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Financial Planning 711 > Tax 1: Introduction and Gross Income > Flashcards

Tax 1: Introduction and Gross Income Flashcards

1
Q

What are 4 reasons a CFP should know tax?

A
  1. Tax is an expense and needs to be minimized - what is the client’s disposable income and/or net investment return?
  2. Estate duty - what heirs, beneficiaries will receive after tax.
  3. CGT - net return after disposal of capital assets?
  4. Donations and transfer duty
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2
Q

What is “income”?

A

= Gross income LESS exemptions

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3
Q

What is “taxable income”?

A

= Income LESS Deductions + Taxable CG + Taxable allowances

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4
Q

What is “gross income”?

A

Total amount in CASH or otherwise, received by or accrued to a taxpayer/resident/non-resident EXCL capital amounts.

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5
Q

Complete: “Tax is paid ______ or may have already been paid every _______ by the employer. This is called ______.

A

annually; month; PAYE

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6
Q

A taxpayer can be a…. (name 4)

A

Natural person, CC, Trust, Deceased estate

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7
Q

What is subtracted from Taxable income? (2)

A

Rebates; Employees’ tax/provisional tax (i.e. tax already paid by employer)

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8
Q

Name two types of rebates…

A
  1. Personal rebates (age); 2. Medical rebates
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9
Q

Complete: “Companies pay a _______ rate (__%) and individuals use a _____ scale. The higher the taxable income, the ________ the tax rate.”

A

flat; 28; sliding; higher

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10
Q

Which type of income is taken into account for the tax thresholds?

A

Taxable income

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11
Q

What are the dates for tax year of assessment?

A

1 March to 28 Feb

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12
Q

When is apportionment used during a tax year? (3)

A

Year of birth, death or insolvency

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13
Q

What needs to be apportioned during a tax year, when applicable?

A

Personal rebates only

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14
Q

What is a tax threshold?

A

The point at which tax becomes payable by the individual

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15
Q

What percentage is withheld by companies on behalf of a shareholder for dividends?

A

15%

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16
Q

Which must be included in the individuals gross income, gross dividend or net dividend (after tax)?

A

Gross dividend; but is FULLY exempt

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17
Q

What is a receipt?

A

Amount “beneficially received”, physically received for the benefit of the individual

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18
Q

What is an accrual?

A

When a taxpayer is “unconditionally entitled” to an amount e.g. after delivering a product or service – even though not yet physically received.

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19
Q

Which is included first in the gross income of the YOA, receipt or accrual?

A

Which ever comes FIRST.

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20
Q

Is trading stock included or excluded from Gross Income?

A

It is speculative in nature and therefore deemed as income

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21
Q

Is capital included or excluded from Gross Income?

A

Excluded, except for specific inclusions

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22
Q

What are the 2 tests to determine tax residence and which test is done first?

A

ordinarily resident test & physically resident test - ordinarily resident test is always first

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23
Q

What makes a company, CC or trust a resident for tax purposes?

A

Whether the company, CC or trust was incorporated in RSA or not

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24
Q

How does the “ordinarily resident” test work?

A

Ask which country is your home, or where do your return after your wanderings. Where your principal home or residence is.

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25
Q

When does one cease to be ordinarily resident?

A

At emigration

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26
Q

When is the physically resident test done?

A

Only if person is NOT ordinarily resident

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27
Q

What are the 3 tests (in order) for the physically present test?

A
  1. > 91 days in current year
  2. > 91 days in EACH OF previous 5 yrs
  3. > 915 days in TOTAL for previous 5 yrs
28
Q

If all 3 requirements are met for the physically resident test, what must still be checked?

A

If person was physically outside RSA for CONTINUOUS period of 330 full days

29
Q

What is the year of assessment when the person passed/failed the test for physical residence?

A

Either resident or not, BACKDATED from 1 March of CURRENT YOA.

30
Q

Complete: “RSA residents are taxed on _______ income.”

A

worldwide

31
Q

Complete: “Non-res’s are taxed on _______ income.”

A

RSA (i.e. within RSA borders)

32
Q

What are the minimum and maximum tax rates for individuals?

A

Min 18% and max 40%

33
Q

Name 5 tax-free benefits for employees.

A
  1. Short term loans, not regularly granted, <R3000
  2. Study loans/support
  3. Meals supplied by employer (canteen AND entertainment)
  4. Transport services to and from work (e.g. shuttle)
  5. Long-service awards – up to R5000
34
Q

When calculating the determined value of a vehicle, does it IN- or EXCLUDE VAT?

A

INcludes VAT! – always

35
Q

When calculating the determined value of a vehicle, what is not included in the cost price?

A

Finance costs (i.e. interest)

36
Q

What is the percentage used for determined value of a vehicle a. with a maintenance plan; and b. without a maintenance plan?

A

a. 3.25% b. 3.5%

37
Q

Why is it important to keep a logbook of kilometers traveled?

A

In order to apply for tax reduction of business km’s traveled

38
Q

True/False: When employer reimburses the employee for fuel expenses, the employee can still claim a tax reduction.

A

False – no reduction when employer reimburses the client

39
Q

What is PAYE?

A

Advance payments by employer to SARS

Deducted from salary every month

40
Q

What is provisional tax?

A

For individuals with income OTHER THAN remuneration/salary
E.g. royalties, business income etc
Paid BI-ANNUALLY (twice a year)

41
Q

What is “normal tax” vs. “income tax”?

A

Normal tax is paid by individuals and falls under the Income Tax Act no 58 of 1962

42
Q

What is the total rebate for 76 year old person?

A

Primary rebate + Secondary rebate + Tertiary rebate (i.e. total of all 3)

43
Q

What is the qualifying age for a) primary rebate; b) secondary rebate; and c) tertiary rebate?

A

a) any age
b) 65 yrs and older
c) 75 yrs and older

44
Q

If a (living) parent donates an asset to a minor, the ______ is taxed on the resulting income.

A

parent

45
Q

True/False: Companies are exempt from certain tax.

A

False – only individuals have exemptions

46
Q

Name at least 4 specific inclusions in Gross Income

A 
Annuities
Payments for services rendered (or TO BE rendered) 
Restraint of trade payments
Lump sum from termination of employment
Key man insurance policies
FRINGE BENEFITS
Lump sums from funds e.g. from RA
47
Q

What is an annuity?

A

Fixed annual, repetitive payment; where

one person has the right to receive it and the other the obligation to pay it

48
Q

Name two types of annuities

A

Voluntary

Compulsory

49
Q

What are examples of “payments for services rendered”?

A

Christmas bonus, danger pay, retirement gift

50
Q

What is the difference between “payments for services rendered” and “fringe benefits”?

A

PerPSR = cash amounts, fringe benefits = non cash benefit e.g. company car

51
Q

Person A gives a music lesson, but Person B receives the cash a few days later on behalf of A. Who is taxed for the lesson fees?

A

Person A – always the person who actually renders the service

52
Q

What is a restraint of trade payment?

A

Payment to an employee to prevent them from starting the same, competitive business as their employer

53
Q

What are the two criteria that can be used for a restraint of trade?

A

Limit type of business within a designated area

Limit business for a specific period

54
Q

Mr X is retrenched, but passes away before he could receive his package. Should the amount due to him be included in gross income or his estate?

A

The amount was accrued (unconditionally entitled) to Mr X BEFORE his death and will therefore be included in his gross income and NOT his estate

55
Q

A lump sum of R100 000 is paid to Mr Z from his RA . R20 000 of it is exempt. How much should be included in the gross income? Should the normal tax tables be applied?

A

The balance of R80 000 should be included and taxed using the SPECIFIC tax tables.

56
Q

What is a fringe benefit?

A

Extras (other than salary and bonuses) provided by the employer to an employee e.g. a company car or laptop

57
Q

If an employer contributes to an insurance policy of an employee, what is considered to be the fringe benefit?

A

The contribution amounts

58
Q

Name at least 4 taxable fringe benefits

A

Company car
Residential accomodation(provided by employer)
Medical Aid Scheme contributions
Acquisition of assets e.g. a gold watch as a gift

59
Q

What are the 3 valuation rules for the acquisition of assets?

A

Movable asset purchased for the employee = @cost
Trading stock of business = LOWER of cost or MV
Other cases = MV on date of awarding asset

60
Q

Mr X receives a long-service award of R6000. What amount is exempt?

A

Only up to R5000 (ever!)

61
Q

Which part of of company car usage is taxable?

A

Private use only

62
Q

Home to work travel is considered _______ travel.

A

private – therefore taxable

63
Q

If an employee pays rent to the employer, how is the fringe benefit calculated?

A

FB = Value of property LESS rental payments made by employee

64
Q

If the employer rents the accommodation provided to the employee, how is the value of fringe benefit calculated?

A

The value is the GREATER of the normal formula used OR the rent paid by the employer

65
Q

True/False: Medical aids and medical insurance is exactly the same.

A

False

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