Tax Exam Quick Notes
General
 Notwithstanding = despite of (e.g. Notwithstanding s23(g), any expenditure is deductible
= despite s23g, any expenditure is deductible)
 FRINGE BENEFITS
o Medical aid contributions paid by employer: 1 September 2019 to 31 January
2020 (after retirement)
o No value placed on the taxable benefit in terms of paragraph 12A(5)(a) of the
Seventh Schedule.
Donations Tax
Q’s Done (PACK):
 Sale of Trading stock → No CGT as P & BC = 0 → as they have been taken into account
for normal tax
 1) Gratuitous disposal
o Motivated by pure liberality or disinterested benevolence (no consideration/free)
 3) Exempt ito s58?
 2) Deemed Donation?
 3) Value
 4) Payable at end of month following the donation
 Remember annual exemption
o Co = R10 000
o NP = R100 000 e.g. D1 value = R9 000 -> R91 000 remaining
o On VALUE of donation(s) determined ito s62 (date order)
 If discussing ALL tax consequences remember
o Donations tax must be considered 1st as it can influence CGT calc
 Par 28 -> formula (person who pays adds to their BC)
o FMV = FMV
 If they give you FMV for bona fide farming then they have already
reduced it by 30% i.e. -> ALOMP x 70%... so don’t reduce it agin!
o Value of BD and UF -> Same Property (e.g. house/farm)
 1) UF VALUE = FMV x 12% x shortest of (PV Factor)
 Donor
 Donee
 Fixed period
 2) BD VALUE = FMV -UF
 NB New UF calculated -> UF =
o (on date BD acquired) FMV x 12% x shortest of
 Holder of UF (donee)
 Fixed Period
 [NOT DONOR EVER]
 THUS BD = (same) FMV – (new) UF
o Apportion Interest free loan on DAYS not months!
Deceased Estates and Estate Duty
 Age, if birthday has passed = CY – DOB
o If not had their birthday CY-1-DOB
 Person dies, D,
o -> Assets transferred to DE (treated as NP for CGT)
 -> Calcluate ESTATE DUTY
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Section 7B determines when variable remuneration accrues, namely when it is paid to
the employee.
o Leave payments in respect of periods of leave to which a person has become
entitled during his lifetime, but which was not paid out before his death, is one
example.
o These amounts was not received before death by the D, and it would only have
accrued to him on the date of payment.
It would, however, have been income in the hands of the D if it was received by him or
accrued to him during his lifetime. It must therefore be included in the DE’s income
DECEASED (D)
o CGT Consequences
 Annual Exclusion = R300 000
 If held fiduciary right or UF (i.e. transfers to beneficiary upon death) for a
property (eg holiday home) then, upon death
 Deemed disposal s9HA(1) but Proceeds = Nil, as the right ceases
at death
o NB it will have a value for estate
 ALL amounts which accrue to D in their lifetime = Income (s25) -> even if
they are only received after death
 If amounts ACCRUE/ARE RECEIVED after death -> included in
DE s25
o Value of UF -> Same Property (e.g. house/farm)
 1) Normal Rule
 AV = FMV of property (at date of death) x 12%
 Who is the right transferred to upon the deceased persons death?
(Beneficiary)
o ID PV factor of this person
 BUT is it only transferred for fixed period? (ie not for
rest of his life)
o UF = AV x shorter of the 2 PV factors
 Prov 1 -> applies if BD previously paid any consideration
(Bequest price)
o UF dies BD becomes holder “entitled to right of enjoyment”
o If BD paid any consideration (bequest price) then value of
UF must be reduced by consideration compounded at 6%
o UF = (AV – shortest 2 periods) – (Interest compounded)
 Prov 2 -> If BD becomes FULL OWNER (normally happens
when UF dies)
o Value of UF cannot exceed
 FMV @ date of deceased death (date of cessation)
and
 FMV LESS Value of BD @ date it was obtained (i.e.
when UF was created)
 VALUE of BD @ Date UF created =
o BD = FMV (‘old’) x 12% x PV factor
of original UF holder
 FMV @ date of Death – BD calc’d above
 LIMITED TO LESSER
 Include in Estate
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DECEASED ESTATE (DE)
o CGT
 DE treated for CGT purposes to dispose of asset as if it was made by D
(does not mean D and DE are deemed to be the same person)
 Annual exclusion = R40 000
Estate duty
o 1) Property included in deceased estate?
o 2) Deemed Property?
o 2) Value?
o 3) Abatement + Effect on NET VALUE of estate
o S25(6) -> avoid selling x asset to pay the tax if (Q2)
 Pays the amount of capital gains tax of deceased person, before taking
the capital gains tax due to deemed disposals upon death > 50% of the
net value of the estate of the deceased
 + Pay the amount of tax that exceeds 50% of that NET VALUE
 + within 3 years from date that the estate has become distributable
o FMV = FMV
 If they give you FMV for bona fide farming then they have already
reduced it by 30% i.e. -> ALOMP x 70%... so don’t reduce it agin!
o Value of BD and UF -> Same Property (e.g. house/farm)
 1) UF VALUE = FMV x 12% x shortest of (PV Factor)
 Donor
 Donee
 Fixed period
 2) BD VALUE = FMV -UF
 NB New UF calculated -> UF =
o (on date BD acquired) FMV x 12% x shortest of
 Holder of UF (donee)
 Fixed Period
 [NOT DONOR EVER]
 THUS BD = (same) FMV – (new) UF
o Apportion Interest free loan on DAYS not months!
Redistribution Agreement i.e. will says split 50:50, but beneficiaries agree after X dies to
split 70:30
o 1st workout estate duty ito the will -> will cannot be changed
o Therefore each beneficiary obtains rights to bequests stipulated in the will + these
rights are property as defined s55(1)
o 2nd The subsequent redistribution will trigger s58 -> If an heir/legatee waives any
part of a right in exchange for no or inadequate consideration, there will be a
deemed donation
 Person who ‘reduced %’ ito will makes deemed donation
 Donations tax on the value of reduced % at 20%
 Remember General exemption could be available, if the NP has not yet
utilized it in the CY -> R100 000 off VALUE of donation
Trusts (s9HA, s7, s25B, par 80)
 Q’s: 2(b), 3(a)(i)
 Testamentary (ito Will) consider s9HA
 Inter vivos (Created while person alive) Consider
o S7 + s7C
o Donations Tax
o Capital Gains Tax
 Q8 Good
o Annuity = Vested Right
o When donating a property -> will have a donation element = excess
 When property produces rent and rent is distributed -> split rent
distribution pro-rata
 Donor -> excess
 Beneficiary -> amount
 Look @ q8 and q10 for more clarification
Chapter 1 – 5 & 21
 Q’s done: q1, q5, q4 damages;
 Gross Income
o Capital or Revenue in nature
 Mixed intentions normally follow dominant intention BUT
 Dual Intention -> where one intention not being substantially dominant
over the other = revenue in Nature
o (Q4) ito damages being paid to a company
 Pertinent question -> Capital or Revenue in nature
 If capital -> excl GI but may have CGT
 Split into components if damages relate to more than one item
 Compensation for loss of income -> Revenue in nature = GI
 Compensation for repairs -> s11(d) recoupment -> par (n) incl GI
 Goodwill disposal = Generally capital in nature (CGT)
o (Q6) Res -> Non-Res
 S9H: Deemed to dispose date before leaving @ MV (P)
 + Reacquire on date of leaving @ MV (BC
 Thus will be CG/CL
 BUT if NON-RES subsequently disposes of the CAPITAL asset ->
must consider if it is still an Asset (in RSA) as defined ito par 2(2)
of 8th Schedule (e.g. Shares…)
o Exempt Income
 S10(1)(h) Interest Exemption for NR -> remember to test provisios (days)
o DTA’s
 STARTING POINT -> Are there any tax consequences in RSA?
 Yes -> Consider the DTA (tax treaty)
 No -> Then there is no need to consider DTA from SA perspective
 Remember that a DTA is read in conjunction with the Income tax act
 Thus consider everything that is applicable ito the ITA e.g.
Withholdings Tax on Interest, Immoveable property etc.
Ch 7 Natural Persons
 Q’s Done: q1 TI calc; q3 TI calc + discuss emigration + Normal tax (good), q5 NR +
WHT
 S10(2) -> foreign dividend [s10(1)(k)] and foreign interest [s10(1)(h)] portion paid out as
an annuity is NOT EXEMPT
 Discuss normal tax implications -> think about everything! GI? -> exemption? ->
deduction? -> CGT? -> income while OR = WWI -> Income while NR = RSA source ->
WHT interest & property
 (q5) -> TP has mixed intentions -> thus no dominant intention
CH 9 Retirement Funds
Q’s done : ILP1, 2
 ILP 2
o Lump sum benefit from divorce order on 31/8/20180
o R900 000 transferred from the MIR of her previous husband’s pension fund on
31/8/2018.
o This is a RFLWB ito par 2(1)(b)(iA).
o Par 6(1)(a)(i) applies iro deductions.
o Because the transfer was made from a pension fund to a pension fund the full
R900 000 can be deducted ito par 6(1)(a)(i)(aa). The taxable amount was
therefore +
Deductions + Capital Allowances
Questions done: 1, ILP
 Lessee Improvements
o Must be OBLIGATED ito agreement
o Only deductible when improvements COMPLETED
 Thus if pay deposit in 2019 YoA and only complete in 2020 YoA
 Not Deductible in 2019 → 2020 s11(g) deduction only
 S24C vs S24 = Relief for
o S24 Amounts ACCRUED
o S24C Amounts RECEIVED
o See ch 12 summary for full explanation
 S19 vs par12 A = Debt relief
o Ch 13 ILP (c) is good explanation
o Par12A → BC = Cost – Allowances Allowed – Debt Relief
 BC ltd to 0
 If debt relief left over → deemed recoupment
o S19(7)
 Allowance may not exceed Cost – Allowances – debt relief
 Remember BC gets reduced by allowances allowed each year
 ILP (e)
o Good example of s8(5) recoupment → choose most beneficial option
 SMALL ITEMS → Value PER ITEM < R7000
Ch 14 Trading Stock
Q’s done : ILP1
 Asset Manufactured → Change in Use (for trade)
o If par jA of GI applies → No deemed recoupment → Treated as Trading Stock
until disposed of