductions and allowances provided
for in the act in respect of his business expenses as well as the deductions claimable by individuals earning only
employment or investment income.
2. BUT those who get income from employment or passive investments (shares&interest) the deductions are
severely restricted by the act.
3. An employed person may deduct the following :
3.1. Medical Expenses & Medical Aid Contributions S18
3.2. Donations To Public Benefit Organisations S18a
3.3. Deductions In Respect Of Domestic Premises Which Are Not Disallowed Under Sec23.B
3.4. Contributions To Pension Fund S11.K
3.5. To Retirement Annuity Fund S11.N
3.6. Legal Fees S 11.C
3.7. Bad Debts S.11.I
3.8. Doubtful Debts S.11.J
3.9. Wear & Tear S.11.E
3.10.Insurance Premiums For : Loss Of Income As A Result Of injury,illness,disability or unemployment.-
s.11.a (the proceeds of this policy must constitute income in the taxpayers hands)
4. Sec23.m Prohibits deduction of all other expenses relating to employment.(these restrictions do not apply to a
person who is an agent or representative who normally gets income mainly from commissions based on sales or
turnover. In ch5)

A. Medical,dental and physical impairment or disability expenses. S18


1. DEFINITION :CHILD :for purposes of section: will qualify for deduction if
1.1. 1) <18 & unmarried
1.2. 2)18-21 & unmarried &wholly or partially dependant on & not liable for normal tax in that year in his own
right.
1.3. 3)21-26 &full time student at educational institution of a public character & unmarried &wholly or partially
dependant on & not liable for normal tax in that year in his own right.
1.4. 4)any age iincapacitated by mental/physical infirmity from maintaining himself, wholly/partially dependant
for maintenance on taxpayer & not liable normal tax for year
1.5. ALSO: child must have lived for part of year
1.6. To determine if liable for tax - A child who would not be liable for tax were it not for the site provisions,is not
regarded as being liable for the payment of of normal tax .

1. MEDICAL AID CONTRIBUTIONS BY INDIVIDUAL:


1.1. To any medical scheme (per medical schemes act) or any similar scheme in another country
1.2. In respect of taxpayer & wife & child & any dependant of taxpayer admitted as dependant under med scheme
1.3. Limits (taxpayer under 65):
1.3.1.625 per mnth if Only taxpayer
1.3.2.1250 if taxpayer + 1 dependant
22 | P a g e Income Tax 301 INDIVIDUALS own notes.

1.3.3. 380 on top of 1250 per additional dependant per month.

1. MEDICAL AID CONTRIBUTIONS BY EMPLOYER


1.1. Usually rules of med scheme say ½ to be paid by employer ½ by employee, but it may vary depends on fund
1.2. Rules for 2010 : Any amount below the limits above paid by employer is not taxed as a fringe benefit, any
amount above is, which extra amount is then deemed to be a ‘medical expense’ paid by the
employee. The employees med aid contr. Deduction is reduced by the tax free part of the amount paid by
the employer- so if employee can still deduct his own contributions if any part of the tax free limit above is
still left.( only [employer contribution minus deduction allowed off] balance is added to ‘taxable income’ as a
fringe benefit). (Any med aid employee paid which is not deductable MAY be deemed as a “medical expense”)
1.3. Rules for 2010 from March 1: it was simplified : The full amount paid by employer is taxed as a fringe
benefit. Then the employee deducts the amount paid [by him + by employer] up to the allowed normal
limit. No extras paid by employer are deemed to be ‘med. Expenses paid by employee ’’, anymore. ALSO
any MedAid contributions paid by employee himself MAY be deemed to be a “Medical Expanse”
1.4. So up to 2010 Mar the balance is a fringe benefit, but after 1Mar it is All a fringe benefit)

1. MEDICAL AID EXPENSES WHICH QUALIFY FOR DEDUCTION:


1.1. Any of following payments in respect of self,wife,child,dependants provided it is NOT recovered from a
med.aid or insurance policy.
1.1.1.To a registered medical practitioner
1.1.2.Registered nursing home
1.1.3.Registered pharmacist

1. NON-SOUTH AFRICAN MEDICAL EXPENSES:


1.1. Same as above

1. PHYSICAL IMPAIRMENT OR DISABILITY:


1.1. Any ‘necessarily’ incurred expenses for physical impairment or disability of self,wife,child,dependants may be
deducted.
1.2. A disability : moderate to severe limitation of persons ability to function or perform daily activities as a result
of a physical ,sensory,communication,intellectual or mental impairment, if
1.2.1.Limitation has lasted or prognosis of over 1 year
1.2.2.Diagnosed by registered med. Practitioner in accordance with criteria prescribed by commissioner.

1. LIMITATION OF MED & MED AID EXPENSES DEDUCTION:


1.1. The Limits Apply To 3 Situations :
1.1.1.Taxpayers over 65
1.1.1.1. No limits on deduction, exept that recoverable from med.aid
1.1.2.Handicapped persons or Persons with disability
1.1.2.1. Self or wife,child,dependant is handicapped –no limit – even if the expense was for a person other
than the disabled person- it need not be for the disabled person.
1.1.3.Taxpayers under 65 with no disabled family members
1.1.3.1.Normal Med Aid contributions may be deducted as set out earlier
1.1.3.2.Other med expenses allowed as an extra deduction.: any amount ABOVE 7.5% of TAXABLE
INCOME is deductable.:
1.1.3.2.1.The 7.5 % is calc. as follows : the taxable income to use here
1.1.3.2.1.1.INCLUDES taxable portions of Capital Gains
1.1.3.2.1.2.INCLUDES : fringe benefits
1.1.3.2.1.3.INCLUDES : Any med aid contributions NOT included – ie that were over the limit –of
the normal allowed Med Aid Deductions- may be added here to the Medical Expenses
amount.
1.1.3.2.1.4.EXCLUDES: Deductable med aid contribution is taken off
1.1.3.2.1.5.EXCLUDES :first deduct donations to PBOrganisations
1.1.3.2.1.6.EXCLUDE 2nd schedule Any retirement lump sums & retirement fund withdrawal benefits
1.1.3.2.1.7.So calculating this deduction caomes last after all the other deductions AND additions –
right at the end basicly.????is it always right at the end?
1.1.3.2.2.A specific sequence of deduction should be applied when taxpayer contributed to a
retirement annuity fund,received a taxable allowance per sec 8.1.a,made a taxable capital
23 | P a g e Income Tax 301 INDIVIDUALS own notes.

gain,made deductable donation to an organization under sec 18.a,contributed to a med aid


scheme & paid med expenses per sec 18. This sequence is illustrated by example pg 225.
2. NOTES:
2.1. The deduction is claimed by person who actually pays the expense.
2.2. It works out better from a planning point of view for only 1 spouse to pay ALL the medical expenses, rather
than splitting it, IF both spouses are under 65 (to get over 7.5% limit rule)
2.3. Deduction may only be claimed for expenses ACTUALLY PAID. If incurred but unpaid as yet –it is not
claimable.!

1. PENSION ,PROVIDENT & RETIREMENT FUND CONTRIBUTIONS:


1.1. Provident Fund : are not deductable , it is accumulated and deducted from the lump sum on retirement.
1.2. Pension Contributions: per 11.k -limited to greater of 1750 or 7.5% of pensionable salary.(means
excl.interest+rental+business income-does not include travel allowances or capital gains) any disallowed
excess cannot be carried over to next year.
1.3. Retirement Annuity Funds (RAF): limited to the greater of either : -1- 1750 or -2- [3500-deductable
pension contributions] or -3- 15% of taxable income from non-pensionable income eg interest income or
business income or pension annuity income(????or non-retirement funding income????)before deducting
MedAid+MedExpense+TaxDeductDonations+certain farming expenses. ANY DISALLOWED PORTION CAN BE
CARRIED FORWARD TO NEXT YEAR OF ASSESSMENT subject to it must then still all be under the limits above
the next year once added to deductions the next year.(details ch 6.12)

1. DONATIONS TO PUBLIC BENEFIT ORGANISATIONS:


1.1. S 18.A – To any public Benefit Organisation(PBO) registered under Part II of the Ninth Schedule (see ch10)
and certain other bodies & institutions which must all also be approved by commissioner per sec30, and
must issue a tax deduction certificate to donor.
1.2. Limited to 10% of taxable income before sec 18 deductions(medical) and before other donations deductions,
BUT AFTER retirement fund deductions and after taxable capital gains and after taxable travel allowance(???
and any other type of deductions????).and excluding any taxable income from any retirement lump sum
benefit (on retirement,death,or withdrawal from fund)
1.3. It seems like churches are not exempt. Q pg227 bottom

I. FINAL DEDUCTION SYSTEM


1. A taxpayer who earns only “net remuneration” (as defined in the SITE legislation) not exceeding
R60 000 per annum will not be required to render an income tax return unless requested by SARS to
do so - s 5(1A)(b) and s 66. The SITE deducted from that person’s remuneration is his or her full tax
liability for the year (see Chapter 22). There are various provisions dealing with PAYE and SITE
overpayments and refunds.
2. Section 102 states that no refund will be made in respect of overpayment of PAYE by taxpayers who did not
submit returns, unless the claim for a refund is made within three years of the end of the relevant year of
assessment.
3. Section 79 States that the Commissioner may not raise an additional assessment more than three years after the
end of the relevant year of assessment if the taxpayer’s sole remuneration is that in respect of which PAYE is
deducted, unless the PAYE which should have been paid was not paid because:
• incorrect personal particulars were furnished by the employee, or
• the employer assisted the employee in evading tax.
4. Section 102A states that where the final deduction system is applicable and a taxpayer did not have to submit a
return -
• the taxpayer will not be entitled to claim a refund if it is less than R2, and
• the Commissioner will not be able to recover more tax from the taxpayer if the shortfall is less than
R25.
This does away with the need to issue assessments for small amounts.
5. Section 5 states that the SITE determined in terms of the Fourth Schedule is the taxpayer’s minimum tax liability
for the year, and is therefore not refundable.
6. Paragraph 11B(7) of the Fourth Schedule states that if employees tax deducted by an employer is not more than
2% greater or less than the correct amount of SITE deductible from an employee’s net remuneration, no
adjustment shall be made to the SITE deducted from the employee’s net remuneration.
24 | P a g e Income Tax 301 INDIVIDUALS own notes.

I. DIVORCED PERSONS
1. Alimony & maintenance is not deductable by the paying ex-spouse ,and not taxable in the hands of the
receiver.
2.

3.
25 | P a g e Income Tax 301 INDIVIDUALS own notes.
26 | P a g e Income Tax 301 INDIVIDUALS own notes.

Ch 20 EMPLOYMENT AND FRINGE BENEFITS

I. INTRODUCTION
TABLE OF Act references for this chapter.

I. GROSS INCOME DEFINITION: PARA C AND N


1. Para c brings into definition of gross income. (Important points from court cases in brackets)
1.1. Any amount (incl.property & rights received – WHLategan Vs CIR)
1.2. Incl. any voluntary awards (all- even months after termination – as long as it is from employment area)
1.3. Received or accrued in respect of services rendered or to be rendered. (THE PERSON WHO RENDERED THE
SERVICE gets it included in his gross income for tax, not the person who received the money eg a charity)
1.4. any amount (other than amounts received – other than an amount referred to in sec 8.1- received or accrued
in respect of or by virtue of any employment or the holding of any office.

A. Paragraph (n) ALLOWANCES:


Para c of gross income definition specifically excludes amounts referred to in sec 8.1 of ACT. These are brought into
gross income definition under para (n) – the catch all provision.Sec 8.1 covers travel & subsistence allowances and
reimbursement of business expenditure paid by the employee, such as entertainment expenses,and allowances to
holders of public office.

II. REIMBURSIVE ALLOWANCES


1. Definition of allowance per SARS : an allowance is typically an amount of money granted by an employer to
an employee where the employer is certain that the employee will incur business related expenditure on behalf of
the employer, but where the employee is not obliged to prove or account to the employer for the expenditure.
27 | P a g e Income Tax 301 INDIVIDUALS own notes.

1.1. Where the amount is an “advance” : the employee has to prove the business expenditure and refund
any excess to the employer.
1.2. Where the amount is a “reimbursement” : the employee has already incurred the business expenditure ,
paid for it out of his own pocket, and then recovers the expense from the employer. He ususlly must provide
employer with expense voucher showing he incurred the expense on behalf of the employer.
2. Definition of taxable income in S 1 : states that it is the aggregate of
2.1.1.Income minus allowable deductions and set- offs and
2.1.2.All amounts to be included or deemed to be included in taxable income
3. SEC 8.1 : deals with 3 categories of allowances or advances that have to be inc;. in taxable income after
certain portions of the allowance or advance are deducted or excluded.
3.1. Travel Allowance
3.2. Subsistence allowance
3.3. Other allowances received by virtue of recipients office or duties eg entertainment allowance.
4. ALL OTHER ALLOWANCES other than these above, ARE FULLY TAXABLE.

A. TRAVEL ALLOWANCE
1. S 8.1.b deals with travel allowance. There are 2 types of travel allowance:
1.1. An allowance or advance in respect of transport expenses eg bus/train, and
1.2. An allowance or advance to be used by the recipient for paying expenses in respect of a motor vehicle used
by the recipient for business purposes (the so-called ‘motor car travel allowance’)
2. There is a Presumption in para ii that the employee owns the vehicle, but it need not be.
3. Private Travel : any portion of allowance used for private travel will be included in his taxable income. Private
travel includeds travel between his residence and place of work. One may only deduct pure ”business travel” from
your tax – whether its for a train or bus or own car -that’s it.
3.1. Private travel includes travel between his residence and place of work. This is NOT deductable at all.
4. Sec 8.1 is not confined only to persons who use their own car and also not only to persons who are
employees.All that is required is:
4.1. That the person receives a travel allowance
4.2. That the recipient uses the vehicle , in respect of the allowance received, for business purposes for all or part
of the year.
5. Excessive allowance : Interpretation Note : 14, any allowance which is excessive will be regarded as normal
salary. Employers are liable for the deduction of employees tax(PAYE) in these circumstances .
6. Employer owned vehicle : you may NEVER use any method other than method 1 – “deduct actual business
expenditure incurred” –This is to combat a scheme where the employer provides a vehicle and also gives a travel
allowance.

7. METHOD : there are 3 + 1 = 4 methods currently allowed to calculate this travel allowance deduction.
7.1. USING ACTUAL FIGURES :
7.1.1.If can furnish acceptable calc. based on data acceptable to the commissioner.: He can deduct the actual
cost of his business travel for the year.
7.1.2.You can say all costs to person incl. licence,maintenance,fuel,finance charges(for a max 400000car)
MULTIPLIED BY x [business km’s / {total business + Private km’s} ]
7.1.3.The value of vehicle is limited to 400 000 (2010). Depreciation must be done over 7 years per
s8.1.b.iiia. Finance charges are limited as if it had a cash cost of max 400000. For a Leased vehicle,
installments themself for the year cannot exceed the fixed cost per the standard “table” issued by
minister” on that vehicles ‘cash cost’.( I think cash cost is also limited to 400 000 here too)

7.2. USING ACTUAL BUSINESS KILOMETERS TRAVELED AND A DEEMED COST PER Km.
7.2.1.Actual km recorded for year LESS Actual private Travel = actual business travel.(proved to
satisfaction of commissioner) The travel allowance will be the actual business travel X rate per km in
table. (Note: in this case actual Km are not limited to 32000.)\

7.3. USING A DEEMED FIGURE FOR BOTH BUSINESS Km AND THE COST PER Km.
7.3.1.Rate per km is taken from the table.
7.3.2.18000 km private travel is deemed to have been used - BUT pro-rata if only used for a portion of
year/365.
7.3.3.The total km traveled (private +business= whats on the clock) is limited to 32000, pro-rata for part
of year used/365 days.
28 | P a g e Income Tax 301 INDIVIDUALS own notes.

7.3.4.More than 1 vehicle used – you must add 18000km separately PER vehicle. , and also the 32000 total
km traveled limit applies separately per vehicle – so each vehicle is calc. separately and each gets a
fresh 18000 & 32000 limit.
7.3.5.1Mar 2010 :The use of DEEMED km will FALL AWAY on 1 Mar 2010.

7.4. NOTE: 4TH POSSIBLE METHOD : If the travel for business purposes does not exceed 8000km per year, he
can deduct 292 cents per km if he so wishes. It can only be used if employee receives NO OTHER
reimbursement or travel allowance.

8. USING THE TAX TABLE FOR TRAVEL ALLOWANCES:


8.1. The Gov Gazette fixes the Tax Table every so often.(currently Year2008 no 30796 is used) applies from
1Mar2008 onwards.
8.2. Note : business km’s
8.2.1.are apportioned by months , not ever days, so it is always : 2/12 or 6/12 etc X DEEMED TOTAL km’s
minus 2/12 or 6/12 etc X DEEMED PRIVATE km’s= business km’s. So your final answer below is
multiplied by this km’s , but rem the fixed cost calc. below works on ???days, not months, rounded up??
Always???
8.2.2.Rem : for the total km’s here you always use the deemed km’s , never the actual km’s, if you are pro-
rata ‘ing it at all. This is because of the way SARS made the formula – it works like that. Even if the total
actual kms traveled is less than the Max 32000 deemed, you still ONLY use the 32000 Deemed for a pro-
rata. HOWEVER, if it is not to be pro-rata then you use the Actual if it happens to be below the 32000
limit. This is a funny thing – be careful – statistics in action.
8.3. The schedule states the rate per km will be the SUM OF THE FOLLOWING amounts together:
8.3.1.Fixed Cost: per table divided by total km travelled that year for both [business+private use] X 100 X
365/365 = ANSWER .If vehicle is used for business purposes for a period of less than 1 year the fixed
costs on the table must be reduced pro-rata/365 (not to exclude weekends or anything, but meaning if
only used for ½,or ¼ of year etc.) before it is multiplied by the km’s.Remember if they say ¾ of a year,
first X ¾ x365 to get the days out of 365, don’t just use ¾, because you may get 273,7 days and have
to round it off to 274 days- so this will give you a different answer completely to if you used ¾.(ps rem
to X answer by 100 to convert from rands to cents – otherwise your answer will be in rands for this one.
IF YOU DAYS ARE a fraction you round off upwards (or is it as normal.ie: round 0.5 and over up and
under 0.5 down???)
8.3.2.Fuel Cost : per table where recipient has borne the full cost of the fuel used.
8.3.3.Maintenance Cost : per table where recipient has borne the full cost.
8.3.4.The 3 costs above Depend on the Value of the Vehicle :
8.3.4.1.Vehicle acquired under bona-fide agreement of sale at arms length: value= amount paid
INCLUDING Vat, but EXCLUDING finance charges or interest.
8.3.4.2.Vehicle Held by recipient under a lease (as contemplated in definition of installment credit
ageement in the Vat Tax Act), or was held by him under such a lease and acquired by him after the
lease: value is:
8.3.4.2.1.Where the lessor is a banker or financier:[cost to banker + any VAT or sales tax.]
8.3.4.2.2.Where the lessor is a dealer :price normally sold for cash +sales tax +VAT.
8.3.4.2.3.Any other case : value = market value of vehicle at time + Vat +sales tax on this amount
that would have been payable at the time at old VAT rates.
29 | P a g e Income Tax 301 INDIVIDUALS own notes.
30 | P a g e Income Tax 301 INDIVIDUALS own notes.
31 | P a g e Income Tax 301 INDIVIDUALS own notes.

A. VEHICLE LEASED TO EMPLOYER BY EMPLOYEE


1. ANY VEHICLE OWNED by employee, wife or child and let out to employer :the rental& any expenditure paid to
employee is deemed to be an allowance paid to employee – you just deduct from it like you would normally
deduct business travel expenses from any allowance.
2. for purposes of act this rental income is not taxable(so any expenses of employee concerning his ‘renting out’
business deal are also not deductable-so any lease rental(paid) by employee if he is also leasing from it from
where he aquired it originally is not deductable –and must be shown as such in calc. for exam) , and the ‘Use of
Car’ is also deemed to have not have happened. But you can still deduct any ‘business usage expenses’ from any
‘Allowance paid by the employer’ for tax purposes.see example below – also see how to SHOW ALL AMOUNTS
THAT ARE RELEVANT BUT NOT DEDUCTABLE FOR TAX PURPOSES –IN THE EXAM YOU MUST SHOW THESE
FIGURES EVEN IF THEY ARE COMPLETELY EXEMPT.
3. Any lease rental(paid) by employee if he is also leasing it from someone eis not deductable
4. This subsection is designed to combat schemes to gain benefit of lower fringe benefit taxes placed on a company
car.

A. SUBSISTENCE ALLOWANCE
1. ALLOWANCE USED TO COVER CERTAIN SMALL COSTS WHILE away from home.
2. Up to a certain limit it is tax free, but anything over the limit is subject to employees tax as well as forming part
of gross income for tax purposes.
3. Must spend at least 1 night away from home in order for allowance to be tax free.
4. There are 2 ways of calculating it:
4.1. If employee pays , he can deduct any of it it from what his employer gave as an allowance,but limited to his
allowance.
4.2. If employer pays for accommodation, employee can deduct ‘incidental costs-R80’ or ‘meals &incidental costs
R260’ from his allowance. It is here that the subsistence allowance is set.
32 | P a g e Income Tax 301 INDIVIDUALS own notes.

5. There is a tax free subsistence allowance for 6 weeks, or you have moved residence, except in special cases.
6. If you have not spent or refunded the allowance by the last day of following month it is deemed normal income.
A. OTHER ALLOWANCES (INCL. ENTERTAINMENT ALLOWANCES)
B. HOLDERS OF PUBLIC OFFICE

II. TAXABLE BENEFITS DERIVED BY REASON OF EMPLOYMENT OR THE HOLDING OF ANY


OFFICE.

A. ACQUISITION OF AN ASSET AT LESS THAN ACTUAL VALUE (PARA 2A &5)


1. Para (2 a) Taxable benefit arises when employee aquire asset from
1.1. Employer
1.2. Associated institution
1.3. Any other person by arrangement with employer.
2. Exempt( 8a +b+c)
2.1. Meal/refreshments/vouchers/board/fuel/power/water per para c or d
2.2. Marketable securities
2.3. Qualifying equity shares
2.4. Equity instruments
3. Benefit is difference in value between benefit & amount paid by employee for asset, however he paid.
4. Cash equivant :
4.1. Market value at time assets acquired by employee
4.2. Cost to employer if assets is movable property which was acquired by employer to give to employee (other
than financial instruments or any asset employer had the use of before acquiring it to give to worker)
4.3. Lower of cost or market value if assets is trading stock of employee.

A. BRAVERY AND LONG SERVICE AWARDS


1. The value of the benefit is 1-market value or 2-cost to employer of acquiring asset whichever is appropriate,
reduced by the lesser of R5000 or the aggregate cost of all such awards EXCL.VAT given to the employee during
the year.(so for the first award that year it is the lesser of award value or 5000.)
2. Cannot go below zero- you don’t add a negative to the gross income.
3. Long service is defined : as initial unbroken service of 15 years
3.1. After that 10 years each time
33 | P a g e Income Tax 301 INDIVIDUALS own notes.

A. RIGHT OF USE OF MOTOR VEHICLE


1. The private use of an employers car by an employee (even if he uses it for business in the day and private at
night)is a taxable benefit.
2. The monthly value of benefit is 2,5 % of value of car ,also Pro-Rata in half months, less any consideration
PAID by the employee to the employer for it.
2.1. If more than 1 vehicle was used then the vehicle with the highest value is the one you use to calc. unless
commissioner directs otherwise.
2.2. If more than 1 vehicle is used at the same time(eg spouse&employee) then it is 2.5% of highest value
vehicle and 4% of each next vehicle.
3. Value of car(here vat is excl. but vat is incl. in travel allowance table)
3.1. At cost excl. vat & finance charges.
3.2. Or if car has no cost then at market value excl.vat when employer first obtained the right of use.The calc. is
the same if it is leased or under installment credit agreement or if bought at below market value.
3.3. For each year 12 mnths between employer vehicle or gained right of it TILL the employee got it, the value
must be reduced by 15 % p/a reducing balance method.-eg if taken from one employee and given to
another.
3.4. The depreciation allowance is NOT claimable if employer got it from an associated institution and prior to that
the employee also enjoyed its right of use.
4. Where the employer is a Vat vendor he must account for the output tax on the fringe benefit given to
employee.
5. Use of motor vehicle + a travel allowance: if he gets a travel allowance as well, employee may not deduct
the contribution he makes to employer for use of vehicle, from the deemed fringe benefit-ie 2.5 % of value thing-
(if he pays in- it is not counted for this , but maybe counted in formula to calc. amount he can deduct from his
allowance for business use –see next line below)- to stop some racket.
6. TRAVEL ALLOWANCE :
6.1. DEDUCTIONS FOR BUSINESS USE: employee may deduct from an allowance he receives for business
use [business km/actual km] x his lease cost he actually pays to the employer for the use ]
7. Temporary breaks in private use : para 7.5 says the value of private use will not be reduced by temporary
breaks.
8. Accurate records- below 10000km : commissioner may reduce value placed on private use if accurate records
are kept and it is below 10000km or pro rata 10000km. BY : [{standard calculation using 2.5% thing} X actual
private km’s / 10 000] so it just reduces what he would normally pay by the “fraction” shown.
34 | P a g e Income Tax 301 INDIVIDUALS own notes.

9. Vehicle leased by employee to employer : the price the employer pays him is seen as an allowance – so you
just treat it as an allowance and do the usual business travel deductions.
10. MAINTENANCE & FUEL COSTS: this can be deducted even if car is NOT used for any business purposes
10.1.If worker pays for fuel & maintenance the “value for private use 2.5% figure” you use in the calc. to
determine the deemed fringe benefit per month can be reduced by :
10.1.1.FUEL : 0.22%
10.1.2.MAINTENANCE: 0.18%
10.1.3.Eg : 2.5% -0.18% -0.22%= 2.1% is what to use if both are paid for by worker.
10.1.4.BUT : if worker has to pay licence, insurance or any other costs incl fuel(say he also gets an allowance
so does not qualify for the o.22%&0.18% deductions) then he may deduct it from his taxable benefit-but
then it is not allowed to be deducted anywhere else in any provision of this act anymore.
11.POOL CARS : NO VALUE :
11.1. Para7.10 states a pool car will have no taxable value if used for business purposes only or if for business
purposes after hours and then he had to travel from work to his residence with it after that.
11.2.Private use must be infrequent – many workers must use the car –not kept at residence of employee outside
business hours- if it happens often as stated above it is still ok-
35 | P a g e Income Tax 301 INDIVIDUALS own notes.
36 | P a g e Income Tax 301 INDIVIDUALS own notes.

A. LOW INTEREST LOANS


1. Where loan granted to employee at a lower interest rate than the official rate ,by
1.1.1.employer
1.1.2.any other person by arrangement with employer
1.1.3.any associated institution in relation to the employer
1.2. THEN the difference is treated as a taxable fringe benefit.
1.3. The Official Rates are published from time to time by the minister.
1.4.Excluded:
1.4.1.Loans in terms of a broad based employee share plan subject to sec 8b
1.4.2.Subsidised loans which fall into para 2 ga are also excluded.

A. SUBSIDIES
1. Per para 2ga, a benefit arises if employer paid a subsidy in respect of capital OR interest on any loan of employee
2. There are 2 possibilities:
2.1. If amount paid by employer + interest paid by employee is LESS than official interest rate applied to loan:
then it is treated as a low interest loan for tax purposes- so minus the % the employer pays from the
employees full bond % rate , and that is how much interest must be added to the employees ‘gross taxable
income’ – ie what the employer pays + [difference to official interest rate from bond rate]
37 | P a g e Income Tax 301 INDIVIDUALS own notes.

2.2. If amount paid by employer + interest paid by employee is GREATER than official interest rate applied to
loan: the full amount paid by employer is treated as a taxable subsidy

A. MEDICAL AID CONTRIBUTIONS


1. 1Mar 2011 : from then the full amount contributed by employer is taxable as a fringe benefit in hands of
employee. The employee will then treat the amount of fringe benefit as a contribution he makes to a medical
fund.
2. For before this date :
2.1. The amount by which any contributions to a med aid by employer exceeds following, is taxable so add to
gross income:
2.1.1. 625 employee no dependants OR
2.1.2. 1250 employee with 1 dependant
2.1.3. 380 for each additional dependant
3. If the exact amount cannot be determined it is worked out as : total paid by employer / no of employees,
regardless of no. of dependants.
4. No Value :
4.1. Final paragraph of para 12 a, contains exclusions: no value is placed on taxable benefit derived from an
employer for:
4.1.1.Person who retired due to superannuation, ill health, other infirmity.
4.1.2.Dependants of an employee who was employed at date of death
4.1.3.Dependants of a deceased retired employee.
4.1.4.Person over age 65

A. SPECIAL UNIFORMS EXEMPTION


1. Provided the uniform is clearly distinguishable from ordinary clothing, any ‘allowance’ or uniform itself , given by
employer to employee is exempt –provided it is reasonable.
38 | P a g e Income Tax 301 INDIVIDUALS own notes.
39 | P a g e Income Tax 301 INDIVIDUALS own notes.

CHAPTER 9: PARTNERSHIPS
I. INTRODUCTION:
1. A partnership is a legal relationship arising from an agreement between 2 or more persons.
2. SA has no partnership act, a partnership is formed under Roman Dutch common law.
3. Joint venture is a TYPE of partnership. It need not be a partnership however, it can be for the benefit of it’s
shareholders.
4. This chapter only deals with actual partnerships : of companies, trusts or individuals-nothing else
5. The essentials of the contract are :
5.1. Each partner makes a contribution eg assets, money,labour,skill
5.2. Carried on for the benefit/profit of the partners
5.3. The partners must share in the profit or losses of the venture
5.4. The partnership contract must be legitimate.

1. ANY PROPERTY:
1. of the partnership does not belong to the individual members but is held by them as partners in joint and
UNDIVIDED shares in the partnership.
1.1. Any property is transferred by a partner to the partnership is transferred by ‘constitutum possessorium’
which is transfer of ownership as a result of a contractual change of intention on the part of the partner
bringing the property into the partnership.If he retains physical control over it he effectively controls the
property as principle(partner) and as agent for his partners. (similar to law of agency)
1.1.1.Exeption :Immovable property only vests in the partnership by formal registration and when registered
in name of partnership- else it is still in name of individual.
1.1.2.Exeption :Intangible property ( rights) only vest in the partnership by actual cession.

1. TYPES OF PARTNERSHIP:
1.1. Ordinary : all the partners are jointly and severally liable for all the obligations incurred by any partner
acting within his powers in the course of the business enterprise.
1.2. Extraordinary: there are 2 types :
1.2.1.En Commandite: only one partner is “Disclosed” the business is carried on in his name only, the
others merely invest and their loss is restricted to their investment. (in the past livestock & film tax
planning schemes) The NO-Disclosed partners are seemingly?? called the ‘en commandite’ partners.
1.2.2.Anonymous: The same as above , exept the Undisclosed partners are also liable for any losses.

1. FUNNY THINGS:
1.1. A partner cannot be an employee as he is a principle(salary is a “share of the profits”)
1.2. A partner cannot sue the partnership or visa-versa, he basicly only sues the other partners(law is unclear)
1.3. A partner cannot contract with, be a debtor or creditor to a partnership – it is more with his partners.(law is
unclear though)

1. FAMILY PARTNERSHIPS:

1. The onus is on the taxpayer to prove that (and how) a family partnership exists, thus it is recommended that:
1.1. The partnership agreement/contract is in writing
1.2. Separate bank account in name of partnership
1.3. Assets transferred to name of partnership
1.4. Proper books and accounts be kept for partnership
1.5. Each partner brings something into partnership – money/labour/skills)
2. Advantage of partnership is that S7(3) does not apply between parent & child. If there is no donation,settlement
or similar disposition between the 2. The child can work for an increasing share in partnership –if he worked for
it- instead of S7.5.
2.1. Note: Capital Gains Tax : ‘value –shifting arrangement’ : if a person interest in the partnership increases,
while the other’s decrease, due to a change in their rights, it is seen as a ‘value –shifting arrangement’ for
“capital gains purposes” –IF IT WAS NOT MADE FOR A MARKET-RELATED CONSIDERATION.
40 | P a g e Income Tax 301 INDIVIDUALS own notes.

2.2. Husband & Wife : per S7.2 , Income accruing to either if in partnership with each other, will not be deemed
to be their spouses as long any portion is considered excessive, if a portion is excessive it will then be taxed
in the other spouses name.

I. TAXATION OF A PARTNERSHIP:

1. 3 SECTIONS IN THE ACT DEAL WITH PARTNERSHIPS :

S66.15) Persons carrying on any business in partnership shall make a joint return as partners in
respect of such business, together with such particulars as may from time to time be prescribed, and each
partner shall be separately and individually liable for the rendering of the joint return.

S77.(7) Separate assessments shall, notwithstanding the provisions of subsection (15) of section sixtysix,
be made upon partners.

S24H Persons carrying on trade or business in partnership


Cases
(1) For the purposes of this section, 'limited partner' means any member of a partnership en
commandite, an anonymous partnership or any similar partnership, if such member's liability towards a
creditor of the partnership is limited to the amount which he has contributed or undertaken to contribute to
the partnership or is in any other way limited.

(2) Where any trade or business is carried on in partnership, each member of such partnership
shall, notwithstanding the fact that he may be a limited partner, be deemed for the purposes of this Act to
be carrying on such trade or business.

(3) Notwithstanding anything to the contrary in this Act contained, the amount of any allowance
or deduction which may be granted to any taxpayer under any provision of this Act in respect of or in
connection with any trade or business carried on by him in a partnership in relation to which he is a limited
partner shall not in the aggregate exceed the sum of-
(a) the amount, whether it consists of the taxpayer's contribution to the partnership or of any
other amount, for which the taxpayer is or may be held liable to any creditor of the
partnership; and
(b) any income received by or accrued to the taxpayer from such trade or business.
[Sub-s. (3) amended by s. 26 of Act 74 of 2002.]
(4) Any allowance or deduction which has been disallowed under the provisions of subsection (3)
shall be carried forward and be deemed to be an allowance or deduction to which the taxpayer is entitled in
the succeeding year of assessment.

(5) (a) Where any income has in common been received by or accrued to the members of any
partnership, a portion (determined in accordance with any agreement between such members as to the ratio
in which the profits or loses of the partnership are to be shared) of such income shall, notwithstanding
anything to the contrary contained in any law or the relevant agreement of partnership, be deemed to have
been received by or to have accrued to each such member individually on the date upon which such income
was received by or accrued to them in common.
(b) Where a portion of any income is under the provisions of paragraph (a) deemed to have been
received by or to have accrued to a taxpayer, a portion (determined as aforesaid) of any deduction or
allowance which may be granted under the provisions of this Act in the determination of the taxable
income derived from such income shall be granted in the determination of the taxpayer's taxable income so
derived.
[S. 24H inserted by s. 21 of Act 90 of 1988.]

S11(m) : 11 General deductions allowed in determination of taxable income ( very unclear –who can deduct here : the taxpayer or
the employee/partner who received it)
Cases
For the purpose of determining the taxable income derived by any person from carrying on any trade , there shall be allowed as deductions from the
income of such person so derived-
6.1. any amount paid by way of annuity during the year of assessment by any taxpayer-
(i) to a former employee who has retired from the taxpayer's employ on grounds of
old age, ill health or infirmity; or
41 | P a g e Income Tax 301 INDIVIDUALS own notes.

(ii) to a person who was for a period of at least five years a partner in an undert aking carried on by the taxpayer and who retired
from the partnership in respect of that undertaking on grounds of old age, ill health or infirmity, provided that the
amount so paid to such person is reasonable, having regard to the services rendered by such person as a partner in such
undertaking prior to his retirement and the profits made in such undertaking, and that the said amount does not represent
consideration payable to such person in respect of his interest in the partnership; or
[Sub-para. (ii) substituted by s. 9 (1) (f) of Act 113 of 1993.]
(iii) to any person who is dependent for his maintenance upon a former employee or a
former partner in an undertaking carried on by the taxpayer or (where such former
employee or former partner is deceased) was so dependent immediately prior to
his death:
Provided that the deduction under subparagraph (iii) shall not exceed in respect of the
persons so dependent on any one retired or deceased employee or former partner, the sum of R2 500;

1. LIMITED PARTNERS
1. For the purposes of this section, 'limited partner' means any member of a partnership en commandite, an anonymous partnership or any similar
partnership, if such member's liability towards a creditor of the partnership is limited to the amount which he has contributed or undertaken to
contribute to the partnership or is in any other way limited.
2. S24H RESTRICTS any deduction or allowance a limted partner may claim to a& b below. (contribution/income received/or amount liable to
creditors)
2.1. Any normal deduction that is not allowed/stopped because of this rule may be carried forward to the next year.
2.2. S24 H (3) : copied vertabim : Notwithstanding anything to the contrary in this Act contained, the amount of any allowance
or deduction which may be granted to any taxpayer under any provision of this Act in respect of or in
connection with any trade or business carried on by him in a partnership in relation to which he is a limited
partner shall not in the aggregate exceed the sum of-
(a) the amount, whether it consists of the taxpayer's contribution to the partnership or of any
other amount, for which the taxpayer is or may be held liable to any creditor of the
partnership; and
(b) any income received by or accrued to the taxpayer from such trade or business.
[Sub-s. (3) amended by s. 26 of Act 74 of 2002.]

1. ACCRUAL
1. THE PURPOSE OF THIS IS TO OVERRIDE case of sacks vs CIR, about if his profit only accrued to him at the end
of the year.
2. S24H ( 5) [see above] says basicly : any revenue accruing to partnership accrues direct to partners on same date
in their profit sharing ratio, as well as related expenses, and any allowances or deductions related to this revenue
from SARS.
3. Any practical difficulties this creates may be overcome by making the year end of the partners the same as the
year end of the partnership.

1. YEAR END OF PARTNERSHIP


1. After introduction of s24H.5, SARS changed rules so that , if a company has a year end on 31 june, and
partner does his tax year end on 28 Feb, then partner is liable for personal tax for his share of all income less
expenses earned by partnership up to 28 feb , ie half way through entities year but at the end of his personal tax
year.- as long as the partnership accounts for profit annually and not other times??? What if monthly? Before
SARS changed this the tax on the net income of partnership at its year end would only have had to have been
paid by each partner on 28 feb of following year – ie at their first tax date in the future – meaning the net income
from business was only ‘accrued’ to them at year end of entity,after it was all worked out.
2. It seems that the partners may still continue in the same old way if they get permission from sars, but then the
previous years rates& rebates must be used, and not the current years one’s – I think for only that portion which
fell into the previous years tax assessment of the partners themselves + the part which fell into the current years
tax assessment of the partners after feb 28 must use that years RATES & REBATES . . , but maybe both portions
should be done at last years rate&rebates , not sure.!!
3. A taxpayer,incl. (individual, partnership of individuals, or trust) may apply to commissioner to submit a return for
a date other than the end of February, for less or more than 12 mnths, if there is a problem with??what? different
year ends?? Or what??) determining income etc from a specified matter during the normal period .A person with
different sources of income may apply for different dates for each source of income – ???is it to change the date
of fin year end and assessment, or to something else???
4. There are various conditions set out periodicly by the commisionser relating to this – see Interpretation note 19
of 5 Aug 2003.
4.1. Incl : however the extended /shortened period still gets treated at tax rates&rebates of what would have
been the normal year end feb 28, and …..from September back to feb and after September forward to feb.
42 | P a g e Income Tax 301 INDIVIDUALS own notes.

4.2. He must still submit a return for Feb 28 as usual.

I. CONNECTED PERSONS.
1. The act defines a connected person, for the purposes of certain anti-avoidance measures in the act.
2. Definition of connected person :
2.1. For Income tax act: means any other member of partnership or any other person connected to these
members eg: family. BUT not the partnership itself, just the partners- because it is seen as not a legal
person.
3. Vat tax act : same as above exept the ‘partnership’ is also seen as a ‘connected person’ (it pays vat)

I. NOTES
1. Method:
1.1. You do the Exam Calculation in 2 steps : first you do the 1-Entity then transfer all profits to the partners ,
then you do each of the 2-Partners individually.
1.2. Each full Step ends with : ‘TAXABLE INCOME” of whatever it was.
1.3. For partners in step 2, you add in (deductable ) interest income, then deduct it again as a
deductable(deductable to 21000) .-don’t just leave it out if below 21000!
1.4. Also write ‘ drawings’ as a heading and then a dash/zero – don’t just ignore it for marks
1.5. Also if you minus 21000 from 16000 for interest exempt – you write 16000-16000 for points,
1.5.1.STEP 1 :You deduct all salaries paid to partners + interest paid to partners along with all other normal
expenses from the total revenue of partnership to get the total profit to be divided between partners –
AS IF THEY COULD CONTRACT WITH PARTNERSHIP. So any expense from contracting/transactions with
partners which would normally be deductable if it were an outside party who contracted/transacted with
the Entity, is still deducted in this frist calculation (to get all the profit sharing ratios correct)
1.5.2.STEP 2 :In second calculation for each individual partner, you add back the salaries + interest charged
to Entity + any other income gained from Entity, to the INCOME each partner RECEIVES from ENTITY
and is now liable to PAY TAX ON. All this income is treated as profit from the received by partner ,
because a partner cannot REALLY contract with his own partnership. (himself)
2. The source of partnership profits is located where the services of each partner are rendered.
3. Partners are taxed on their profits earned, irrespective of their drawings
4. When a new partner is admitted, or resigns, or dies or retires, the old partnership comes to an end and a new
one comes into existence.
5. If partner sells his goodwill it is of a capital nature- as lump sum or as installments.
5.1. If paid by annuity, seller is taxed in terms of paragraph (a) of gross income definition, but purchaser gets no
deduction for the annuity because it is of a capital nature ( asset for an asset exchange)
5.2. S11m provides for a deduction (by all the partnerships individual taxpayers)of annuities paid to former
partners (by the partnership) if following conditions:

S11(m) : 11 General deductions allowed in determination of taxable income ( very unclear –who can deduct here : the taxpayer or the
employee/partner who received it)
Cases
For the purpose of determining the taxable income derived by any person from carrying on any trade , there shall be allowed as deductions from the
income of such person so derived-
6.1. any amount paid by way of annuity during the year of assessment by any taxpayer-
(i) to a former employee who has retired from the taxpayer's employ on grounds of
old age, ill health or infirmity; or
(ii) to a person who was for a period of at least five years a partner in an undert aking carried on by the taxpayer and who retired
from the partnership in respect of that undertaking on grounds of old age, ill health or infirmity, provided that the
amount so paid to such person is reasonable, having regard to the services rendered by such person as a partner in such
undertaking prior to his retirement and the profits made in such undertaking, and that the said amount does not represent
consideration payable to such person in respect of his interest in the partnership; or
[Sub-para. (ii) substituted by s. 9 (1) (f) of Act 113 of 1993.]
(iii) to any person who is dependent for his maintenance upon a former employee or a
former partner in an undertaking carried on by the taxpayer or (where such former
employee or former partner is deceased) was so dependent immediately prior to
his death:
Provided that the deduction under subparagraph (iii) shall not exceed in respect of the
persons so dependent on any one retired or deceased employee or former partner, the sum of R2 500;
43 | P a g e Income Tax 301 INDIVIDUALS own notes.

7. Paragraphs (d) [termination gratuities] and (i) [fringe benefits] cannot apply to partners because they are
neither employees NOR holders of an office , of the partnership.
8. Bad Debts : If a debt goes bad the S11(i) deduction is only available to those partners who originally had the
sale giving rise to the debt included in their income.
8.1. The share deductable of the bad debt is IN THE NEW PROFIT SHARING RATIO, NOT the old one. Because the
share of the loss bourne by the old partners is reduced by the new partners share in the loss. (So there will
always be some of the original bad debt missing in the claim-the share now bourne the the new partner.)
9. Insurance policies on the life of partners paid by the partnership :
9.1.1.Goodwill deceased estate policy : cannot be claimed as a deduction because in terms of S11(w) because
it only applies to policies in terms of employees. – BUT this only applies to premiums for joint life policies
in respect of payments for goodwill to deceased estates –
9.1.2.Normal life policy partners own benefit :SARS does allow deductions for these policies by the
partnership, but the premium is then treated as a partners share of the profits and taxable in his hands.
10. VAT : a change in the composition of partnership does not affect VAT status of business as long as any member
still carries on with the partnership business.It continues under the VAT registration number of old partnership.
11. Pension funds/Retirement : If a new member of a PARTNERSHIP was part of a Pension Fund before he joined
the new partnership :
11.1.His contributions are limited to 7.5% of his salary in the 12 mnths preceding date he became a partner.
11.2.Definition of retirement funding employment provides that it is restricted to his share of the profits/
salary/etc that does not exceed his pensionable emoluments in the 12 mnths prior to becoming a partner.
11.3.So the limit as per S 11(k) is the greatest of 1750 or 7.5% of earnings as explained above.
11.4.P.S. for the purposes of computing the tax free portion of a lump sum from a pension fund , formula A of
the second schedule deems the highest annual average salary of a partner to be his pensionable
employments in the 12 mnths prior to becoming a partner (where this fits in here I don’t know- maybe see
later)

I. CAPITAL GAINS TAX


1. Not done – we do capital gains tax later. But see pg237 about how you divide it up, after you understand capital
gains tax.
2.

I. VAT

A. GENERAL –PARTNERSHIP VAT SEC 51.(1) of VAT ACT


1. SEC 51.(1) of VAT ACT .: A PARTNERSHIP REGISTERS IN its own name for vat purposes and is issued with a vat
registration
number.
2. A CHANGE IN THE COMPOSITION OF PARTNERSHIP does not affect VAT status of business as long as any
member still carries on with the partnership business.It continues under the VAT registration number of old
partnership.
3. S51.3 - All partners exept ‘en commandite’ partners are jointly & severally liable to pay Vat due to SARS
4. Distributions to partners are NOT subject to VAT –it has already been charged on sales/purchases etc.
5. Fixed Property:
5.1. If it is in name of partnership and if sold by partnership vat must be charged to buyer.(if registered for
VAT)
5.2. No transfer duty is however payable (so its exempt) on same property sold if vat is charged.(whether
transfer is zero rated or standard rated)
5.3. S14.4 Vat Act : If a partner transfers property to partnership for its use, but even still keeping it
registered in his own name, any VAT paid by partner himself previously when he bought the property, is
reclaimable as Vat input by the partnership in the period of the ‘transfer’. (what if he already claimed input
vat on it when he bought it?)
5.3.1.SEC 10.4 Vat Act : if a partner takes asset out of partnership, and he would not have been able to
claim Vat on the asset if he had bought it – The asset is DEEMED to have been sold at MARKET VALUE to
partner and partnership must account for /pay output vat to the SARS. : BECAUSE the partner is a
connected person in relation to the partnership. –avoidance measure.???If he would have been able to
claim input vat on it if he had bought it then partnership would not be liable for output vat on it Yes or
44 | P a g e Income Tax 301 INDIVIDUALS own notes.

No -make this part of note if yes-?? Why?? What if he did not claim input vat when he originally bought
it?? ???It seems if he could have claimed vat input then entity does not have to account for output
vat???? Pg 240 last para.
5.4. However : IF A PARTNER sells his share of a partnership to another partner, and the company owns
land, then the seller must pay the BUYER (note : not buyer pays seller) transfer duty. This must happen even
if the partnership itself is a Vat vendor, because it is not the partnership selling the shares , it is the old
partner selling to the new partner. So , because NO VAT was charged on the sale of the shares, transfer duty
equal to the pro-rata portion of the Fixed Property Value per the number of shares sold, is charged by buyer
to seller of the shares in the partnership.(???must the seller pay the buyer transfer duty on property value
only, or also on value of car, desks and goodwill.2-is it sellerpay buyer or not? 3- if the seller was personally
registered for vat, must he charge buyer vat and thus get exemption –is vat charged on sale of shares or
only on value of property included in the share value????)

A. RENTAL POOL SCHEMES:


1. A PARTNERSHIP IS NOT A RENTAL POOL SCHEME : SEC 52.2
2. A rental pool scheme is if many owners all rent out their flats as a company thing, and then they each get a set
amount of the total profit of all each month per a formula.
3. Sec 52.2 Vat Act deems a rental pool scheme to be a separate enterprise from the owners of the units, so it can
register separately as a vendor , similar to a partnership is separate from its members. This provision only applies
to:
3.1. Owners of a time sharing interest.
3.2. Of sectional title interest.
3.3. Shareholders in a share block.
45 | P a g e Income Tax 301 INDIVIDUALS own notes.

CHAPTER 21 RETIREMENT BENEFITS &


PLANNING

I. GENERAL :
1. You get 1-annuities(yearly payments) - which are normally taxed in full and 2-lump sum payments which are
subject to various deductions etc.
2. Sections in act relevant : see text book.
2.1. Gross income definition
2.2. Sec 7a.4a , 5.10 : rating formula
2.3. Sec 10.1.x which exempts first 30000
2.4. Sec 11 k & n deductions for deductions for pension & retirement annuity funds contributions
2.5. Second schedule : tax treatment of lump sums from pension,pension preservation, provident, provident
preservation, retirement annuity funds.

I. THE TAXATION OF AMOUNTS RECEIVED AS A RESULT OF RETIREMENT

A. ANNUTIES :from employer direct


1. Resident of S.A.: Annuities are taxed in full in the hands of a resident
1.1. IT SEEMS (from employer direct pg 600&606) is this EXEMPT : Any pension direct from employer not pension
fund from source outside SA in consideration of employment outside SA, not deemed to be from a source in
SA per S.9.1.g. , is it exempt or not – or just for pension funds only?
1. Non-Resident of S.A. : Annuities are taxed only if they come from a S.A. source.
1.1. The fact that they may be of a “capital” nature is irrelevant because OF THE OVERRIDING EFFECT OF
PARA(9A) OF GROSS INCOME DEFINITION.
2. If annuity is paid by employer or former employer – it may be deductable in the employers tax computation. [per
s11m which allows as a deduction all annuities paid to former employees & partners & dependants of them.(see
ch 6) – under certain circumstances.Note :This is different to the deduction allowed for employers for paying
lump sums- that is S 11a , not S11m.

A. LUMP SUMS ON TERMINATION OF SERVICE: from employer direct


1. Any termination of service lump sum falls into gross income in terms of para c or d of definition of gross income
2. If the lump sum is received due to 1 ill health 2- infirmity 3- or superannuation(too old for job) it is taxed subject
to 10.1.x , 7a.4a and 5.10

1. TAX IMPLICATIONS FOR THE EMPLOYEE

a) SEC 10.1.X : THE 30 000 EXEMPTION


1. R30 000 may be deducted from any lump sum received from employer on termination of service EXCEPT lump sums from pension, pension
preservation, provident or provident preservation or retirement annuity funds. [and the s5.10 rating formula below only applies after the
30000 is deducted ]
2. To get the deduction of 30000 the lump sum must be due to :
3. the termination or because of the impending termination of the services required to be rendered by him as the holder of any office or
relinquishment, termination, loss, repudiation, cancellation or variation of his office or employment or in respect of his appointment (or right or
claim to be appointed) to any office or employment MUST BE DUE TO :
3.1.1. such person has attained the age of 55 years; or
3.1.2. to superannuation, ill-health or infirmity
3.1.3.business ceased to carry on or intending to cease carrying on the business
3.1.4. becoming redundant in consequence of his employer having effected a reduction in personnel
3.2. EXCEPTION : as long as such person was not
3.2.1.at any time a director of such company and
46 | P a g e Income Tax 301 INDIVIDUALS own notes.

3.2.2.did not at any time hold more than five per cent of the issued share capital or members' interest in such company.

a) SEC 7A(4A) LUMP SUM FROM EMPLOYER

1. The RATING FORMULA of sec5.10 below must be applied where taxable income includes:
1.1.1.Similar to above provisions exept :
1.1.1.1.Director OR >5% shareholder clauses do not apply here at all though

a) SEC 5.10 RATING FORMULA


1. The RATING FORMULA : s5.10 applies to:
1.1. Any lump sum contemplated in sec7a.4a
1.2. AND Excess plantation OR sugar cane OR farming income OR special remuneration received by a
mineworker.
2. This RATING FORMULA is used basically to reduce the tax effect of extraordinary amounts received. Basically
what it eventually does is bring down the tax bracket from a high one (the one you would have landed in for the
lump sum) to your normal one (you usually pay), in a complicated way.
3.

3.1. Y = the amount of tax to be paid for these amounts


3.2. L= lump Sum (always used “after” the 30 000 deduction – except if the 3 year salary rule applies, then not
If the last 3 years starting BEFORE this year(not incl.this year) added up is less than the lump sum then use
that instead in formula- but only in the formula, nowhere else. everywhere else it is the same as before ie
the first calc. you do to get the basic setup worked out you use the actual lump sum less possible 30000 –
see example.
3.3. A= NORMAL tax “BEFORE REBATES” : you work out B+D –(C+L) and check the tax tables for the tax rate-
then work out tax from that rate. (rebate does not mean the 30000, or pension deductions etc, it refers to
the final rebate allowed ie : (before Primary&Secondary:5400 & 9756)
3.4. B= total taxable income for the year (less retirement fund lump sum benefit/withdrawal benefit (incl. lump
sum net any possible 30000 deduction from lump sum though- unless it is the 3x year salary thing)
Remember convert salary and all deductions to YEARLY figures, not monthly figures.!!! (if given as monthly
figures in test)
3.5. D= Any deductions claimed solely in respect of RAF contributions which arose solely by reason of the
inclusion of the lump sum benefit = L ( less possible 30 000) from employer so =[lump sum - less possible
30000] x 15%
3.6. C = sum of ANY plantation,sugar cane,farming,special miner wages
3.7. G= amount of any capital gains incl. in taxable income
3.8. R= this gives you a tax rate % as an answer
3.8.1.R must get calc. for both the current year and the last year , and only the GREATER amount (higher
tax rate) must be used.
3.8.2.The rate of tax ‘R’ is calculated on taxable income less capital gains.( ie minus (G) )
3.8.3. in the R formula : F= (similar to A but includes G) : ie: B+D - (C+L+G) : to get F you take the sum of
B+D –(C+L+G) and find the tax rate on the tax table for this – so you work it out from there.( rem : last
years tax rate must come from last years tax tables)
47 | P a g e Income Tax 301 INDIVIDUALS own notes.

3.8.4.If they just give you last years tax rate as R was = 21% etc : just use this figure for last year, you don’t
have to work it out again for last years L+G etc etc.
4. NOTES :
4.1. METHOD :
4.1.1. it seems you must first do a long basic sum to get the basic figures before you work out each A,B,etc.
REM: to add in the full interest and then deduct the amount of interest exepted(21000). Do this with all
deductions. ALSO : add in the ‘retirement fund lump sum” and then get your final sum =total taxable
income. Then deduct it again to get “taxable income excl. retirement fund lump sum benefit”-this was
wrongly included in “B” in the ACT but the book says to treat it like this - excluded. This add and minus
out story is just to show calculations for marks.
4.1.2.After this you work out each letter separately : ie A,B,C etc. and fill in final formula.
4.2. The tax rate finally arrived at from formula CANNOT BE LOWER THAN the lowest current tax rate = currently
18% (you must work this out after you get the answer, to see if your answer is not lower)
4.3. RAF deduction : When you work out “B” : The total RAF deduction allowed is limited to : the greater of
either : -1- 1750 or -2- [3500-deductable pension contributions] or -3- 15% of taxable income from non-
pensionable income(????or non-retirement funding income????)before deducting MedAid +MedExpense +TaxDeductDonations
+certain farming expenses. = “interest income AFTER 21000 deduction” + “lump sum after 30000 deduction”
+pension/other annuity :BUT not capital gains and not salary and not pension fund lump sum . Also any
disallowed portion from this year can be carried over to following year.( for the next 100 years until it
disappears or just 1 year ahead?)
4.3.1.Note though: When you work out RAF deduction for “D” however leaves out any ‘interest income’
or anything except L=lump sum. So the RAF deduction used to work out “B” will be different to the RAF
deduction used to work out “D”, because “D” only uses the lump sum less possible 30000.
4.4. R : below is a tax rate % , and must be worked out for current as well as last year. The greater of the 2 is
used. ALLWAYS USE 2 DECIMALS eg 19.35 % not 19.4 %
4.5. There is a provision in 5.10.f.i.bb that makes lump sums cumulative – so the previous years must be
included ( ?don’t understand this?)
4.6. L= lump sum: is limited to lesser of
4.6.1.1.EITHER : 3x average annual salary BEFORE begin of year lump sum is received.
4.6.1.2.OR [lump sum minus any applicable deduction of 30 000]
4.6.2. If you must use this 3X formula instead of actual lump sum, then you do NOT subtract the 30 000
from it first before it goes in formula – the 30000 falls away.
4.6.3.L=lump sum is the total after you have deducted the 30 000 deduction as per SEC 10.1.x.
4.7. TAX REBATE :always remember to deduct the normal Tax Rebate ( Primary&Secondary:5400 & 9756) from
your final answer!!!
48 | P a g e Income Tax 301 INDIVIDUALS own notes.

1. TAX IMPLICATIONS FOR THE EMPLOYER


1. Deduction NOT allowed unless:
1.1. It is written in the service contract of employee
1.2. It acts as an incentive to other staff (it must be PART OF company policy )
1.3. If it is for good service it is not allowed, ie: on the whole basicly if it is not an expense incurred in generating
income, it is not allowed.

FORMULA AS PER INCOME TAX ACT (2010 update):

(10) Where any taxpayer's income includes any special remuneration, or where the provisions of
section 7A (4A) or paragraph 15 (3) or 17 or 19 (1) of the First Schedule or paragraph 7 of the Second
Schedule are applicable in the case of the taxpayer in respect of any year of assessment, the normal tax
payable by the taxpayer in respect of such year (as determined before the deduction of any rebate) shall be
determined in accordance with the formulain
which formula-
(a) 'Y' represents the amount of normal tax to be determined;
(b) 'A' represents the amount of normal tax (as determined before the deduction of any
rebate) calculated at the full rate of tax chargeable for the said year in respect of a taxable
income equal to the amount represented by the expression 'B + D - (C + L)' in the
formula;
[Para. (b) substituted by s. 4 (b) of Act 91 of 1982, by s. 3 of Act 65 of 1986 and by s. 5 (b) of Act 21 of
1994, amended by s. 4 (b) of Act 21 of 1995 and substituted by s. 7 (1) (b) of Act 5 of 2001.]
(c) 'B' represents the taxpayer's taxable income for the said year;
(d) 'C' represents an amount equal to the sum of-
(i) the amount of any special remuneration (as defined in subsection (9)) which is
included in the taxpayer's income for the said year.
(iA) ......
49 | P a g e Income Tax 301 INDIVIDUALS own notes.

[Sub-para. (iA) inserted by s. 4 (b) of Act 96 of 1981, substituted by s. 4 (c) of Act 91 of 1982, amended by
s. 3 (c) of Act 94 of 1983, substituted by s. 4 (c) of Act 21 of 1995 and deleted by s. 7 (1) (c) of Act 5 of
2001.]
(ii) where the provisions of paragraph 15 (3) of the First Schedule are in the case of
the taxpayer applicable in respect of the said year, an amount determined in
accordance with those provisions as being the amount, if any, by which the
taxable income derived by the taxpayer during the said year from the disposal of
plantations and forest produce exceeds the annual average taxable income derived
by him from that source over the three years of assessment immediately preceding
the said year;
(iii) where the provisions of paragraph 17 of the First Schedule are in the case of the
taxpayer applicable in respect of the said year, an amount equal to so much of the
taxable income of the taxpayer for such year as has been derived from the disposal
of sugar cane as a result of fire in his cane fields and but for such fire would not
have been derived by him in that year;
[Sub-para. (iii) substituted by s. 3 (b) of Act 129 of 1991.]
(iiiA) where the provisions of subparagraph (1) of paragraph 19 of the First Schedule are
in the case of the taxpayer applicable in respect of the said year, the amount by
which his taxable income derived from farming for that year exceeds his average
taxable income from farming as determined in relation to that year in accordance
with subparagraph (2) of the said paragraph; and
[Sub-para. (iiiA) inserted by s. 3 (d) of Act 94 of 1983.]
(iv) ......
[Sub-para. (iv) substituted by s. 4 (e) of Act 21 of 1995 and deleted by s. 7 (1) (c) of Act 5 of 2001.]
(v) ......
[Sub-para. (v) deleted by s. 5 (c) of Act 21 of 1994.]
43
(e) 'D' represents an amount equal to so much of any current contribution to a retirement
annuity fund as is allowable as a deduction in terms of section 11 (n) (aa) (A) solely by
reason of the inclusion in the taxpayer's income of any amount contemplated in paragraph
(d) (i), (ii), (iii) and (iiiA) and paragraph (f);
[Para. (e) inserted by s. 4 (d) of Act 91 of 1982, deleted by s. 3 (b) of Act 121 of 1984 and added by s. 4 (f)
of Act 21 of 1995.]
(f) 'L' represents an amount equal to the sum of-
(i) in relation to any amount which accrued to the taxpayer on or after 1 September
1995 to which the provisions of section 7A (4A) are applicable in respect of the
said year, the lesser of-
(aa) that amount; or
(bb) an amount equal to three times the annual average of the amounts derived
by such taxpayer during the three years of assessment which immediately
preceded the year of assessment under charge by way of remuneration as
defined in paragraph 1 of the Fourth Schedule, including any amount
referred to in paragraph (vii) of that definition but excluding so much of
the sum of any other amounts contemplated in the said section 7A (4A) as
were included in the amounts represented by the symbols 'C' and 'L' in
respect of the said year and any previous year of assessment; and
(ii) in relation to any amount which accrued to the taxpayer on or after 1 September
1995 to which the provisions of paragraph 7 of the Second Schedule are
applicable, any amount determined in accordance with the provisions of that
Schedule and included in his income for the said year; and
[Para. (f) added by s. 4 (f) of Act 21 of 1995.]
(g) 'R' represents the greater of the amounts determined by applying the formulain
respect of the said year and the preceding year of assessment, in which formula-
(i) the amounts represented by the symbols 'B', 'C', 'D' and 'L' shall be determined in
accordance with the aforegoing provisions of this subsection as applicable in the
said year or in the said preceding year, as the case may be;
(ii) 'F' represents the amount of normal tax (as determined before the deduction of any
rebate) calculated at the full rate of tax chargeable for the said year or the said
preceding year in respect of a taxable income equal to the amount represented by
the expression 'B + D - (C + L + G)' in the formula for that year or preceding year,
as the case may be; and
(iii) 'G' represents an amount of the taxable capital gain included in the taxable income
in terms of sect ion 26A for the said year or the said preceding year, as the case
may be:
Provided that where, as a result of the death or insolvency of the taxpayer, the period
assessed is less than 12 months, the symbol 'R' shall be determined with reference to the
said year only
50 | P a g e Income Tax 301 INDIVIDUALS own notes.

[Para. (g) added by s. 4 (f) of Act 21 of 1995 and substituted by s. 7 (1) (d) of Act 5 of 2001 and by s. 5 (1)
of Act 19 of 2001.]
Provided that in no case shall the amount of normal tax so payable be less than the amount of normal tax
which would be chargeable at the relevant rate fixed in terms of subsection (2) in respect of the first rand of
taxable income, and nothing in this section contained shall be construed as relieving any person from
liability for taxation under this Act upon any portion of his taxable income: Provided further that where the
sum of the amounts included in symbol 'L'exceed the taxpayer's taxable income for the said year, the
amount of normal tax so payable shall be calculated on the taxpayer's total taxable income for the said year,
at the greater of the relevant rate contemplated in the preceding proviso and the amount determined as
symbol 'R' in relation to the preceding year only.

A. PENSION , PENSION PRESERVATION, PROVIDENT, PROVIDENT PRESERVATION, AND


RETIREMENT ANNUITY FUNDS.
1. Receipts from these 3 types of funds can be 1-annuities or 2-lump sums and arise in 3 ways only:
1.1. Resignation from the fund
1.2. Retirement
1.3. Death of the member

1. Types of fund:
1. Pension Fund:
1.1.Established under Pension funds Act as Private or state types
1.2. Max 1/3 may be paid out as lump sum , the rest ONLY as annuities.
1.3. You Must be an Employee
2. Pension Preservation Fund : May only Comprise :
2.1. Former members of a pension fund whose membership was terminated due to certain allowed reasons
2.2. Member transfers from another pension preservation fund
2.3. Specified benefits of a pension fund that have not been paid out within 24 mnths of due date can transfer
2.4. Max 1/3 may be paid out as lump sum , the rest ONLY as annuities.
2.5. For Employee’s (from pension fund)

3. Provident:
3.1. Established under Pension Funds Act
3.2. The FULL amount can be paid out as a lump sum
3.3. (For employees only??)+ what is difference to “pension fund”
4. Provident Preservation :
4.1. Established under Pension Funds Act
4.2. Same requirements as for pension preservation fund, but former membership MUST have been “Provident
Fund”.
4.3. The FULL amount can be paid out as a lump sum

5. Retirement Annuity Fund :


5.1. Similar to the other 2 types , pension & provident, except a person does NOT have to be an employee to
belong to it.
5.2. Max 1/3 may be paid out as lump sum , the rest ONLY as annuities.
6. All funds must be approved by commissioner for SARS by sep 2009 , failing which they are classified as
unapproved funds.
7. For all the types of funds , if 2/3 of total value does not exceed 50000, they can pay out the full amount as a
lump sum- 1/3 rule falls away.

A. TAXATION OF ANNUITIES:Pension Funds etc.


1. Resident of S.A.: Annuities are taxed in full in the hands of a resident
1.1. Exempt :any amount accrued to a resident of SA under the social security system of another country.OR
1.2. Any pension from source outside SA in consideration of employment outside SA, not deemed to be from a
source in SA per S.9.1.g.
2. Non-Resident of S.A. : Annuities are taxed in his gross income only if they come from a S.A. source.
3. The fact that they may be of a “capital” nature is irrelevant because OF THE OVERRIDING EFFECT OF PARA(9A)
OF GROSS INCOME DEFINITION.

A. TAXATION OF LUMP SUMS: Pension Funds Etc.( See : S9.1.g & also para e of definition
of gross Income
51 | P a g e Income Tax 301 INDIVIDUALS own notes.

1. Definitions : defined in sec 1 as :


1.1. Retirement Fund Lump Sum Benefit : an amount determined in terms of para 2.1.a of second schedule.
1.2. Retirement Fund Lump Sum Withdrawal Benefit : an amount determined in terms of para 2.1.b of
second schedule.
2. : Lump sums from above Pension etc funds are per 2nd schedule only taxable to the extent that the amount which
is NOT tax free falls into “Gross Income” , not the rest of it. (see also para e of definition of gross.income )
3. Use their own tax table: these lump sums use their own special ‘tax tables’ for each type of fund you get ,to
work out the actual tax owed on them. They do not use the normal tax tables and are not included in the normal
tax calculation- they are left out oif the normal tax calc. completely and done on their own separately.
4. Not included in normal tax : they are not incl. in your calc. in exam as gross income – they goes in ‘workings’
column next to real column and only the non-deductable part as per 2nd schedule is transferred across to the
‘gross income’ real column- this is how they show it .This is only so you can show it as part of ‘gross income’ in a
total called ‘gross income incl. pension fund lump sum’, but after that you must deduct it from this amount again
and make a second total below called ‘gross income EXCL. pension etc. fund Lump Sum” This is because you use
the second total to work out your normal tax, since these fund lump sums are excluded COMPLETELY from
normal tax as they have their own special tax tables.(remember the primary&secondary rebates also are not
deducted from these lump sums AT ALL – only from normal tax )
5. No rebates (primary & secondary rebates – 5400 & 9756) ARE EVER DEDUCTED FROM THIS TAX.
REBATES ONLY COME OFF THE NORMAL TAX THAT IS WORKED OUT USING THE NORMAL TAX TABLES.LUMP
SUMS ARE WORKED OUT USING THEIR OWN TAX TABLES, AND THE REBATES DO NOT APPLY TO THIS TYPE OF
TAX!
6. No deductions are claimable and the amounts cannot be reduced by assessed losses. They are independently
taxed and the tax cannot be reduced by rebates.
7. Falls on date prior to death: Per s37c of Pension Funds Act – any benefit payable as lump sum or annuities
changed into lump sum due to the death of a member, are deemed to have been paid out immediately prior to
his death – so it falls within the members tax calc. for the period prior to his death :
7.1. Exception : per para 3 of 2nd schedule – no lump sum will be deemed to have accrued (paid) at all if:
7.1.1. Any portion of lump sum used to purchase an ANOTHER annuity by nominees/dependants of member
after death is NOT taxable as part of dead members estate –( it gets taxed as annuities later every year
of course in hands of beneficiary)
7.1.2.Where lump sum is paid to a provident/pension preservation fund as unclaimed benefit- ie not paid
within the 24 mnths after date it became due so transferred to these funds .)
8. BELOW : SEE METHOD OF INCLUDING THEN MINUSING THE LUMP SUM BENEFIT IN CALCULATION TO
SHOW:

1. TAXATION OF LUMP SUMS : SECOND SCHEDULE REQUIREMENTS


1. There are 2 types of lump sums dealt with in second schedule.These are:
1.1. Retirement Fund Lump Sum Benefits : Retirement , Death , Retrenchment(business closes!OR!person
redundant) – para 2.1.a of 2nd Sched. Often called ‘ retirement benefits’.
1.2. Withdrawal Benefits : Withdrawal , Divorce or Transfer between funds – para2.1..b of 2nd Sched. Called a
withdrawal benefit.
2. The 2 types are dealt with below in the following 2 headings.

1. RETIREMENT BENEFIT ie: RETIREMENT FUND LUMP SUM BENEFITS : Retirement


, Death , Retrenchment – para 2.1.a of 2nd Sched
52 | P a g e Income Tax 301 INDIVIDUALS own notes.

1. Retirement Fund Lump Sum Benefits : can be paid out for the following reasons : Retirement , Death ,
Retrenchment(business closes! OR person redundant) – para 2.1.a of 2nd Sched. Often called ‘ retirement
benefits’.
2. Retrenchment director /5% Not Valid :If this benefit is paid out for a Director/or Ex-Director nor a person
who held more than 5% of shares in company or CC, due to ‘Retrenchment” from his last job– he cannot claim
any concession at all here – he must pay the full tax So it must be retirement or withdrawal for him
3. Definition : Retire : in para 1 of 2nd schedule defined as “entitled to annuity or lump sum benefit as per
definition of ‘retirement date’ – means ‘on or subsequent to attaining normal retirement age’ . If member dies
before ‘retirement date’ that dependant becomes entitled to benefit in terms of rules of fund( there may be some
rule to say immediately or in 5 years etc.”
4. No rebates (primary & secondary rebates – 5400 & 9756) ARE EVER DEDUCTED FROM THIS TAX.
REBATES ONLY COME OFF THE NORMAL TAX THAT IS WORKED OUT USING THE NORMAL TAX TABLES.LUMP
SUMS ARE WORKED OUT USING THEIR OWN TAX TABLES, AND THE REBATES DO NOT APPLY TO THIS TYPE OF
TAX!
5. Note : Insurance policy ceded : if fund cedes an insurance policy to member , the policy or cash surrender
value may be paid to another fund to entitle taxpayer to para 5 deduction.
6. Own tax table: ‘Retirement Benefit funds lump sums’ has its own special ‘tax table’ only for this fund type. It
does not apply to ‘withdrawal benefits lump sums’, they have their own tax table. They do not use the normal tax
tables and are not included in the normal tax calculation- they are left out of the normal tax calc. completely and
done on their own separately.
7.
8. Method : Para 5 of 2nd schedule : Deductions from Retirement Benefit :
8.1. Start with Lump Sum :
8.1.1. Deduct -1-: Taxpayers Own Contributions to any fund which did not rank for deduction.( all
provident fund contributions +??any pension&retirement funds over the limit allowed that year
and never deducted?? Yes or no??) pg 608
8.1.2. Deduct -2-: Transfer Divorce to another fund (on retirement/death/retrench) (37.d.4.b.ii Pension
Act)
8.1.3. Deduct -3-: Transfer any to another fund of member (to any type of these funds-even to
provident) (on retirement/death/retrench)
8.1.4. Deduct -4-: Transfer Unclaimed benefit : to any ‘preservation‘ fund. (on
retirement/death/retrench)
8.1.5. Deduct -5-: Transfer : from Gov. pension. Fund to private pension fund. (on
retirement/death/retrench)
8.1.6. FINISHED.
8.2. None of the above must have been allowed as a tax deduction by any “Entire 2nd Schedule” before .( ??like a
transfer to any other fund – you can only transfer the same amount ONCE – next time you must pay full tax
on the transfer??)
8.3. The deduction may not go below zero- it cannot exceed the lump sum benefit.

1. WITHDRAWAL BENEFITS : Withdrawal , Divorce or Transfer between funds –


para2.1..b of 2nd Sched.
1. Withdrawal Benefits : Can be paid out for Withdrawal , Divorce or Transfer between funds – para2.1..b of 2nd
Sched. Called a withdrawal benefit.
2. Note : Insurance policy ceded : if fund cedes an insurance policy to member , the policy or cash surrender
value may be paid to another fund to entitle taxpayer to para 6 deduction.
3. Note : Pension to Provident fund transfer : per para 6 for this type of transfer there is no deduction: you
must pay full tax on the withdrawal as if it was a normal lump sum benefit being paid to him – so use special tax
table.Even if you transfer it to another persons provident fund for some reason you must pay tax.
4. Below Zero : The deduction may not go below zero- it cannot exceed the lump sum benefit.
5. None of the below must have been allowed as a tax deduction :by any “Entire 2nd Schedule” before .( ??
like a transfer to any other fund – you can only transfer the same amount ONCE – next time you must pay full
tax on the transfer??)
6. No rebates (primary & secondary rebates – 5400 & 9756) ARE EVER DEDUCTED FROM THIS TAX.
REBATES ONLY COME OFF THE NORMAL TAX THAT IS WORKED OUT USING THE NORMAL TAX TABLES.LUMP
SUMS ARE WORKED OUT USING THEIR OWN TAX TABLES, AND THE REBATES DO NOT APPLY TO THIS TYPE OF
TAX!
7. Own tax table: ‘Withdrawal benefits lump sums’ has its own special ‘tax table’ only for this fund type. It does
not apply to ‘Retirement Benefit funds lump sums’ , they have their own tax table. They do not use the normal
53 | P a g e Income Tax 301 INDIVIDUALS own notes.

tax tables and are not included in the normal tax calculation- they are left out of the normal tax calc. completely
and done on their own separately.
8.
9. METHOD: Para 6 deductions from withdrawal benefit :
9.1. Start with Lump Sum
9.1.1.Deduct :Divorce :Amount deducted from the taxpayers (who money came from) minimum initial
reserve of former spouse on divorce per 37d of Pension Act & transferred to other fund in following order
of priority:
9.1.1.1.Pension- to pension/pension preservation,retirement annuity
9.1.1.2.Pension Preservation – to pension/pension preservation.
9.1.1.3.Provident – to pension/provident/provident preservation/retirement ann.
9.1.1.4.Provident Preservation – to provident or provident preservation.
9.1.1.5.RAF – to RAF
9.1.1.6.(note : it seems RAF to other type OR Pension/PensionPreservation to Provident/Provident
Preservation =not allowed,so you will pay tax on it. Also any preservation must go to same type of
fund ie a provident preservation can go ONLY to a provident OR another provident preservation.
9.1.2.Deduct :Transfer : from one fund to other of same taxpayer (same priority as above again) (whole
amount deduct)
9.1.2.1.Pension- to pension/pension preservation,retirement annuity
9.1.2.2.Pension Preservation – to pension/pension preservation.
9.1.2.3.Provident – to pension/provident/provident preservation/retirement ann.
9.1.2.4.Provident Preservation – to provident or provident preservation.
9.1.2.5.RAF – to RAF
9.1.2.6.(note : it seems RAF to other type OR Pension/PensionPreservation to Provident/Provident
Preservation =not allowed,so you will pay tax on it. Also any preservation must go to same type of
fund ie a provident preservation can go ONLY to a provident OR another provident preservation.
9.1.3.Deduct :Withdrawal:
9.1.3.1.Deduct -1-: Taxpayers Own Contributions to any fund which did not rank for deduction –even
if he is still a member of that fund.( all provident fund contributions +??any pension&retirement
funds over the limit allowed that year and never deducted?? Yes or no??) pg 608 – (can you deduct
contributions to a pension/provident fund he is a member of from a withdrawal from a RAF fund or
something?)
9.1.3.2.Deduct -2-:Divorce : any amount received from ex. but transferred to another fund per
37.d.4.b.ii.cc.–?to any of the 5 types of funds?
9.1.3.3.Deduct -3-Transfer : by member from any 1 fund to another where he is/was member of both
funds. per para2..1.b.ib. (except ONLY pension to provident –does not count you must pay tax)-are
all the others disallowed for ‘transfer’ above – what is the difference between the 2 see pg 609&610
2X yellow.-for a withdrawal from a fund_
9.1.3.4.Deduct -4-Transfer : any unclaimed benefit transferred to a preservation fund.
9.1.3.5.Deduct -5-Transfer : certain Gov. Pension fund transfers to a private fund.
9.1.3.6.ALL THESE DEDUCTIONS ARE ONLY ALLOWED IF THEY HAVE NOT PREVIOUSLY BEEN
ALLOWED AS A DEDUCTION BEFORE AND THE AMOUNT OF THE DEDUCTION MAY NOT
EXCEED THE AMOUNT OF THE LUMP SUM BENEFIT FROM WHICH IT IS DEDUCTED(not
below 0)

1. MULTIPLE FUNDS:
1. Where the taxpayer belongs to more than 1 fund or received more than 1 retirement or withdrawal benefit
in his lifetime, the tax in terms of the above tables is meant to be cumulative. It does not matter this time
though, whether you previously received a retirement or a withdrawal benefit – which ever you received you
will still have to include it in your calculation.
2. Note : if you want to see if you will pay more tax by taking the retirement lump sum first or the withdrawal
lump sum first, you must work it out both way and compare.
3. The General Rules :
3.1. The only previously received lump sum benefits which apply to this method must have been after the
following dates:
3.1.1.Retirement Fund Lump Sum Benefits (from any type of fund on Retire/Death/Retrench): received
on or after 1 OCT 2007
3.1.2.Withdrawal benefits (?? Is it only from a retirement annuity fund ONLY(not from any other type
fund eg provident??very unclear in book see page 611 ) :received on or after 1 Mar 2009
54 | P a g e Income Tax 301 INDIVIDUALS own notes.

3.2. It does not matter if it is withdrawal lump sum or retirement lump sum, any lump sum at all received in
the past must be used and considered, in the case of a second new Current Retirement or Withdrawal
benefit being received.(this rule is a bit unclear in the Act and may be changed in the future after 2010)
3.3. For the previously received lump sum, you do not do any deductions or use any of the deductions you
used for it previously when it was done.You ONLY use the sum actually paid out by the fund itself.
3.4. You use this years tax tables to work out everything, not tables from the relevant year or anything.
3.5. The tax paid in the former year for the former lump sum is not used at all , you work out the tax again
brand new from this years tax tables.
4. Method:
4.1. You work out the tax on the total of the following amounts added together [current Lump sum after
deductions + Old lump sums before deductions ]
4.2. NOW : deduct the tax on the Old Lump sums before deductions (at current tax rates) FROM tax on the
total of all the amounts added together = tax you OWE ANSWER.
4.3. ( so you’re saying you bring it to the high levels then deduct any tax you paid previously already)

1. EXTRAORDINARY LUMP SUM PAYOUTS:


1. Para 2 c provides that certain Payouts after retirement/death/withdrawal are free of tax provided they meet
certain requirements.
2. Basicly the requirements are as follows :
2.1. Lump sum must accrue AFTER persons retirement/withdrawal/death/resignation from fund.
2.2. Must accrue in consequence of an event prescribed by the minister of finance in the Gazette.
2.2.1.Gazette Notice : the minister has set out 3 events in GovNotice 289 of 11 Mar 2009: if any 1 of them
apply, the payout is tax free: the most important one is :
2.2.1.1.The amount is from a pension or provident fund
2.2.1.2.The amount is similar to a payment in terms of a surplus apportionment scheme contemplated in
S15B of the Pension Funds Act.
2.3. It must be contemplated in the rules of the fund.( if not approved by the fund it can also be approved by a
scheme in terms of S15B of Pension Funds Act of para 5.3.1.b of schedule which amends regulation 30 of
Regulations under the Long term Insurance Act.

3. One of the instances where it is free is where Funds pay out accumulated surpluses as lump sums to retired
members in later years. As they are tax free retirement fumd administrators do not have to apply for a “Tax
Directive” prior to paying the amounts out.

1. WITHHOLDING TAX ON LUMP SUMS


1. RETIREMENT BENEFITS & withdrawal benefits are excluded from the definition of ‘net remuneratrion’ as per the
4th schedule para 11b. Because of this the fund must make an application to the commissioner for SARS for a
directive setting out how much ‘EMPLOYEES TAX’ (PAYE) to deduct from the lump sum(para 9.3 of 4th schedule)

1. RETIREMENT , STATE AND LOCAL AUTHORITY PENSION FUNDS


1. Effective from 1Mar 1998 lump sum benefits from public sector funds are subject to tax in the same way as other
using 2nd schedule para 2a and formulaC. Formula C is not dealt with in the syllabus though.
2. ONLY the portion from after 1Mar 1998 is taxed though, any contributions /benefits from before then are NOT
taxed. On this date all these funds were transferred to other public or private funds or the fund was converted.

1. PROVIDENT FUND RETIREMENT


1. Para 4.3 of 2nd schedule says if a member of a provident fund retires before age 55 the lump sum will be taxed as
a withdrawal benefit.
2. Exceptions: to the rule :
2.1. The member retires on the grounds of ill health.
2.2. SARS can direct that it is taxed as a retirement benefit, by looking at the case’s circumstances

A. DIVORCE
1. Pension Funds amendment Act 2007 from 13 sep 2007 ,states a court can order a member spouses fund to pay
the divorced other member a certain portion of the Pension benefit to them in cash or transfer it to another fund
of these types. Sec 7,8 of Divorce Act decrees the same. This can be done before the member retires (somehow).
2. Sec 37 d of Pension Funds Act says it iss deemed to accrue to other spouse on date of court order- this is only for
purposes of the divorce act though.
3. For income tax purposes we look at the following amounts paid to a non-member spouse:
55 | P a g e Income Tax 301 INDIVIDUALS own notes.

3.1. Maintenance
3.2. Lump Sum

1. MAINTENANCE
1. Per pension funds act, a court can order amounts assigned as per divorce act as well as maintenance per the
Maintenance Act. These funds can deduct employees tax (PAYE) from these deductions.
2. Sec 7.11 of Income Tax Act says any deduction from ‘minimum individual reserve’ per sec 37d.1.d is deemed to
be income accruing to the member on date of deduction.
3. If any such amount is included as income of member per 7.11 , (taxed as PAYE ) it will NOT BE CLASSIFIED AS A
LUMP SUM BENEFIT- so it is not taxed in the hands of the ex-spouse.

1. LUMP SUM
1. Before 1 Mar 2009, lump sums paid to a non-member ex spouse were taxed in the hands of the MEMBER , but
from that date it is taxed in the hands of the NON-MEMBER , as a withdrawal benefit.
2. Para 6 of 2nd schedule allows the non-member ex to transfer it to another fund and obtain a deduction of the
amount transferred- so if the whole amount is transferred there will be no tax on it. BUT Para 6 requires transfer
to a Equivalent fund or a Stricter fund.
3. So this is a TAX DEDUCTABLE ‘contribution’ by the ex spouse to her/his fund when it was contributed.