Income Tax rules (experiemental) Flashcards
What are the relevant sections within income Tax that need to be thought about when answering an income tax question?
- Gross income (s1)
- special inclusions
- exemptions (s10)
- deductions and allowances (s11-19 and 23)
- inclusions in taxable income (fringe benefits and Capital gains)
- assessed losses brought forward
- = taxable income/ assessed loss
- apply the tax rates
- less rebates
- normal tax payable
- less prepaid taxes like PAYE and provisional tax
- = final normal tax payable
What is the gross income definition?
Section 1 of the ITA
- in relation to any year of assessment, of a resident, means the total amount, in cash or otherwise, received by or accrued to or in favour of the resident, during such year of assessment, excluding receipts and accruals of a capital nature.
What are the relevant case law principles to the gross income definition?
“total amount “
* CIR v people stores
- include every form of property earned which has money value
- CIR v Butcher Bros
- must be an amount
” in cash or otherwise”
* Lategan v CIR
- every form of property including debts and rights of action
- CSARS v Brummeria Renaissance
- asset need not be able to turn into money to constitute an amount
“received by or accrued to, in favour of”
* idk
- Geldenhuys v CIR
- in favour of also means, on behalf of or for own benefit
- Cot v G
- theft is not on behalf of or for own benefit
- ITC 1624
- fraudulent or negligant transactions still get included in the course of trade
- LAtegan and People Stores
- you only get entitled to the the payment once the goods are delivered (thats when the income accrues)
- so once the goods have been delivered, then the income has accrued to you
- think about when you should be entitled to payment (forget about passing of time)
- sometimes that can just be the passing of time however (maintenance contract)
- Silverglen investments
- the earlier of the received or accrued to, will it be included in gross income
What is the tax legislation around share incentive schemes?
Section 8B of the ITA share incentive scheme
- this is a broad-based employee share plan
- the requirements of this type is
* the share needs to be not more than 50 000 MV per share in the current year and previous 4 years
* requires approval from SARS
* must be offered to minimum of 80% of permanent employees(they are there for 1 year continuously), unless they are entitled to another scheme
* they must be entitled to all dividends and voting rights
* the consideration must not be less than R1 per share (for the employees to pay)
* must have no further restrictions than these
> those imposed by legislation
> prohibition of disposal within 5 years
> if employee has misconduct or poor performance, the company can purchase the shares at lower of MV of grant date or acquistion date
- if you sell them within 5 years of receiving them, you must include the profit made (capital gain) fully into your income, otherwise you can sell them after 5 years and then apply normal CGT rules
- if they die or become insolvent, the gain is also not included in gross income because everything gets disposed of on the day before you die
- if you as an employee buy shares this way (at a discount) it is not considered a fringe benefits
Section 8C of the ITA sahre incentive scheme
- normally used to target specific groups of employees
- must be equity instruments which is defined as a share, members interest, convertible share/interest and options to acqurie any of those
- acquired by virtue of employment, associated institution or office of director of COY
- include the gain or loss recognised FULLY in income which is the MV less consideration paid on the day that is vests
- these instruments are deemd to vest when all restrictions cease or if there are none, then on acquisition date
- it should be noted that the base cost for CGT purposes will be the market value on date of vesting
- no costs can be capitalized to the share because it has restrictions, things can only be capitalised once the restrictions have passed
S11(IA) of the ITA
- a company may deduct the higher of 10000 and the amount of consideration received from the share incentive sheme in one year of assessment
- if not all of it can be deducted in one year, it can be carried forward and another 10000 max in the following year
What deductions are there for a business granting an employee share scheme to their employees
s11(lA)….
what are the income tax implications of S11F?
Can customs duty and upliftment fee (from importing goods be deducted from gross income?
Section 11(a) of the ITA
- the customs duty can be
- the upliftment fee is only a notional amount and therefore cannot be claimed
Is an employee a connected person of a company?
section idk of idk
- NO
- however a shareholder is, not sure what % holding they need to have though
What are the income tax implications of a share buyback?
- if a sharebuyback to an unlisted company consists of contributed tax capital, it is clearly a return of capital and therefore have CGT consequences
- the value of the CTC is normally given in a percentage and that percentage must be mutiplied against the ordinary share capital of the company NOT the amount paid for the shares. This will give you how much of the money paid, was CTC, the rest is a dividend
- the value of the CTC paid is actually the proceeds in the CGT calculation because the proceeds will be the amount received less anything already included in gross income, which would be the dividends amount
Para 19 of the 8th sch of the ITA
- if a capital loss is made, it will be disregarded to the extent that it does not exceed the exempt dividends from the sharebuyback
Para 2 of the 8th Sch of ITA
- non-residents will only have CGT implications here if the requirements are met
What are the normal Tax implications of making a loan to a shareholder(who owns enough shares to be a connected person) as a company, if its in foreign income.
- the interest that we actually receive will be included in our gross income
- the shareholder is a connected person and if there is a difference between the offical rate of interest and the actual rate of interest on the loan, the difference in interest amount will be a deemed dividend in Specie and not a donation, and dividends tax will be levied on it
- we will need to consider the section of 24I on the foreign exchange gains and losses and whether it applies
How many shares does a shareholder need to hold to be a connected person?
Section 1 of the ITA\
- 20%
How can you identify if companies form part of the same group of companies?
Section 41 of the ITA
- if a company holds at least 70% or more of the interest in another company, they are part of the same group fo companies
- unless one of the exceptions listed under this exception apply…
- or the shares are held as trading stock
- OR there a contractual obligation to buy or sell the shares
What DTA’s exist with south africa?
- DTA with UK
- DTA with mauritius
