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Financial Planning 711 > Tax 3: Specific deductions, Medical rebates, Married persons and SBCs > Flashcards

Tax 3: Specific deductions, Medical rebates, Married persons and SBCs Flashcards

1
Q

What are the SPECIFIC deductions? (8) [i.e. non-general]

A
  • legal expenses
  • wear & tear allowance
  • restraint of trade payments
  • pension fund contributions
  • RA fund contributions
  • contributions made by employer to pension/RA funds
  • shares granted to employee iro BBE share plan
  • annuities paid by employer to FORMER employees
  • key-man insurance premiums paid by employer
  • donations to PBO
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2
Q

When will legal fees be eligible for a specific deduction?

A
  • did not qualify for the general deduction (difficult to prove)
  • incurred as part of taxpayer’s TRADE
  • claimed amount is taxable (win) or tax deductible (lose)
  • NOT of capital nature!
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3
Q

What are examples of deductible legal expenses?

A
  • fees for legal practitioners
  • court fees
  • witness & expert fees
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4
Q

What is a restraint of trade payment?

A 
amount incurred by a person
in carrying on a trade
as COMPENSATION iro a restraint of trade
IMPOSED ON another person
[i.e. gross income for that person]
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5
Q

How is a restraint of trade payment deduction determined?

A

LESSER of:
*amount/# of yrs of restraint; OR
*amount/3 yrs
[no apportionment!]

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6
Q

If you are NOT a member of a ______ fund, you only have _______ income.

A

pension/provident; NON-RFE [‘non-retirement funding employment income]

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7
Q

True/False: The excess of the monthly pension fund contributions may NOT be carried over to the following year.

A

True, but it is carried over to RETIREMENT! Only excess RA fund contributions may be carried over to the next year.

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8
Q

What is RFE?

A

Retirement Funding Employment. Also called pensionable earnings. Whatever amount employer uses to determine your pension contribution.

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9
Q

What are two types of contributions to Pension, Provident or RA funds and what is the difference?

A
  1. Current: monthly contributions paid

2. Arrears: to reinstate membership of fund/buy-back service

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10
Q

True/False: Excess of ARREARS contributions may NOT be carried over to next year.

A

False, it MAY be carried over to next year, the same as the excess on RA contributions.

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11
Q

What is the annual deduction for arrears pension fund contributions?

A

R1 800

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12
Q

What is the annual deduction for current pension fund contributions?

A

the GREATER of:
– 7.5% x remuneration of RFE (i.e. pensionable earnings)
– R1 750
[no apportionment]

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13
Q

True/False: Excess RA fund deductions MAY be carried over to next year.

A

True.

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14
Q

What is the deduction for current RA fund contributions?

A

GREATER of:

    • R1 750
    • R3 500 less pension fund deduction (if applicable)
    • 15% of non-RFE income (anything other than pensionable earnings).
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15
Q

For pension/RA/provident fund contribution deductions: the deduction is limited to ________.

A

actual contributions [i.e. can’t deduct more than the contributions]

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16
Q

What are the 2 types of medical rebates?

A
  • medical SCHEME FEES tax credit

* medical EXPENSE tax credit

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17
Q

Who qualifies for the medical scheme fees tax credit?

A

Everyone – as long as a member of a medical scheme/aid

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18
Q

When is someone a dependent iro of medical tax credit?

A

When so defined by the medical scheme

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19
Q

What is medical expense tax credit?

A

All excess, out-of-pocket (qualifying) expenses paid by taxpayer e.g. prescription drugs

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20
Q

What is a qualifying medical expense?

A

An amount actually PAID (not only incurred)
which was not recovered from medical aid
for PRESCRIBED medicine (not OTC)
NECESSARILY incurred
in CONSEQUENCE of
physical impairment or disability

21
Q

The employer’s contribution to a medical aid is a __________ which is included in the ________’s _____ income.

A

fringe benefit; employee’s; gross

22
Q

How would a medical rebate be dealt with when a person dies?

A

Deemed paid by such person the day BEFORE death.

23
Q

If a child is not seen as dependent by medical aid, how is the dependence tested for tax purposes?

A

Any child, adopted or step:

  • 18 yrs or younger, unmarried
  • 21 yrs or younger, unmarried, dependent
  • 26 yrs or younger, unmarried, dependent, full-time student
  • disabled [no restriction]
24
Q

How is the “excess” defined i.r.o. medical scheme fees?

A

Amount by which the medical scheme fees paid by the taxpayer to a medical aid EXCEEDS the MSFTC – limited to NIL.

25
Q

How is the total medical rebate calculated for people older than 65 and/or with disabilities?

A

METC = 33.3% X [A + B]
A – medical scheme fees paid (contributions LESS (3 x MSFTC as per table]
B – all qualifying expenses added together

26
Q

How is the total medical rebate calculated for people 65 years and younger and with no disabilities?

A

METC = 25% x [A + B - C]
A – medical scheme fees paid (contributions LESS (3 x MSFTC as per table]
B – all qualifying expenses added together
C – 7.5% X final taxable income

27
Q

What is a Public Benefit Organisation?

A

welfare organisation/charity registered i.t.o. Sch 9
approved by SARS
carry on a public benefit activity

28
Q

What must be issued by a PBO in order for a taxpayer (donor) to get a deduction?

A

18A receipt

29
Q

How is the tax deduction for PBO calculated?

A

10% X taxable income (BEFORE the donation and medical rebates)

30
Q

True/False: The excess on the tax deduction of a PBO may be carried over to the following year.

A

True

31
Q

A contribution made to a pension fund by an employer on behalf of an employee, attracts a deduction of ____ by law, but _____ in practice [POV of employer!].

A

10% of approved remuneration

20% of approved remuneration

32
Q

When an annuity is paid to a former employee, it is 100% deductible if…. (1)

A

employee retired due to old age, ill-health or infirmity

33
Q

When an annuity is paid to a former business partner, it is 100% deductible if…(3)

A

partner retired due to old age, ill-health or infirmity AND must have been a partner for at least 5 yrs AND amount of annuity must be reasonable/genuine

34
Q

A business can get get a deduction in shares issued in broad-based employee share plans to the amount of…

A

MV (on date of grant) of share LESS
consideration paid by employee
(limited to R10 000 per employee per year – can carry over to next yr)

35
Q

Wear and tear allowance is a specific deduction for _____ assets used for ____ purposes. E.g….

A

capital, trade

e.g. machinery, furniture in office, vehicles

36
Q

How is wear and tear on small items deducted?

A

Costing < R7 000 – 100% in yr of acquisition

37
Q

True/False: the wear and tear allowance is deducted proportionally according to the number of months the asset was used in the year.

A

True (calculated as CP * #months/12)

38
Q

True/False: renting out property is not seen as a trade.

A

False – it is specifically included as a trade

39
Q

What is provisional tax?

A

person who earns taxable income, NOT subject to PAYE, must pay provisional tax on these amounts every 6 mnths. I.e. any other income apart from REMUNERATION.

40
Q

Who must pay provisional tax?

A
  • any person deriving income other than remuneration
  • any company
  • any person notified by SARS to do so
41
Q

Who is exempt from provisional tax?

A
  • < 65 yrs – who does not receive income from business/trade + taxable income not exceed threshold + taxable income from interest, divs and rental less than or equal to R20K
  • 65 and older – taxable income less or equal to R120K AND not derived from trade AND only derived from salary, interest, divs and/or rental from fixed prop.
  • Approved PBO
  • Recreational club
42
Q

What are the due dates for provisional tax for the 2015 YOA?

A

1: compulsory 31 Aug 2014 (6 mnths after 1 March)
2: compulsory 28 Feb 2015 (12 mnths after 1 March)
3: voluntary (top-up) 30 Sept 2015 (7 mnths after next yoa)

43
Q

By what is a spouse defined? (3)

A
  • law
  • tenets of religion
  • same-sex or hetero union if intended to be permanent
44
Q

What is the anti-avoidance measure for people married in or out of community of property?

A

a donation, settlement or other disposition or transaction, operation or scheme to REDUCE, POSTPONE or AVOID tax; OR
trade carried on with spouse and the other spouse received excessive income; THEN
DONOR SPOUSE GETS TAXED ON INCOME OF RECEIVING SPOUSE (i.e. the EXCESSIVE portion)

45
Q

________ income and _______ usually gets split between spouses married IN community of property.

A

Passive (interest, divs, rental); capital gains/losses

46
Q

What income is deemed to be from a separate trade and is therefore NOT split between spouses married in COP?

A

Income from:
Pension, provident or RA funds
Purchased annuities
Royalties from design, patent, copyright etc.

47
Q

_____ income is NOT split between spouses married IN COP.

A

Trade – taxed in the hands of the spouse who carried on the trade.

48
Q

What are the requirements for a business to be a Small Business Corporation?

A
  • all s/holders natural persons
  • gross income less or equal to R20 million
  • investment income + income from “personal service” less or equal to 20% of total GI
  • s/holders may not own shares in other Co (except listed shares or CIS)
  • may not be an employment entity
  • may not be a personal service provider!!
49
Q

What is a “personal service”?

A

any service in field of accounting, actuarial science, architecture, auditing, engineering, education etc.

Financial Planning 711 (8 decks)

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