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TAX3701 Taxation of business income summary 2021
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1TXN203D - summary
Framework for calculation of taxable income :
R
Gross income xxx (gross income general definition & specific
inclusions)
less : exempt income (xx)
Income xxx
less allowable deductions (xx) (general deduction formula, specific deductions
& capital allowances)
Taxable income xxx (from revenue activities)
add Taxable Capital Gain xxx
Taxable income xxx
If given amount including vat 100/114
If want to calc vat owing on amount 14/114
Output vat = vat levied on sold goods
Input vat = vat that can be claimed back from purchase of goods.
Taxable supply
Standard rate supply Zero rated supply Exempt supply
14% 0% no vat
Supplies that are not Supplies listed in Supplies listed in
zero rated or exempt Section 11 of Act Section 12 of Act
Micro business CAN’T register for vat
Vat only claimable if goods purchased for purpose of making taxable supplies. If only part used
then can only claim part of input vat UNLESS 95% or more used for taxable supplies then can claim
full input vat.
Only fringe benefits and indemnity payments in output vat are apportioned.
Vat levied on imported goods :
customs value + 10% + customs duty + import charges x 14% = vat payable
If imported services then must pay vat on portion that is used for exempt supplies NOT if used for
vatable supplies
If vendor has paid vat on imported services then can’t claim it back as input tax – cos it is non-
taxable supply.
Zero-rated supplies
1. export of movable goods overseas (if delivered overseas) or goods delivered to foreign ship or
plane if for use on ship or plane
, 2
2. transport overseas (passenger or goods)
3. services rendered outside SA even if to resident
4. sale of going concern
5. sale of parts of enterprise if can operate separately and only for going concern part (must be
more then 50% for purpose of going concern)
6. small retailers vat package – pg 43/44 of t/book
7. 2010 world cup – only from one week before to straight after closing ceremony and only in
championship sites. Also supply of organisation, staging or hosting event by local organising
committee to FIFA. Vat free importing of goods for resale and consumption if by qualifying
person
8. goods and services for farming or agriculture
9. gold coins (i.e. Kruger Rands) by Reserve Bank
10. basic food stuffs e.g. milk. Brown bread, rice, veggies and fruit
11. fuel / illuminating paraffin
12. goods supplied to Industrial Development Zone (as designated by Minster of Trade and
Industry)
13. services for intellectual property rights outside SA
14. municipal rates
15. goods supplied to foreign company but delivered in SA to registered vendor and used to make
taxable supplies
ZERO-RATE IS TAXABLE SUPPLY SO CAN CLAIM BACK ALL THE INPUT VAT
EXEMPT NOT TAXABLE SUPPLY SO CAN’T CLAIM BACK INPUT VAT
Exempt supplies
1. financial services (currency exchange, share or member issue or transfer, credit and interest,
debt security, long term insurance policies – life or funeral – pensions, RA’s etc), but NOT
financial costs (bank charges).
If financial services outside SA then zero-rated!
2. donated goods and services by association not for gain
3. accommodation – hire and letting but NOT commercial accommodation, hotels or hostels
4. commercial property if less then 28 days - NOT old age homes, hospice, children’s or
handicapped homes or hotel, hostel or boarding house.
If more then 28 days then must pay vat on 60% of the whole charge (from the 1 st day onwards)
but vendor can claim full input vat
NOT if annual receipts are more then R 60 000 in 12 months
5. residential accommodation
6. sale or letting of land outside SA
7. services by body corp when paid for by levies
8. transporting fare paying passengers and their personal items in bus or tax (NOT game viewing)
on road or railway only – NOT courier company
9. educational services by state, school or varsity that is PBO
10. varsity, school, technikon or college fees
11. trade union memberships
12. child care services by crèche or after care
Deemed supplies (so are vatable)
ceasing to be vendor (vat must be paid on lessor of market or cost value of assets)
indemnity payments = insurance payments. Must be apportioned if only partly used for
vatable purposes. If insurance co. replaces goods instead of paying money then no vat payable
supplies to independent branches – if overseas then zero
fringe benefits to employees but not for exempt or zero rated items (meals or entertainment).
Vat paid on :
assets given to employees either for free or at low cost
, 3
right of use of asset e.g. car
services for employee for private purposes
release of employee from debt
Employee has right to use vehicle :
Motor car (NO INPUT VAT WAS CLAIMED) :
0.3% of value of car excluding vat and finance charges PER MONTH (so x 2 if for
2 months vat)
Vehicle (INPUT VAT WAS CLAIMED)
0.6% of value excluding vat and finance charges PER MONTH
If employee pays vatable expenses NOT if input tax is denied, then can deduct after
percentage calculated.
If employee pays all maintenance costs then deduct R 85 PER MONTH
Answer = output vat payable by the company.
pg 70 to 72 of t/book
higher payment then was charged – if not refunded in 4 months then output vat must be paid
on excess amount
VALUE OF SUPPLY = AMOUNT EXCLUDING VAT
CONSIDERATION FOR SUPPLY = AMOUNT INCLUDING VAT
Input vat
If only part of goods or services is used for taxable supplies then have to apportion the amount that
can be claimed for input tax, BUT if more then 95% then can claim the full input vat.
Turnover based method :
Deductible input vat =
total amt of input tax x value of taxable supply during period
Taxable, exempt and all other amounts
value of all other supplies received or accrued (even if not supplies
e.g. dividend income) but NOT capital
pg 86/7 of t/book goods. NOT including vat
Input vat denied on :
1. entertainment – food, drinks, accommodation, amusement, recreation or hospitality. Can claim
if seminar or event for reward or if for bona fide promotion purposes to entertain clients
2. club membership fees or subs – sporting, social or recreational clubs denied except for
professional membership for employee
3. motor cars – NOT ambulance, game viewing vehicle or hearse. NOT denied if vendor is car
dealer, rents cars or offers cars for prizes to people who aren’t employees
Deemed vat on second-hand goods can claim deemed input vat if bought from SA resident and
goods are in SA. Includes antiques, but NOT gold coins or animals.
Input vat is LOWER of purchase price or market value.
If more then R 1 000 then must have name, ID number and declaration from supplier
If cash and under R 50 then don’t need any documentation.
If buy second-hand goods and claim the deemed input vat and then export those goods then have
to pay output vat the SAME amount as was claimed IRRESPECTIVE of the selling price (even if
sold for less then what you bought for).
pg 92/3 of t/book
Installment credit agreements (suspensive sales and financial leases)
Input vat claimed on cash value of sales NOT including finance charges cos they are exempt.
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