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Summary Taxation 388: Summaries for Full Year (All Prescribed Chapters)

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  • Taxation 388
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  • Stellenbosch University (SUN)

FULL YEAR NOTES! This document is the most comprehensive summary for the relevant chapters you will find! It includes SILKE notes, SAICA references, lecture notes, cases and PPPs. Over 100 students have bought Taxation 388 summaries from me in 2020 and they all rate the notes as 11/10. You will no...

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  • May 31, 2021
  • 273
  • 2020/2021
  • Summary

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  • tax
  • taxation
  • taxation 388
  • tax notestax summaries
  • tax summary
  • taxation notes
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  • taxation 388 notes
  • taxation 388 summaries
  • taxation 388 summary
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  • Stellenbosch University (SUN)
  • Taxation 388
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TAXATION 388
Notes made in the 2020 academic year


All notes up to and including Test 3 contents
(Test 1 + Test 2 + Test 3)


Tax email address:




TABLE OF CONTENTS

Chapter 1 ..................................................................................................................................................... 8
GENERAL PRINCIPLES OF TAXATION...................................................................................................... 8
Introduction to taxation: ......................................................................................................................... 8
Types of taxes ............................................................................................................................................. 8
1.1 Overview: tax policy .......................................................................................................................... 9
1.2 Tax base ............................................................................................................................................. 9
How should taxes be levied? .................................................................................................................. 10
1.3 Tax rate structure ............................................................................................................................ 10
1.4 Principles of taxation ....................................................................................................................... 14
Maxims of taxation (Adam Smith) ......................................................................................................... 14
Chapter 2 ................................................................................................................................................... 15
TAXATION IN SOUTH AFRICA ................................................................................................................ 15
2.2 Taxation in South Africa .................................................................................................................. 15
2.2.1 Brief history of taxation in South Africa ....................................................................................... 15
2.2.2 The legislative process ................................................................................................................... 16
2.2.3 Current tax legislation .................................................................................................................... 17
2.3 Administration of tax legislation..................................................................................................... 18
2.4 Interpretation of tax law.................................................................................................................. 18
2.4.1 Tax Legislation................................................................................................................................. 19
2.4.2 Judicial decisions ............................................................................................................................ 19
2.4.3 Rules of Interpretation.................................................................................................................... 20
2.5 Illustrating the components of normal tax and the interpretation of tax law in South Africa..... 20



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, 2.5.1 The incidence of normal tax (s 5) .................................................................................................. 20
2.5.2 Rate structure of normal tax .......................................................................................................... 21
2.5.3 Tax base of normal tax ................................................................................................................... 22
Broken years of assessment .................................................................................................................... 24
Chapter 3 ................................................................................................................................................... 26
GROSS INCOME ....................................................................................................................................... 26
3.1 Basic Framework to Calculate a Person’s Taxable Income........................................................... 26
The definition of ‘gross income’ [s1(1)] .................................................................................................. 26
3.2. Determine if taxpayer is resident or non-resident ....................................................................... 27
3.3 Meaning of ‘total amount in cash or otherwise’ ............................................................................ 33
3.4 Received by or accrued to .............................................................................................................. 34
3.4.1 Meaning of ‘Received by’ .............................................................................................................. 34
3.4.2 Meaning of ‘accrued to’ ................................................................................................................. 35
3.4.3 Valuation of receipt or accrual ...................................................................................................... 35
3.4.4 Unquantified Amounts ................................................................................................................... 35
3.4.7 Cessation of income ....................................................................................................................... 36
3.4.8 Time of accrual of interest payable by SARS .............................................................................. 37
3.5 Year of assessment .......................................................................................................................... 38
3.6 Receipts and accruals of a capital nature ...................................................................................... 39
3.6.1 Nature of an asset ........................................................................................................................... 40
3.6.2 Intention of a company .................................................................................................................. 40
3.6.3 Business conducted with a profit-making purpose .................................................................... 41
(3.6.4 & 3.6.5 & 3.6.7) .............................................................................................................................. 41
Mixed purpose .......................................................................................................................................... 41
3.6.6 Receipts and accruals of a capital nature (continued) ............................................................... 42
3.6.8 Secondary purpose ......................................................................................................................... 43
3.6.9 Receipts and accruals of a capital nature (continued) ............................................................... 43
3.6.10 Receipts and accruals of a capital nature (continued) ............................................................. 44
Exercise 1 ................................................................................................................................................... 45
Considerations to take into account: Capital vs Revenue in nature ................................................. 47
Exercise 2: .................................................................................................................................................. 50
Chapter 21 ................................................................................................................................................. 54
SOURCE AND NON-RESIDENTS ............................................................................................................. 54
21.1 Overview ........................................................................................................................................ 54
21.2 Principles of South African taxation of cross-border transactions .............................................. 56
21.3 Sources (s 9) ................................................................................................................................... 58
Statutory Source Rules .......................................................................................................................... 58
21.3.1 Source of dividend income ......................................................................................................... 58
21.3.2 Source of interest income............................................................................................................ 59
21.3.5 Sources of amounts derived from the disposal of assets ....................................................... 60
21.3.8 Source of amounts received from a retirement fund .............................................................. 61
Common Law Source Rules .................................................................................................................. 62
Common law source principles............................................................................................................... 62
21.3.4 Source of rental income ............................................................................................................... 62



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, 21.3.6 Source of income from services rendered ................................................................................ 63
21.5 South African taxation of income of non-residents ..................................................................... 64
21.5.2 Withholding taxes ................................................................................................................... 64
Withholding taxes on Immovable Property .......................................................................................... 66
Withholding taxes on Interest ................................................................................................................. 69
Withholding taxes: Summary ................................................................................................................ 71
Chapter 4 ................................................................................................................................................... 72
SPECIAL INCLUSIONS .............................................................................................................................. 72
4.1 Special Inclusions Fundamentals .................................................................................................... 72
4.2 Annuities .......................................................................................................................................... 72
4.3 Alimony payments........................................................................................................................... 74
4.4. Services ........................................................................................................................................... 74
4.5 Restraint of trade ............................................................................................................................. 76
4.6 Services: Compensation for termination or variation of employment ......................................... 77
Thought Process (4.6) ............................................................................................................................... 79
4.9 Lease Premiums .............................................................................................................................. 80
4.10 Compensation for Imparting Knowledge and Information ........................................................ 80
4.11 Leasehold Improvements ............................................................................................................. 81
4.12 Fringe benefits .............................................................................................................................. 82
4.13 Proceeds from the disposal of Certain Assets............................................................................. 82
4.14 Dividends ....................................................................................................................................... 83
4.19 Amounts required to be included in taxpayer’s ‘income’ .......................................................... 83
Guidance on Section Referencing ........................................................................................................ 86
Relevant Tables for Chapter 4 .............................................................................................................. 87
Table 1 – Subtotal method: Comprehensive framework for 2020 year of assessment .................. 87
Table 2 – Natural persons including special trusts, insolvent and deceased estates ..................... 88
Table 3 – Retirement lump sum benefits and severance benefits..................................................... 88
Chapter 5 ................................................................................................................................................... 89
EXEMPT INCOME ..................................................................................................................................... 89
5.1. Fundamentals ................................................................................................................................. 89
5.2. Exemptions incentivising investments .......................................................................................... 90
5.2.1. Interest received by Natural persons ......................................................................................... 91
5.2.2. Interest received by Non-residents ............................................................................................. 91
5.2.3. Amounts received from tax-free investents ............................................................................... 96
5.2.7. Proceeds from insurance policies .............................................................................................. 102
5.3. Exemptions relating to dividends ............................................................................................... 104
5.3.1. Dividends from resident companies ......................................................................................... 105
5.3.8. Foreign dividends ........................................................................................................................ 106
5.4. Exemptions relating to employment .......................................................................................... 108
5.4.1. Foreign pensions ......................................................................................................................... 108


3

, 5.4.2. Unemployment insurance benefits............................................................................................ 109
5.4.3. Uniforms and uniform allowances ............................................................................................. 109
5.4.4. Relocation benefits ...................................................................................................................... 109
5.4.9. Employment Outside RSA .......................................................................................................... 110
5.5. Exemptions that Incentivise Education ....................................................................................... 111
5.5.1. Bursaries and Scholarships ......................................................................................................... 111
5.10. Exemptions aimed at amounts that are subject to withholding tax ....................................... 113
5.10.3. Interest Paid to Non-residents ................................................................................................. 113
5.11. Other Exemptions ...................................................................................................................... 113
5.11.1. Alimony and Maintenance........................................................................................................ 113
5.11.4. War Pensions and Awards for Diseases and Injuries ............................................................ 114
Chapter 6 ................................................................................................................................................. 115
GENERAL DEDUCTIONS ........................................................................................................................ 115
6.1. Overview ....................................................................................................................................... 115
6.2. Meaning of ‘carrying on a trade’ ................................................................................................. 116
6.3. General deduction formula (GDF) ............................................................................................... 119
6.3.1. ‘Expenditure and losses’ ............................................................................................................. 120
6.3.2. ‘Actually incurred’ ........................................................................................................................ 120
6.3.3. ‘During the year of assessment’................................................................................................. 122
6.3.4. ‘In the production of income’ .................................................................................................... 122
6.3.5. ‘Not of a capital nature’ .............................................................................................................. 124
6.5. Section 23 Prohibited Deductions .............................................................................................. 127
6.5.1. Private maintenance expenditure.............................................................................................. 127
6.5.2. Domestic or Private expenditure ............................................................................................... 127
6.5.12. Expenditure relating to Employment or Office ..................................................................... 128
6.5.6. Expenditure incurred toproduce exempt income................................................................... 131
6.5.7. Non-trade expenditure ............................................................................................................... 132
6.6. Prohibitions of double deductions .............................................................................................. 133
6.8. Excessive Expenditure ................................................................................................................. 133
6.9. Cost of assets and VAT ................................................................................................................ 134
6.10. Specific Transactions.................................................................................................................. 135
6.10.1 Advertising ................................................................................................................................... 135
6.10.2 Copyrights, inventions, patents, trademarks and know-how ............................................... 135
6.10.3 Damages and compensation .................................................................................................... 135
6.10.4 Education and continuing education ....................................................................................... 135
6.10.5 Employment and services rendered ........................................................................................ 135
6.10.6 Fines.............................................................................................................................................. 136
6.10.7 Goodwill ....................................................................................................................................... 136
6.10.10 Losses: Fire, theft and embezzlement ................................................................................... 136
6.10.11 Losses: Loans, advances and guarantees ............................................................................. 137
6.10.12 Losses: Sale of debts................................................................................................................ 137
6.10.13 Provisions for anticipated losses or expenditure ................................................................. 137
Chapter 7 ................................................................................................................................................. 138
NATURAL PERSONS ............................................................................................................................... 138



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