Complete and detailed Law of Taxation notes. Includes detailed class notes, in depth case summaries and lecturer's test/exam tips and examples. Notes are set out in an organised, structured manner making it easy to understand.
Contents
1 Introduction........................................................................................................................................3
What is Tax?......................................................................................................................................3
2 Administration, Dispute Resolution and Interpretation....................................................................10
Administration: General..................................................................................................................10
Secrecy and Confidentiality.............................................................................................................10
Procedure for Collection..................................................................................................................13
3 Gross Income: General and Residence-Based Taxation....................................................................20
Introduction.....................................................................................................................................20
How is Taxable Income Determined?..............................................................................................20
Residence-Based Taxation...............................................................................................................21
4 Gross Income: Receipts and Accruals...............................................................................................27
Definition of Gross Income (GI))......................................................................................................27
5 Gross Income: Capital vs Revenue....................................................................................................39
Introduction.....................................................................................................................................39
The Tests..........................................................................................................................................39
6 Gross Income: Special Inclusions......................................................................................................62
List of Special Inclusions..................................................................................................................62
Exempt Income................................................................................................................................68
7 Gross Income: General Deductions...................................................................................................71
Introduction.....................................................................................................................................71
General Deduction Formula.............................................................................................................72
First Requirement: Expenditure and Losses.....................................................................................73
Second Requirement: Actually Incurred and Third Requirement: In Year of Assessment...............76
Fourth Requirement: In the Production of the Income...................................................................87
Fifth Requirement: Not of a Capital Nature.....................................................................................96
Sixth Requirement: Carrying on Any Trade....................................................................................110
Seventh Requirement: For Purposes of Trade...............................................................................113
8 Gross Income: Special Deductions..................................................................................................121
Introduction...................................................................................................................................121
Overlap, Unique Requirements.....................................................................................................121
Section 11......................................................................................................................................122
Pre-Trade Expenditure...................................................................................................................122
Legal Costs.....................................................................................................................................125
Repairs...........................................................................................................................................129
Assessed Loss and Balance of Assessed Loss.................................................................................139
9 Capital Gains Tax.............................................................................................................................142
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, Calculation of “Aggregate Capital Gain/Loss” (Phase 1)................................................................146
Main Elements...............................................................................................................................149
10 Anti-Avoidance.............................................................................................................................156
Tax Evasion v Tax Avoidance..........................................................................................................156
Tax Avoidance: Counter Measures................................................................................................156
Shams............................................................................................................................................158
Legislation......................................................................................................................................163
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,1 INTRODUCTION
Overview
- Definition
- History
- Constitution
- Classification of taxes
- Objectives of taxation
- What makes a good tax system?
What is Tax?
Definition
- Definition: legislation
o Definition in Income Tax Act 58 of 1962 (ITA)
“’Tax’ means tax or a penalty imposed in terms of this Act”
o Definition in Tax Administration Act (TAA)
“’‘Tax’, for purposes of administration under this Act, includes a tax, duty,
levy, royalty, fee, contribution, penalty, interest and any other moneys
imposed under a tax Act”
o Legislation does not help us much – definition not clear
- Definition: economics
o “Taxes are transfers of resources from persons or economic units to government
and are compulsory (or legally enforceable). There is not necessarily a direct
connection between the resources transferred to government and the goods and
services that it supplies.” - Black Calitz & Steenekamp
- Definition: tax law
o “…a monetary-based compulsory contribution payable by the public as a whole or a
substantial sector thereof to a government (at a national or subnational level).” -
Croombe et al.
o “Taxes … are general obligations for which:
payments are compulsory and are enforced in terms of legislation
no direct benefits accrue to taxpayers in exchange for payments made and
benefits are returned to groups of people, not identifiable individuals.”
Quote by Davis Tax Commission
Committee that investigates SA’s tax system and makes
recommendations
o Definition by courts: see later
- Summary of definitions:
o Taxation is compulsory
o It is made by a natural or juristic person (or any other person defined by the Income
Tax Act as a ‘person’) to the government
o There is no direct link between what you pay and what you get back
If we all pay our taxes we don’t necessarily see a direct benefit just to us
Government uses the tax money for whatever general purpose they want to
use it for, eg police force, build a hospital or a school, etc
3
, - Eg toll gate:
o It is more of a user charge than a tax because you do not need to use that road
History
- Tax developed simultaneously with the idea of an orderly society and government
o Ancient Egypt
o Roman times
- Virtually all societies impose tax
- Social contract
o In order to get services and to be properly governed taxes must be paid
o “Taxes are what we pay for a civilized society”
Compania Generalde Tabacos de Filipinas v Collector of Internal Revenue
275 US 87 (1927) at 100
o “A state cannot exist without taxes. Society receives benefits from them”
Pienaar Bros v C:SARS
Constitution
- Section 55(1)
o In exercising its legislative power, the National Assembly may—
(a) consider, pass, amend or reject any legislation before the Assembly; and
(This would include laws that tax people)
(b) initiate or prepare legislation, except money Bills.
- Section 213: National Revenue Fund
o Certain limitations when money can be withdrawn from the fund
o All money gets paid into this fund
- Section 228: empowers province to impose taxes
o Limited power
Type of taxes
Act of parliament needed
Why exercised
- Section 229: empowers municipalities to impose
o Rates on property
o Surcharges on fees for services provided by or on behalf of municipality
Buy electricity from Stellenbosch municipality but they may levy a surcharge
on that electricity
o Other taxes if authorised by national legislation
o Limitations
- Section 77(1)
o A Bill is a money Bill if it—
(a) appropriates money;
(b) imposes national taxes, levies, duties or surcharges;
(If government wants to impose taxes it has to do so by way of a
money bill)
(c) abolishes or reduces, or grants exemptions from, any national taxes,
levies, duties or surcharges; or
(d) authorises direct charges against the National Revenue Fund, except a
Bill envisaged in section 214 authorising direct charges.
- Money Bill
o There is a specific procedure to get a money bill through parliament
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