INTRODUCTION TO

TAXATION
chapter one

Taxation a perspective
x

Taxes are levied by Government to

provide services to the people
Classification of taxes
Based on what the various taxes are levied
on
INCOME-Tax on income earned
CONSUMPTION-Taxes on the sale or use
of commodities. eg. VAT, excise duty
WEALTH-Taxes on ownership of assets or
capital gains realised on the transfer of
property. eg. CGT
OTHER-Taxes levied on specific business
transactions. eg. transfer duty

Types of taxes
Income tax
Capital gains tax
Value-Added-Tax(VAT)
Excise and customs duties
Transfer duty tax
Donations tax
Estate duty ta

Gross Income (Chapter 2)

- Exempt Income (Chapter 3)
= Income
MARRIED IN COMMUNITY OF
- Allowable deductions (Chapter 4)
PROPERTY
= Taxable income
Income derived from a trade will only be
+ Taxable capital gain
taxed in the hands of the spouse who is
- Further allowable deductions (Chapter 5)
carrying on the trade
= Total taxable income
Income that will be split
-Local and foreign interest
-Local and foreign dividends
-Rental income
Income that will NOT be split
-Income from PF, PrF or RAF
-Income specifically excluded from the
joint estate
-Any purchased annuity
Example 1.2

Framework for the calculation of taxable income

Example 1.1

MARRIED IN COMMUNITY OF PROPERTY

Income derived from a trade will only be taxed in the hands of the
spouse who is carrying on the trade
Income that will be split

-Local and foreign interest

-Local and foreign dividends
-Rental income
Income that will NOT be split

-Income from PF, PrF or RAF

-Income specifically excluded from the joint estate
-Any purchased annuity
Example 1.2

Calculation of net normal liability

YEAR OF ASSESSMENT
natural person ends 28/29 February
companies year end of the company
when taxpayer(TP) dies, period is from 1 March till date of death
a baby is born and is entitled to income, the year of assessment
is from date of birth till end of February
TP is declared insolvent, period from 1 March till date of
insolvency
TP earns income for the 1 st time, will have a period of
assessment of 12 months irrespective of date of employment
CURRENT YEAR
1 March 2014 28 February 2015

NORMAL TAX-s5
Applicable rates are determined annually by Parliament
Example 1.3
NORMAL TAX REBATES FOR NATURAL PERSONS-s6
Primary rebate (All natural persons) R13 257
Secondary rebate (Persons over 65 years) R 7 407
Tertiary rebate (Persons over 75 years) R 2 466
Example 1.4
MEDICAL SCHEME FEES TAX CREDIT-s6A
Applies to payments made to registered medical schemes
R270 to the person;
R270 for the next dependant;
R181 per additional dependant
Example 1.5

ADDITIONAL MEDICAL EXPENSES TAX CREDIT-s6B

Category 1: Taxpayers who are 65 years or older on the last
day of the year of
assessment.
Category 2: Taxpayers younger than 65 years on the last day

of the year of
assessment who is a person with disability or who has a child
or a spouse with a
disability.
Both categories can deduct medical contributions and medical

expenses in full.

 Category 1 and 2: Any taxpayer over than 65 year of

age and/or has a disability

Contribution made by the partnership
XXXXXX
+ Contributions made by the partner
XXXXXX
= TOTAL CONTRIBUTIONS
XXXXXX
Medical tax credit:(R270 pm + R270 pm
and R181 pm for each) x 3
(XXXXX)
= Excess contributions
XXXXXX
+ QUALIFYING EXPENSES
XXXXXX
XXXXXX
XXXXXX x 33.3%

 Category 3: Any taxpayer younger than 65 year of age

Contribution made by the partnership

XXXXXX
+ Contributions made by the partner
XXXXXX
= TOTAL CONTRIBUTIONS
XXXXXX
Medical tax credit: (R270 pm + R270 pm
and R181 pm for each) x 4
(XXXXX)
= Excess contributions:
XXXXXX
+ QUALIFYING EXPENSES
XXXXXX
XXXXXX
- 7.5% of the taxable income before
medical deduction
(XXXXX)
XXXXXX
XXXXXX x 25%

Framework for calculating net tax liability

Taxable income
Calculate normal tax from tables
- Natural Persons Rebates
- Medical Tax Credit
= Net normal tax payable
- Prepaid taxes (SITE and PAYE) (Chapter 10)
- Provisional tax (Chapter 10)
= Net tax liability
If net amount due is negative, the TP is entitled to a refund of the amount
If a refund is due, SARS will 1st refund the provisional tax paid and PAYE.

No refund on SITE
Example 1.6