Tax 3: Specific deductions, Medical rebates, Married persons and SBCs Flashcards
What are the SPECIFIC deductions? (8) [i.e. non-general]
- 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
When will legal fees be eligible for a specific deduction?
- 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!
What are examples of deductible legal expenses?
- fees for legal practitioners
- court fees
- witness & expert fees
What is a restraint of trade payment?
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]
How is a restraint of trade payment deduction determined?
LESSER of:
*amount/# of yrs of restraint; OR
*amount/3 yrs
[no apportionment!]
If you are NOT a member of a ______ fund, you only have _______ income.
pension/provident; NON-RFE [‘non-retirement funding employment income]
True/False: The excess of the monthly pension fund contributions may NOT be carried over to the following year.
True, but it is carried over to RETIREMENT! Only excess RA fund contributions may be carried over to the next year.
What is RFE?
Retirement Funding Employment. Also called pensionable earnings. Whatever amount employer uses to determine your pension contribution.
What are two types of contributions to Pension, Provident or RA funds and what is the difference?
- Current: monthly contributions paid
2. Arrears: to reinstate membership of fund/buy-back service
True/False: Excess of ARREARS contributions may NOT be carried over to next year.
False, it MAY be carried over to next year, the same as the excess on RA contributions.
What is the annual deduction for arrears pension fund contributions?
R1 800
What is the annual deduction for current pension fund contributions?
the GREATER of:
– 7.5% x remuneration of RFE (i.e. pensionable earnings)
– R1 750
[no apportionment]
True/False: Excess RA fund deductions MAY be carried over to next year.
True.
What is the deduction for current RA fund contributions?
GREATER of:
- R1 750
- R3 500 less pension fund deduction (if applicable)
- 15% of non-RFE income (anything other than pensionable earnings).
For pension/RA/provident fund contribution deductions: the deduction is limited to ________.
actual contributions [i.e. can’t deduct more than the contributions]
What are the 2 types of medical rebates?
- medical SCHEME FEES tax credit
* medical EXPENSE tax credit
Who qualifies for the medical scheme fees tax credit?
Everyone – as long as a member of a medical scheme/aid
When is someone a dependent iro of medical tax credit?
When so defined by the medical scheme
What is medical expense tax credit?
All excess, out-of-pocket (qualifying) expenses paid by taxpayer e.g. prescription drugs
What is a qualifying medical expense?
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
The employer’s contribution to a medical aid is a __________ which is included in the ________’s _____ income.
fringe benefit; employee’s; gross
How would a medical rebate be dealt with when a person dies?
Deemed paid by such person the day BEFORE death.
If a child is not seen as dependent by medical aid, how is the dependence tested for tax purposes?
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]
How is the “excess” defined i.r.o. medical scheme fees?
Amount by which the medical scheme fees paid by the taxpayer to a medical aid EXCEEDS the MSFTC – limited to NIL.
How is the total medical rebate calculated for people older than 65 and/or with disabilities?
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
How is the total medical rebate calculated for people 65 years and younger and with no disabilities?
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
What is a Public Benefit Organisation?
welfare organisation/charity registered i.t.o. Sch 9
approved by SARS
carry on a public benefit activity
What must be issued by a PBO in order for a taxpayer (donor) to get a deduction?
18A receipt
How is the tax deduction for PBO calculated?
10% X taxable income (BEFORE the donation and medical rebates)
True/False: The excess on the tax deduction of a PBO may be carried over to the following year.
True
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!].
10% of approved remuneration
20% of approved remuneration
When an annuity is paid to a former employee, it is 100% deductible if…. (1)
employee retired due to old age, ill-health or infirmity
When an annuity is paid to a former business partner, it is 100% deductible if…(3)
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
A business can get get a deduction in shares issued in broad-based employee share plans to the amount of…
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)
Wear and tear allowance is a specific deduction for _____ assets used for ____ purposes. E.g….
capital, trade
e.g. machinery, furniture in office, vehicles
How is wear and tear on small items deducted?
Costing < R7 000 – 100% in yr of acquisition
True/False: the wear and tear allowance is deducted proportionally according to the number of months the asset was used in the year.
True (calculated as CP * #months/12)
True/False: renting out property is not seen as a trade.
False – it is specifically included as a trade
What is provisional tax?
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.
Who must pay provisional tax?
- any person deriving income other than remuneration
- any company
- any person notified by SARS to do so
Who is exempt from provisional tax?
- < 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
What are the due dates for provisional tax for the 2015 YOA?
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)
By what is a spouse defined? (3)
- law
- tenets of religion
- same-sex or hetero union if intended to be permanent
What is the anti-avoidance measure for people married in or out of community of property?
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)
________ income and _______ usually gets split between spouses married IN community of property.
Passive (interest, divs, rental); capital gains/losses
What income is deemed to be from a separate trade and is therefore NOT split between spouses married in COP?
Income from:
Pension, provident or RA funds
Purchased annuities
Royalties from design, patent, copyright etc.
_____ income is NOT split between spouses married IN COP.
Trade – taxed in the hands of the spouse who carried on the trade.
What are the requirements for a business to be a Small Business Corporation?
- 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!!
What is a “personal service”?
any service in field of accounting, actuarial science, architecture, auditing, engineering, education etc.
