lecture 14 tax law Flashcards
What is taxation?
Taxation is a means by which governments finance their expenditure by imposing & collecting levies on citizens and corporate entities.
Tax (from the Latin taxo) is a mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures.
TAX LAW IN SOUTH AFRICA:
Tax is levied by several taxation laws in South Africa.
Income Tax is levied in terms of the Income Tax Act 58 of 1962 (ITA).
Value-Added Tax (VAT) is levied in terms of the Value-Added Tax Act 89 of 1991 (VAT Act).
Estate duty is levied in terms of the Estate Duty Act 45 of 1955.
Other taxes such as Donations Tax, Withholding Tax and Dividends Tax are administered under the Income Tax Act.
INCOME TAX (NORMAL TAX):
Tax payable as a percentage of a person’s taxable income earned over a year of assessment (sec 5(1) ITA); payable by
natural persons;
companies;
close corporations;
trusts;
estates of deceased persons; and
insolvent estates.
Normal tax is payable on the taxable income of a taxpayer (“TP”) for a specific year of assessment.
Taxable income denotes that portion of a TP’s income which the South African Revenue Service (SARS) will tax in respect of a specific period called the year of assessment.
The year of assessment usually ends on the last day of February, except for companies in which case the year of assessment correlates with the financial year end – either end of June or December.
GROSS INCOME: (sec 1 ITA)
In relation to a resident – this is the total amount received in his favour in a specific year of assessment EXCLUDING receipts and accruals of a capital nature (whether inside or outside of the Republic).
Resident is someone who is ‘Ordinarily resident’ in South Africa or Physically resident (91/365 days & 91/365 days for 5yrs & 915 days in 5 years prior).
In relation to a non-resident – this is the total amount received in his favour in a specific year of assessment EXCLUDING receipts and accruals of a capital nature (from a source within or deemed to be within South Africa).
GROSS INCOME – SPECIFIC ELEMENTS:
The total amount (cash or otherwise):
Not only receipts in cash qualify to be included in gross income, but virtually anything that has a monetary value. [Lategan v CIR][CIR v Delfos]
The market value is usually taken to establish the value of the receipt other than cash. [Lace Proprietary Mines v CIR] This would be the price that can be obtained between a willing buyer and seller in an open market. It is therefore important that the value of the item be ascertainable.
The onus of establishing a value rests on SARS. [CIR v Butcher Bros]
Received by or accrued to a person:
There is nothing unclear about the notion of receiving a benefit, but when a benefit “accrues” to you, it means that you have received the right to receive a benefit at a later stage.
Both the terms “received by” and “accrued to” are not defined in the ITA, hence the importance of studying case law in this regard to familiarise yourself with the meaning thereof.
