Summary

Summary Taxation 298 Semester 1 Notes

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Course
Taxation 298 (TAX298)

Institution
Stellenbosch University (SUN)

Summary notes of Tax298 including Specific Inclusions, Exempt Income, General Deduction Formula and Natural Persons. SILKE Chapter 4,5,6,7

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Taxation 298 Notes (Semester 1 + 2)

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1. Summary - Taxation 298 semester 1 notes
2. Summary - Taxation 298 semester 2 summary
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Taxation 298
Chapter 4 – Specific Inclusions

 Par (a) – (n) of the definition of ‘gross income' includes certain amounts in
gross income, even though they may be of a capital nature
o ALWAYS included whether its income or capital in nature
o These take priority over the general definition of gross income (first
check if it is a specific inclusion and if not, check general definition)
Par (a) – Annuities
 Excludes par d(ii) amounts (all amounts received from employer-owed
policies of insurance)
 Living annuity = receive annuity from retirement fund after retirement
 Annuity amount = payable per annuity contract or conversion/termination of
contract
Characteristics of an annuity:
 Annual payment (can be divided into instalments)
 Repetitively payable from year to year, at any rate for a certain period and
 Contractually chargeable against some person
Examples of how an annuity may arise:
 Purchased from an insurance company
 Granted by way of donation or bequest through trust or otherwise
 Received as consideration for the sale of a business or asset (goodwill)
 Surrender of a right
Examples of amounts that ARE NOT annuities:
 Voluntary payments, even if made regularly, cannot be annuities  someone
must be obligated to pay
 Settlement of debt in instalments
Par (b) – Maintenance Payments
 Included in gross income for the receiving spouse
 Any amount payable to the taxpayer
i. By the former spouse of TP, under any judicial order/written agreement
of separation or any order of divorce, by way of alimony or allowance
or maintenance of the TP OR
ii. i.t.o. maintenance order (s 7(4))
 remember s10(1)(u) exemption

Please do not distribute

, Par (c) – Services
 Amounts received/accrued in respect of:
o Services rendered or to be rendered (including voluntary reward) OR
o Employment or the holding of an office (but not s8(1) or 8C amounts)
o Proviso (i) [par (i) overrides par (c)]
 Proviso (ii)  amount received by a person for services rendered by another
person is specifically included in gross income of the person who rendered
the services.
 When is it taxable?
o In the year in which the amount is received / accrued irrespective of the
period to which the services relate
 Accumulated leave pay-outs are included in terms of par (c) and not in terms
of par (d)
Par (cA) and (cB) – Restraint of Trade

When employer doesn’t allow previous employee to render their services for specific
time/location & receives compensation therefore.
A restraint of trade is NOT a payment for services rendered, but a payment for an
undertaking NOT TO render services.

 Right to trade freely = capital asset
 Restraint of trade payment = capital in nature, but still gross income because
of specific inclusion
 Par (cA) = person is a LB or PSP / PSC / PST: any restraint of trade payment
 Par (cB) = person is a natural person receives restraint of trade payments in
respect or by virtue of
o Any past, present or future employment or
o The holding of an office

Par (d) – Services: Compensation in respect of the termination of employment

Please do not distribute

,  d(i), d(ii) and d(iii)  only lumpsums EXCEPT d(ii) includes annuities from
policies as well
 d(i): lump sums from employers
o Relinquishment, termination, loss, repudiation, cancellation, or variation
in office/employment from employer or associated institution/possible
severance benefit
 d(ii): lump sums paid from employer-owed policies of insurance
(including annuities par (a))
o Proceeds of policy of insurance directly or indirectly paid to employee /
dependent / nominee
 d(iii): Policy of insurance ceded to employee/dependent/nominee (except
where the policy is a risk policy with no cash value or surrender value)
 Proviso (bb) = Amount payable after death; deemed accrual to employee
immediately before death
 Proviso (cc) = Amounts paid/ceded to dependent/nominee of employee are
deemed to be received by or accrued to the employee
 Severance benefit (SB) = par (d)(i) lump sum received from an employer who
is not a fund if one of the following requirements (per the definition of
severance benefit in section 1(1)) is met:
o Person has reached the age of 55; or
o Person became permanently incapable to continue employment due to
sickness, accident, injury etc.; or
o Person’s employer ceased trade / employee has become redundant
(NB! If the employee at any time held more than 5% shares in the
company and received the lump sum due to the person’s employer
ceasing trade or the employee becoming redundant, then it is not a
SB)
 NOTE: TP would want something to be a SB because you pay less tax
Par(f) – Services: Commutation of Amounts Due
 “Commutation” = substitution
 One type of amount due in terms of a contract of service or employment is
substituted for another type
 Par (f) can also be a severance benefit
 There is little need for par(f) because of wide scope of par(d).
Difference = par(f) is applicable to any contract, employment, or service
 Example: An employee may substitute his right in terms of his service
agreement to be given notice before the termination of his services for a cash
payment

Par(g) – Lease Premiums

Rent = received for use of asset
Rental deposit = received upfront
Please to do
cover
notpotential
distribute
losses (normally refundable)
Upfront rental receipt = bullet rental and is for use or right of use and is rent

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Summary Taxation 298 Semester 1 Notes

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