TAX 1 – ACC2023H summary – 2024 Year (second year)
MOD 1/2
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Tax to raise revenue, redistribution (social grants), market failures (carbon tax),
behavioural changes (sin tax).
4 maxims – Equality, Certainty, Convenience, Economy (ECEC)
Good practice criteria in tax design – Efficiency, Equity, Buoyancy, transparency and
certainty, simplicity (BEETS)
Individuals. companies, trusts = separate taxpayers
Sole proprietorship & partnerships are not separate tax payers (sole prop/partners
are taxpayers)
Marginal tax rate= tax rate on last R1 = 26%
Effective tax rate = average tax rate = 28 797/ 250 000 = 11,5%
Tax morale = Intrinsic motivation to pay tax
Tax morality = Degree of honesty you apply in tax planning (fwd looking) or tax
compliance (backwards looking)
Evasion (illegal), avoidance and planning (legal)
Safeguards = Legislation, King IV, Professional codes of conduct (CPC from GAA),
personal ethics
To interpret leg
- strict literal approach (OLD) – grammatical/ordinary meaning of words on page absurd
- Purposive approach – (NEW) – consider the meaning of words, context of
provision, purpose – objective not subjective- weigh different meanings
 “Subject to” = Another section might override this section
 “Notwithstanding” = This section overrides/trumps another section
 “Provided that” = limits/qualifies whatever came before (a proviso)
Mod 3 – SA residence/source
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Residence -> source -> special inclusion -> Gross inc def (GID)
Natural person is a resident if:
-ordinarily resident in SA; OR
-meet requirements of physical presence test (PPT)
 Companies, Trusts, etc are a resident if:
-Incorporated, established or formed in SA; OR
-Has place of effective management in SA (POEM) (not day to day decisions)
 Ordinarily resident
Case law
- You are ordinarily resident in the country where you have your usual principle
residence (ie real home)
- Natural person is ordinarily resident in country you will return to after your
wandering
Time
Commences/ceases on day criteria met to apply. (Eg if John leaves SA on 29 June
permanently he will no longer meet OR test on 29 June.)
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Physical presence test: (6 years of data) Physically present in SA for more than:
- 91 days in current YOA
-
91 days in each of preceding 5 YOA’s
915 days in aggregate in preceding 5 YOA’s
o Treated as a resident from beginning of YOA
o If PPT met, ceases on date of leaving once absent for at least 330
continuous full days otherwise at year end
 (Eg Sarah meets PPT criteria but decides to return home
 If Sarah stays outside SA for at least 330 continuous days,
her tax residency ceases on date she leaves
 If she returns to SA before 330 continuous full days outside
SA, her tax residency will cease at the end of the SA tax
year)
EG – Mrs P was ord res in SA from 2015-2021 tax years, in 2022 tax year she moved to
London where she is now ord res in London. (2015-2021 YOA=365 days in SA; 2022 =185
days) Would Mrs P have been a SA resident in 2022?
Ord res in SA up until date of leaving to London thus Yes, only resident in SA for 185 days in
2022 YOA, MUST wait until 2023 to apply PPT, can’t use 2 tests in 1 YOA (PPT & Ord res)
Source (mod 3 book 2)
*Not relevant for SA residents as they are taxed on worldwide income.
 Section 9 – included in gross income:
o
Dividends
 – ITO Inc Tax Act all dividends are from SA Source, however Inc Tax Act
defines div as being from a resident co.
 If Co. declaring & paying div is resident then its SA source
 Therefore, any dividend received or accrued to a person.
o
Interest
o
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If incurred(paid) by a resident (unless attrib. to PE
wwweweee situated outside SA); OR
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If received/accrued w.r.t funds used or applied in SA.
Royalties – amount received from use or right to use intellectual property.
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If incurred by a resident; OR
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If in respect of use of intellectual property in SA.
o Lump sums, pensions & annuities/services rendered (paid from Retirement
fund, pension fund, provident fund)
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W.r.t services rendered within SA
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SA source= amt x (SA years of service/total years of
wwwwwww service
o Scientific, technical, industrial or commercial knowledge.
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If incurred by a resident; OR
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If in respect of information used in SA.
o Disp. of immovable property
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If property situated in SA
o Disp of moveable property
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Person is resident AND asset not attrib to PE outside SA
wwwwwww AND proceeds not taxed by any other country; OR
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Person is Non-resident AND asset attrib to PE situated
wwwwwww in SA.
 Only if NOT dealt with in sec 9. i.e. if you use sec 9 then you CANNOT use case law.
o
1) what is the originating cause 2) where is the originating cause
located – if 2’s ans is SA then SA source.
o
Use for alimony/maintenance/services rendered/salaries/rent inc/inc
from trading operations
S9(4) – foreign div is not SA source.
MOD 4 Special inclusions & GID
Special inclusions
Overrides GID but not source
Include into gross income even if cap in nature
Para (a)
Annuities
Para (b)
Alimony or
maintenance receipts
Incl. amts received from pension/retirement/provident
fund
Excl. life insurance pol held by individuals employer
Payments received Incl. amts for services rendered OR to be rendered
Para (c)
Only applies to natural peeps
for services rendered
Incl. voluntary award
Restraint
of
trade
Only applies to individuals not Co.
Para (cA)
and (cB)
payments
Incl. amt paid by employer wrt service contract breach,
Lump sum benefits compensation to director who loses directorship,
compensation for variation in lease entitlement in service
Para (d) arising from variation
contract, accumulated leave pay, all of abv to dependants
of office.
of deceased employee
Excl. lump sum from retirement funds
Para (gA) Know-how receipts Scientific/tech knowledge
Para (i)
Para (jA)
Para (k)
Para (m)
Para (n)
Fringe benefits
Incl: employer contrib to medical aid/RAF
Use of employer owned car
Use of accommodation provided by employer
Schooling of employee’s children paid by employer
Clothing given to employer
Asset must be manufactured, produced, constructed,
assembled by TP (taxpayer)
Disp of Asset similar
Asset must be similar to other asset TP has manufactured,
to T.S
…
Excl bought assets
Dividends or foreign
dividends
Amts wrt pol of insurance on employee/director’s life is
incl. in EMPLOYER’S GI if:
Employer is policy holder &
Key-man insurance
Pol relates to death, disablement, illness of
policies
employee/director
Loans are incl provided amt taxed when proceeds are paid
out is reduced by loans prev incl. in employer’s gross inc
Recoupments & Eg S8(4)(a)
other inclusions
General Gross Income Definition (GID)
Defn:
In any year or period of assessment,
i.
In the case of any resident the total amount in cash or otherwise received by or
accrued to or in favour of such resident; or
ii.
in the case of any person other than a resident, the total amount in cash or otherwise
received by or accrued to or in favour of such person from a source within the
Republic, During such year or period of assessment, excluding receipts or accruals of
a capital nature,
Components
Total amount
 Not only money but every from of property earned by taxpayer.
 Onus is on SARS
In cash or otherwise
 If a ‘benefit’ is received and this ‘benefit’ has an ascertainable monetary value, there
is an ‘amount’ that has been accrued to taxpayer.
Received by
 If amount received for taxpayer’s own benefit and on his own behalf
 If intended to receive amount for their own benefit (eg money for stolen goods)
 Deposits received for taxpayer’s own benefit should be included in GI (where
deposits are not deposited into a separate trust acc., these deposits will be incl. in GI
as TP has received dep for their own benefit.)
Accrued to
 Incl. in GI in YOA TP becomes entitled to amt even if amt may only be received later.
 Unconditionally entitled
SN: amts incl. in GI at earlier of receipt or accrual
SN: Once amount beneficially received by taxpayer and he has no legal obligation to pay it
(only moral) then it will be incl into GI (EG charity money held by TP and TP has not divested
themself of the income.)
SN: value of accrual is market value of asset or face val of debt
Not of Capital Nature
 No half-way house bet cap/rev
 Tree (cap) vs Fruit (rev)
 Fixed (cap) vs Floating capital (rev)
 Income earning structure (cap) vs Result of its use (rev)
 Taxpayers intention on acquisition of asset is deceive unless change of intention
 Intention can either be speculative ( profit making scheme (rev)) OR
investment(ROI(cap))
 There mere intention of profit is not conclusive there must be an operation of
business in carrying out a profit making scheme for rev which refers to use of TP’s
skills
 Change in intention
o To sell/realise at best advantage is NOT a change in intention
 Eg to dispose of something in the most beneficial way (eg selling big
building in many units is not a change in intention)
o To sell at a profit is NOT a change in intention
 Eg. You can sell at best price
 Crossed the Rubicon – crossing the point of no return eg farmer had land which he
planted crops and sold crops hence land was cap. Farmer then started selling land
as property developer hence land now used differently hence revenue in nature
Determining intention
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Onus is on taxpayer to prove non-taxability / item cap in nature
Subjective test= intention of taxpayer (ipse dixit)
Objective test (B TARIFF O)
o Nature of TP business – if cars are fixed capital (delivery veh) or
floating capital (sell cars)
o Length of time held – Long => cap
o Nature of asset (tree/fruit//enduring benefit)
o Reason for sale (driven by profit?/ Look at change in intention)
o Income Stream
o Finance (long term loan to buy asset => cap , credit card pmt => rev)
o Frequency of sale- often => cap
o Occupation
SN: this is how you phrase
“Length of time held: Bob held bldging for 29 years
Therefore indications capital in nature”
Damages and compensation
 If amt received for loss of capital asset = cap
 If amt received to compensate TP for loss of profits = rev
o “Is intention to fill hole in TP’s profits or assets” – EG boat damaged if amt
paid to fix hole in boat then cap but if boat was used for cruises and now
peeps can go then amount paid for loss of rev
 A receipt arising from the cancellation of trade agreement is normally REV. However
if loss of contract is so crucial that it would cripple the business then can be CAP
 Just because value of amt determined with refence to loss profits does not mean that
it was compensation for lost profits
o AMOUNT PAID FOR LOSS OF A RIGHT IS CAPITAL IN NATURE
Fortuitous gains (gifts, inherited amts, prizes, donations) are CAP
 Prize for premier league to Percy Tau is not fortuitous gains as he would have
rendered services (play soccer for that award therefore gross income para (c) (I think
you can say the same as above when someone gets an employee of month
award/prize)
Gambling
 Sporadic(random) success = cap
 Professional= rev
SN: illegal contracts have tax consequences
SN: SIOPAC / SOIPAC
 Section- All req of GID need to be met for an amt to be incl in GI
 Onus: Onus is on _____ (TP) / SARS to prove non-taxability/ taxability ITO S102 of
TAA
 Issue: Amount is clearly not of cap nature, in cash and received by TP as______.
Issue is whether amount has accrued to TP. Accrued to is not defined in leg therefore
look to case law.
 Principle:
 Application:
 Conclusion: Therefore amount is received by TP therefore incl in GI
MOD 5: Exemptions (ITO INCOME)
Amts/Income was included in TP’s GI and they are no fully/partially EXEMPT (removed)
Amt must be inl in GI to be exempt, (full or partial exemption) , exemptions cannot exceed
included amt)
Section
s10(1)(h)
Name
Exemption
Non-resident SA source int accrued to/received by non-Res is
Interest
FULLY exempt
Exemption
 Provided recipient has not been in SA for >
183 days prior to receival or carried on
business through PE in SA
 Provided not paid in annuity
Included
via
GID
s10(1)(i)
If u qualify for exemption u will pay 15%
withholding tax (if u don’t, u wont)
Natural peep exempt (apportion if needed)
Local interest
- Under 65 = R23 800 per year
exemption
- Over 65= R34 500
GID
SN: Residents that have foreign int income -> THERE IS NO EXEMPTION ON
FOREIGN INTEREST
SN: COMPANIES DO NOT GET INTEREST EXEMPTION ONLY NATRUAL PEEPS
SN: if conditions not met for s10(1)(h) then apply s10(1)(i) exemption
Full exemption
Gross inc
s10(1)(k) SA dividends
Provided not paid in annuity
para (k)
Gross inc
 Holds at least 10% equity shares = full
para (k)
exemption
Foreign
s10B
 Less than 10 %
Dividends
o Natural peep= div x 25/45
o Co. = div x 7/27
 For dividends you often have to gross up amt as the amt that accrues is
inclusive of withholding tax (the withholding tax would have been removed
by the time it reached TP’s bank account hence to 86 000 received in bank x
100/88 = 97 727 exempt as withholding tax is 12%. (SA resident co receiving
div is not subject to div tax only natural peeps therefore don’t gross up if
doing SA resident co. receiving div)
 When doing 3 column approach you must remember to include the amount
FIRST and THEN exempt it.
Y=A/B x C
GI para
Y= exempt amt
(a)
Purchased
s10A
A= Amt given to purch annuity
Annutity
B=total expected receipts from annuity
C=Annuity amount included in GI (in YOA)
Portion of annuity exempt
GI para
X=A-D
(a)
X= The amount of the exemption
A = Cash cost to purch annuity(same)
D= All exemptions granted to date
 (EG If annuity paid R1000/month and u cancel
after 5,5 years. Annuity was for 50 years and u
paid R500 000 for it. Can do shortcut:
Cancellation of Annuity pmts received to date = 66 months x R1000
annuity
= R66 000 Then (A/B) x 66 000 = D
= (R500 000/(50 years x 12 months x R1000)) x
66 000 = R55 000 = D
Then X= 500 000 – 55 000)
OR u can do exemption for 1 year = 500 000/600
000 x 12 000= 10000= amount exempt per year
Then do 10 000x 5,5 years =55 000 = D
Then do X-D
Monthly amounts incl via GI para (a)
Lump sum on termination incl. via GI para (a)
Exemption s10A for monthly amounts for YOA (Y formula)
xxx
xxx
(xx)
Exemption s10A for terminated amount (X formula) BUT THIS IS LIMITED TO
special inclusion termination amount
(xx)
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s12T
s10(1)(nA
)
Income/Cap gains/losses are exempt
Contrib limited to 36 000 per year and 500 000
in aggregate
Excess contrib are taxed at 40%
Tax free
investments
Uniform
allowance
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s10(1)(o)(i Peeps employed 
i)
outside SA
Requirement to wear clothing
Clearly distinguishable (logo/colour)
Special incl. and exemption is for employee
GI para
Remuneration must not exceed 1,25mil; and
(c)
Outside SA for 183 full days; and
For continuous period of 60 full days during 12
month period; and
Services rendered outside SA
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s10(1)(q) /
s10(1)(qA
)
Bursary/
scholarship
Alimony &
Maintenance
Amts
included
as per
specific
line
items eg
interest
included
via GID
Div via GI
para (k)
GI para
(i)

Salary Sacrifice means NO EXEMPTION
If bursary to employee= full exemption
Employee must agree to reimburse if fail
If bursary to relative of employee
o If remuneration > 600k => not
exempt
o If less look at amts in leg
S10(1)(qA) is bursary granted to someone
with disability
Bursary for employee/relative included in
TAXPAYER’S GI
GI para
(i)
GI para
(b)
s10(1)(u)
GID
s10(1)(gD
)
Funeral Benefits
Insurance
Relates to policy owned by EMPLOYER on behalf of
s10(1)(gG benefits accruing employee
)
to employees
Policy Payouts
of individual
owned insurance
s10(1)(gl)
policies
GID
s10(1)(m Unemployment
B)
Benefits
GI para
 Employer must request employee to relocate
(i)
 Employer borne the expenses of: transport,
costs of selling previous and settling into new
s10(1)(nB Reallocation
residence, temp accommodation for 183 days
)
Allowances
Reduction in Eg if you employee peeps bet 18-25 you(employer)
employees’ tax can get reduction in employee tax
payable by
s10(1)(s)
employer
GID
War pension/
mining diseases
s10(1)(g) compensation
GID
s10(1)(gA
Disability
)
pension
GID
From workmen’s compensation
Death of disability pension from employment
RAF compensation
Occupational injuries and Diseases Act
compensation
Death benefits paid by employer
s10(1)(gB
Workmen’s Pension paid wrt death/disablement caused by
)
compensation occupational injury/disease
GID
Amt from social
s10(1)(gC security outside
)(i)
SA
MOD 6 Prohibitions & specific deductions (ITO EXPENSES)
These are in terms of expenses that you PAY. Some expenses can be deducted from GI
(reduce GI) and some cannot reduce GI (are prohibited from being deducted).
1) Prohibitions (you CANNOT deduct this from GI)
2) Specific Deductions (you CAN deduct this from GI)
3) General Deduction formula
Prohibitions / Disallowed Deductions – s23
S23(a) &
(b)
Private/domestic 
expenditure + 
proviso deduction 
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S23(a) – maintenance of TP/family
S23(b) domestic/private expenditure
Provisos
Proviso (a) - is deductible if: Portion of the private
dwelling is specifically equipped for trade and regularly
and exclusively used for that purpose (and not
employed);

S23(c)
Insured losses
S23(d)
Tax penalty /
interest on tax
S23(e)
Provisions
S23(f)
Expenses to
produce exempt
income
Proviso (b) – if full-time salaried employee – is
deductible if: Portion of the private dwelling is
specifically equipped for trade and regularly and
exclusively used for that purpose; AND
 One of the following applies:
o Income is derived mainly from commission and
duties are mainly performed outside any office
provided by the employer; OR
o Employee duties are mainly performed in such
part.
 SN may need to apportion based on meters
squared/percentage used for trade
Loss/exp prohibited to extent recoverable
Prohibits deduc of income carried to any reserve fund or
capitalised
Prohibits expenses incurred to earn exempt income/ amts
which are not income as defined
Must apportion if exp relates to both exempt and nonexempt inc. Eg if you incur R100 of audit fees to earn R20
local div and R50 royalties you will have:
Div inc
Royalty ic
Local div
exemption
AUDIT FEES
GI para (k)
GID
S10(1)(k)
20
50
(20)
S23(f) 100x 20/70
(28)
(Expense to earn local div cannot be deducted as local
dividends are exempt hence not income as defined)
Prohibits deduction of money paid to the extent that not
Non-trade
S23(g)
expended for purposes of trade. (if exp to earn stuff for
expenses
trade and non trade then apportion)
Prohibits the deduction of interest which might have been
S23(h)
Notional interest made on any capital employed in trade (eg. If you had
invested in co.)
Restraint of trade PROVISO DEDUCTION AS PER SPECIFIC DEDUCTION S11(cA)
S23(l) payments + proviso
deduction
Applies to employees earning remuneration
Does not apply to peeps earning mainly on commission
Prohibited unless allowed by : PROVISO
S11F
S23(m)
Expenditure relating S11(c)
to employment+
S11(e)
proviso deduction S11(i)
S11(j)
S11(nA)
S11(nB)
S11(a)/(d)
Contributions to pension, provident or retirement
annuity fund
Legal expenses
Wear and tear
Bad debts
Allowance for doubtful debts
Refund relating to services rendered
Refund relating to restraint of trade pmts
Rent / cost of repairs of/ expenses wrt domestic
premises which are not disallowed under s23(b)
S23(o)
S23(q)
S23(r)
Fines/Corrupt Bribes
Activities
Expenses to earn Eg interest incurred on loan to buy foreign shares
foreign dividends
Premiums on life/ If policy covers against: Unemployment, death, disability,
unemployment illness, injury
policies
Specific Deductions/ allowable deductions S11
 Before S11 specific deductions can be claimed you must meet preamble of S11 “For
the purpose of determining the taxable income derived by any person from carrying
on any trade, there shall be allowed as deductions from the income of such person
so derived”
 Trade must be given widest possible interpretation
 Interest income/ dividend income is excluded from trade definition as its passive
source of income.
 Rent/royalty income is included in trade defn.
Specific Deductions/ allowable deductions S11
S11(d)
S11(e)
s24J
S11(c)
S11(cA)
S11(i)
Repairs
General wear and
tear
Interest expense actually incurred by TP from carrying on
any trade (1) can be deducted; provided incurred in the
production of income (2)
 Actually incurred by TP during YOA
 Wrt claim/dispute/action at law
 Ordinary operations in carrying on a trade
 Not of cap nature
 Provided that (limitations)
1. Not cap in nature
2. (applies when business is being sued &) legal exp
are deductible if the claim that business would pay
Legal expenses
would result in a deductible expense if the business
loses.
3. (applies when business is suing a 3rd party &) legal
exp are deductible if the claim that business would
receive would result in taxable income if the
business won.
(SN 2/3 => the deductibility of the legal fees follows
the deductibility/taxability of the underlying claim)
Interest
• Actually incurred
• Carrying on trade
Restraint of trade • To natural person
payments
• Constitute income to person paid
• Limited to LOWER of (Amt/years) or (1/3 * Amt)
• Do NOT apportion
• Debts DUE TO TP
Bad debts
• Become bad during YOA
• Amts which have been included in the taxpayer’s
income( in current or prev YOA)
• SN: Credit sale[TP made credit sale to cust] would hv
been included in TP’s GI ( as earlier of date of
accrual/receival) but loan[TP gave a loan to cust] (capital
portion of loan) would not be included in TP’s GI (as right
to cap portion of loan is cap in nature) but interest on loan
can be deductible.
•SN: If they do not give you the BD amt you have to do
SOCI BD amt +- the movement in ALL4DD to reverse the
movement in ALL4DD to get the tax deductible amt.
EG: SOCI Bad Debts= 31 000
And if ALL4DD decreased from 12k to 10K then you add 2k
to 31k to give you 33k as amt deductible under s11(i). [As
ALL4DD dec hence Dr ALL4DD Cr BD therefore to reverse it
we increase BD]
•SN BD recovered will be added back to TI under s8(4)(a)
recoupment
• Debts DUE TO TP
• Would have qualified for section 11(i) if the debt has
gone bad (i.e. the amount was included in the taxpayer’s
Allowance for income)
S11(j)
doubtful debts • Look at if IFRS applied or not
• SN must do current year ALL4DD DEDUCTION then must
ADD BACK the previous amount which you would have
deducted last year for ALL4DD
• Contributions made by an employer
• During YOA
Fund contributions
S11(l)
• For the benefit of any employee
by EMPLOYERS
• To any pension, provident and retirement annuity fund
• SN: Not Medical Aid contributions
• Paid by employer to former employee, former partner or
Annuities paid to
S11(m)
dependent of a former retired or deceased employee or
former employees
partner
• If employee received amt wrt employment which was
prev included in employee’s TI; AND
Refunds of amts for • Has been refunded by that employee
S11(nA);
services rendered EG amt received from maternity leave provided she will
s11(nB)
and restraints return, if she doesn’t come back, the amt she must return
to employer is deductible. Same EG if Restraint of trade
agreement broken.
 REGISTRATION of intellectual prop
 Actually incurred
S11(gB) Intellectual property  Production of income
 FULL amt


s11(gC) Intellectual property

ACQUISITION of intellectual prop (from someone else)
Actually incurred
Brought into use for 1st time in trade and in produc. of
inc.
s11F
S11(x)

Limitations on amt

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



Bona Fide Donation
Cash or property of any kind
Approved PBO
Issued s18A receipt
Check amts in leg
Deduction limited to 10% of TI
Any disallowed portion may be carried forward and
treated as a donation in the next year of assessment
Retirement fund
contributions
Other deductions
s18A Donations to PBOs
S11(a)
read with General deduction
s23(g)
formula
MOD 7 General Deduction Formula, S23H, S11A
General Deduction Formula –
 S11(a) For the purpose of determining the taxable income derived by any person from
carrying on any trade, there shall be allowed as deductions from the income for— (a)
expenditure and losses actually incurred in the production of the income, provided
such expenditure and losses are not of a capital nature
 S23(g) —No deductions to the extent to which such moneys were not laid out or
expended for the purposes of trade;
Trade
Widest possible interpretation
Excludes passive inc (div/int) but includes rent/royalty inc
Loss= involuntary/unexpected expenditure
Expenditure=cash outflows/liabilities to be settled in cash or otherwise
Actually Incurred






Paid
If unconditional legal obligation
Rasing of provision does NOT constitute as exp actually incurred
Where payment conditional, the condition is met
ITO disputed pmts, there will only be a liability when the outcome of the dispute has
been determined (then only is it actually incurred before that it is not)
Can estimate expense if needed
In Production of Income
1) Expenditure does not directly have to relate to income but exp must be in pursuit of
income
 Look at 2 questions
o What action gave rise to the expenditure?
o Is the action closely related to the income-earning activities? (short version:
Exp will be in produc of inc if action that give rise to exp is closely related to
inc-earning activities) – EG advertising
2) Expenditure will be deductible if it is an ‘inevitable concomitant’ of the income earning
operations
 Is the incident something you would reasonably expect (inevitable concomitant) to
occur based on the business[then deductible] or was it due to negligence (not
expected to happen) [then not deductible]
3) A lump sum paid in terms of a general policy is considered to be in the production of
income
 Eg Employer always makes pmts to employees when they die/retire. While this pmt
doesn’t produce income it incentivises employees to work for co. thus co. can earn
inc.
 Can’t be once-off pmt
Use (2) if something unexpected happens eg person dies (is paying for miner workers death
an inevitable concomitant thus in produc of inc?)
Use (1) if something expected to happen/ “definitely” will happen eg paying audit fees (is
paying audit fees to earn management fees from clients in the pursuit of income thus in
produc of inc?)
Capital In Nature




Exp for inc-earning structure / capital asset/ fixed cap then cap
Exp for inc-eanring/producing operations / floating then rev
Exp that gives rise to enduring benefit is cap
Cap exp is more likely to be once off while rev exp is more likely to recur however this is
not conclusive
Section 23(g) negative test





No deductions to extent moneys were not laid out for purposes of trade
There must be a link bet trade and exp for it to be deductible
The exp does not have to produce profit itself
Can apportion if needed
Active borrowing of money and relending at higher rate satisfies “trade” requirement
s23H prepaid expenditure



Section 23H LIMITS the deduction of an expense where none of the benefit, or only a
part of the benefit, is enjoyed during the current YOA.
It defers the deduction to a later YOA (even though it’s been actually incurred) and
basically allows the deduction to be claimed in the YOA that the goods are supplied or
the services/benefits are enjoyed by the TP.
The provisos to S23H allows the deductions for prepaid exp in the current YOA
Key Points






Any person
Exp actually incurred
Not Trading Stock
Allowable as a deduction in section 11(a), 11(c), 11(d) or 11(w), or section 11A
Goods/services/benefit not all received during the year of assessment (IE. PREPAID)
Allowed deduction though, in current YOA, to extent goods actually supplied during the
YOA/ Services and benefits in the a reasonable ratio (ie if year end is dec and you paid
for annual rent exp on oct, you can automatically deduct oct,nov,dec rent pmts under
general deduc formula (s23H will not apply/limit that part of deduction))
Provisos – (ie if these proviso criteria below are met then you can deduct the
prepaid exp part, falling beyond the current YOA, in the current YOA)
o Expenditure actually paid/unconditional liability is due to legislation
o Where all goods/services are supplied within 6 months of the end of year of
assessment (applied separately to each prepaid expense)
o Where the aggregate of all amounts subject to s23H (excluding prepaid
expenditure where 6-month rule is applicable) does not exceed R100 000.
 Research and development exp is always spread thus not applicable for 6 months rule
 Ratio of deduction claimed must be reasonable
 S23H(3): Where the taxpayer proves that, despite payment, the goods/service/benefit
will never be received/rendered/enjoyed = deduction BUT only to the extent:
That the expense is actually paid and
that it has not already been deducted
 Must look at when true benefit is being enjoyed
 Must state “deduction deferred to 2032 YOA thus will claim s11(a) deduc in following
YOA” is S23H applies
Steps ito prepaid exp
1) Expense thus consider s11(a) read with s23(g) -> but relates to periods extending
beyond YOA thus look to S23H which prohibits certain exp from being deducted
2) Deduct portion of exp that falls under current YOA under s11(a) or specific deduc
3) Deduct exp req by leg and deduct exp where full exp falls within 6 months
4) Add all remaining exp and compare to 100k proviso limit
o
S11A pre-trade expenditure
 S11A postpones a deduction. Where a TP incurs business expenses to set up a
business (before trading commences), the TP can only deduct those expenses in
YOA when business operations commence/begins to trade, provided that the
deduction does not result in an assessed loss.
 Must be: Exp & Loss, Actually Incurred,
 Prior to the commencement of Carrying on THAT trade
 Which would have been allowed as a deduction in terms of s11 or s11D or s24J
 Which was not allowed when they were incurred

After all current deductions, S11A can only be deducted to the extent that there is taxable
income. ( IE NO ASSESSED LOSS) Any excess deduction remaining is not carried
forward
SN mod 7 unseen tut 4,7
Co. earns local div 1050k. Interest 280k. Management fees 400k. YOA ends 31 dec 2024.
Statutory audit is performed during dec 2024 and jan 2025 for 40k & 45k respectively. Are
audit fees deductible?
- No prohibitions/specific deduc for audit fees thus one looks to general deduc formula
- Onus is one TP to prove deductibility
- Not cap in nature as no enduring benefit
-
-
-
-
-
-
Issue is where exp is actually incurred
The R40k pmt is actually incurred as unconditionally obligated to pay BECAUSE THE
SERIVCES HAVE ALREADY BEEN PROVIDED. “statutory obligation to be audited
does not give rise to unconditional obligation)
The 45K pmt is not actually incurred as not unconditionally obligated to pay as services
have not been provided yet
The issue is where exp is in production of income
SN can’t use “inevitable concomitant: as that is used for expenses for things
(reasonably) EXPECTED TO OCCUR not for stuff that is GUARUNTEED AND
EXPECTED. Audit fees are guaranteed and expected. Builder falling off building is
expected but not guaranteed.
Exp is closely related to inc-earning activities
Action that gave rise to exp is closely related to income earning activities (Need to pay
audit fees exp to earn income and continue operating)
The issue is whether carrying on a trade
Widest possible interpretation for trade but passive income does not equal trade (div and
int) BUT since co. earns management fees they are carrying on a trade.
If you only earn passive inc then not carrying on a trade but if you earn at least one other
source of income then co. is carrying on a trade. As co. earns management fees co. not
solely earning passive income but rather carrying on a trade
S23(f) prohibits deduction of exp incurred to produce items which are not income as
defined
div inc is exempt inc thus not inc as defined. (thus no deduction will be made ito earning
div income. Co. can have deduction for exp to earn interest as interest is only exempt for
natural peeps not companies. Co. can have deduction for exp to earn management fees
income.)
-
The deduction must thus be apportioned in ratio of income.
40k x ((280k+400k)/1730k)= deductible under s11a in current YOA
45k x ((280k+400k)/1730k)= deductible under s11a in next YOA
-
Seen tut 4,8
Acquisition of a factory through company’s own shares issued does not rep exp actually
incurred as there is no cost. Thus no s11a deduc
-
-
Restoration of a factory – once off, adds to inc earning structure thus capital thus no
s11(a) deduc
Acquisition of 5 year right to manufacture shoes- adds to inc earning structure. The
right is an asset. Asset does not need to last forever to be an enduring benefit)- therefore
no deduction
Co. must pay annual royalty. – Royalty is recurring. Incurred a co. makes sakes. Royalty
is paid for use of the brand, not right to use the brand thus it does not add to incearning structure nor does it create an enduring benefit. Thus, not cap in nature thus it
is deductible.
Module 8 Trading Stock




Trading stock = anything acquired or held with a revenue intention I.e. for resale at a
profit which Includes consumable stores, packaging, spare parts
Spare parts (deducted as 'repairs' under s11(d), not under s11(a)). When spare parts/TS
sold both still go in GI.
TS becomes TS when TP changes intention to sell.
Special Inclusion gross income para (jA)
o If you sell anything SIMILAR to your TS where the TS is
produced/manufactured/constructed/assembled by you/your trade for
o

purposes of sale, the proceeds are included in gross income via para (jA).
If you have capital asset similar to TS you produce, if you sell Asset it must be
incl. in GI per GI para (jA)
CB of TS -> Added back to TI -> s22(1)
o Cost less value of the stock that has diminished due to:• Damage •
Deterioration• Change of fashion• Decrease in the market value or• Any other
reason satisfactory to Commissioner
o But Financial instrument S22(1)(b) Market value
o Do not add back at net realisable value (NRV), NRV is fwd looking, tax is
backwd looking
o Use FIFO when appropriate
o
SN: Closing stock is added back because it has not yet been sold, so it
should not reduce taxable income in the current year. Section 22 ensures that
only the cost of stock actually sold is deducted in the calculation of taxable
income.

OB of TS -> deducted from TI -> s22(2)
o S22(2)(a)- If opening stock included in closing stock in prior year, value of the
closing stock remains the same as in prior year
o S22(2)(b)- If the opening stock did not form part of closing stock in prior year,
the cost price is used WHERE COST IS deemed to be OMV S22(2)(b) read
with S22(3)(a)(ii)
 This is for when capital asset became TS. We apply s22(2)(b)
because you would not have gotten the s11(a) general deduction
like you would have for purchasing TS thus you allowed to claim
s22(2)(b) OB deduc as cap asset did not initially form part of TS.
(SN: Also look out for para (jA) inclusion for stock produced by
business initially cap in nature now sold thus now TS but not in last
year CB)

Cost of TS s22(3)) = cost + costs in getting stock into its existing condition and location
but no Exchange rate diff
TS Deductible under s11(a)
Spare parts deductible under s11(d)
If spares sold the proceeds are still incl. in GI (like TS) to the extent that the
S11(d)deduction is recouped




S22(4) STOCK ACQUIRED FOR NO CONSIDERATION
o EG TS donated
o No deduction in terms of s11(a) read with s23(g)
o SARS practice is to allow deduction for TS acquired for no consideration
o Recipient deemed to have acquired stock at its market value on acquisition date
o If still on hand at end of YOA, it will be included in closing stock at the lower of: Market value on date acquired; or Market value at the end of YOA.
o EG Co. A received a donation of trading stock with an OMV of R1000. R200 of
the stock was not sold (OMV R100):
Stock
“S22(4)” or “stock acquired for no
(1000)
Donated
consideration” AND “SARS Practice”
CB
Add back s22(1) :
100
SARS practice read with s22(4)
Lower of MV @ acq or end of YOA
STATE EVERYTHING
(SN: TS donated to employees can be in the production of income)
S22(8) – goods taken from TS
EG. If you don’t use TS for sale anymore. Remember when you buy TS you get general
deduction. But now that TS will no longer be sold so SARS want deduction back thus S22(8)
-> recoupment -> increases TI to cancel general deduc when you bought TS.
Where trading stock purchased is
• S22(8)(a) Consumed for private/domestic use
• S22(8)(b)(i) Donated, OR
• S22(8)(b)(ii) Sold for < OMV, OR
• S22(8)(b)(iii) Distributed as dividend in specie, OR
• S22(8)(b)(iv) Another purpose other than ordinary course of trade (excl. those in i,ii and iii),
OR
• S22(8)(b)(v) Ceases to be held as trading stock AND the cost price was included in taxable
income in any prior YOA (EG if you discontinue stock)
The deduction claimed in any prior year will be recouped i.e. included in taxable income
UNLESS proviso's apply
VALUE of recoupment – (look at the corresponding capital letters in legislation (A,B,C))
• If S22(8)(a): then = cost price – diminished value S22(1)(a) OR OMV if cost price cannot be
determined
• If S22(8)(b): then = OMV (except if S22(8)(C) applies and trading stock is donated and S18A
applies)
•If trading stock is donated and S18A applies: then = amt that was included in TI in the YOA
the trading stock was donated
Provisos
S22(8) does not apply where:
• proviso (a): Trading stock is used or consumed by the taxpayer in carrying on his trade. No
recoupment.
• proviso (b): Trading stock sold for less than OMV (other than in the ordinary course of
trade). Recoupment = market value reduced by the amount received by/accrued to the
taxpayer as consideration.
• proviso (c): trading stock = livestock. No recoupment.
• proviso (d): Paragraph (jA) of the gross income definition S1 applies (asset disposed of is
similar to the taxpayer’s trading stock). No recoupment.
S22(8) proviso (a): If trading stock is used
or consumed by the taxpayer in carrying on
his trade, the s22(8) recoupment will be
deemed to be expenditure incurred. EG TS
USED FOR MARKETING.PROMOTION
OR EG DRESS MAKER DONATES
DRESSES TO FASHION TO (TO
PORMOTE HER GOODS/BUSINESS)
Show recoupment then show deduction like
this
S22 (8) proviso (b): Where trading stock is
disposed of (other than in the ordinary
course of trade) for consideration less than
market value, s22(8) recoupment at market
value shall be reduced by the amount
received by/accrued to the taxpayer as
consideration
S22(8) proviso (d): There will be no s22(8)
recoupment if paragraph (jA) of the gross
income definition S1 is or will apply I.e.
the asset disposed of is similar to the
Trading stock (R1 500) given away in a
promotion:
s11(a) purchases deduction
(500)
s22(8) recoupment at MV
1500
s11(a) – proviso to s22(8)
(1500)
Laptop taken from the office to use at home
and then sold to owners' brother for R6 000:
s22(8) recoupment at MV
10000
s22(8) proviso (b)
6000
Trading stock which cost the taxpayer
R1500 to manufacture, is taken from
trading stock and will be used by the
taxpayer as a capital asset
taxpayer’s trading stock. Capital Asset
similar to TS sold-> amt already taxed as
special incl. para (jA) thus the proviso
reverses the recoupment to prevent double
taxation so that its not included in TI twice
(through special incl. & recoupment)
s22(8) recoupment at MV
s22(8)proviso(d) recoupment at
MV
150
(150)
Lecture Example 5
On 1 March 2022, Mpho (a resident) started a business selling yoga mats and operated as a
sole prop. During 2024 YOA:
 Mpho sold 170 yoga mats at a total amount of R5 950.
 Mpho purchased 100 yoga mats at a total cost of R2 000. (2000/100=20 cost)
 Mpho’s inventory balance as at 28 February 2023 amounted to R1 500 (100 yoga mats)
 On 28 February 2024 (when each yoga mat had a market value of R40), he decided to
dispose of the remaining 30 yoga mats as follows:
-Mpho took 3 home for her family members;
-Mpho gave 3 to her friends; and
-Mpho donated the remaining 24 to ‘Yogie Bears’, a kids yoga charity organisation and
registered PBO, who provided her with a S18A certificate.
Sale
purch
O. stock
Private or domestic use (3
items for family
Disposal other than in the
ordinary course of trade (3
items for friends)
Donation to PBO
Subtotal
Donation to PBO
Taxable income
GID
General deduc formula
S22(2)(a)
S22(8) recoupment at cost
(R20 x 3 yoga mats)
S22(8) recoupment at OMV
(R40 x 3 yoga mats)
5950
(2000)
(1500)
60
S22(8) recoupment at
amount taken into account
in the YOA (R20 x 24 yoga
mats)
480
S18A/specific deduction –
R480 Limited to 10% of
taxable income = R311
Excess carried forward
120
3110
(311)
2799
S23F(1) Deferral of Deduction
Tells us when we cannot claim deduction for purch of TS. (S23 is for prohibitions)
When we order stock and haven’t received it yet look at S23F(1)
No general deduction for the cost of TS acquired if:
 The stock was not disposed of by taxpayer during the year; AND
 The stock was not included in taxpayer’s closing stock at the end of the year. \
The cost is carried forward and claimed as a general deduction in the first YOA in which:
 S23F(1)(a) Trading stock is disposed of; or
 S23F(1)(b) It is included in closing stock per s22(1);or
 S23F(1)(c): The trading stock was destroyed; or the stock cannot be disposed of or held
by the taxpayer
Must state “S23F applies” AND “general deduction deferred to _____ YOA” (put in YOA # or
next YOA)
NOTES
Scenario 1
When you have cap asset that became TS & now sold. If Cap asset produced by business
and similar to TS
Sale incl via gross income para (jA)
Y
Deduction - S22(2)(b) opening stock deduction read with S22(3)(a)(ii) as cost =
(x)
OMV. Thus deduction ito Opening inventory (@ cost (equal to OMV in this case))
Scenario 2
When you have cap asset that became TS & now sold. If Cap asset is not produced by
business but rather bought
GID (sale of item)
T
Deduction - S22(2)(b) opening stock deduction read with S22(3)(a)(ii) as cost =
(v)
OMV. Thus deduction ito Opening inventory (@ cost (equal to OMV in this case))
Scenario 3
IF TS becomes cap Asset. EG co produces yoga mats but takes one, gets it signed by
famous athlete Emma, and keeps it on display then
S22(8)(b)(iv) recoupment @ MV
X
S22(8) proviso (d) (recoupment reversed)
(x)
This is because if cap asset similar to TS were to be sold it would be incl. by special
incl para (jA) (if TS manufac by Co.)
SN: Buy spare parts : S11(d) deduc
Spare parts on hand : S22(1) c/b TS added back
Spares sold: GID
SN: no deduction ito cost of T destroyed because deduc would have been already claimed in
opening stock deduc or general deduc formula (if purchased this year)]
SN: If you manufacture stock you get general deduction formula
In 2019 Co. manufactures yoga mats TS. In 2020 one yoga may signed and kept in office
for display. In 2024 Co. decided to sell it for R10 000.
In 2019: general deduc formula SARS ☹
In 2020: Change from TS to capital asset thus S22(8) Recoupment thus SARS 😊 but will
have apply s22(8) proviso (d) as para jA is or will apply thus no recoupment thus SARS ☹
In 2024: sold thus incl. via para (jA) thus SARS 😊
Remember para (jA) only applies when stock is manufactured
SN: Raw materials and consumables bought will get general deduction formula & if they left
over will get normal closing stock added back to TI treatment
Mod 8 – Deductions and Cap Allowances
Purchase a capital asset -> Capital allowance. Capital allowance is a deduction against taxable
income based on a rate per year. Tax relief on capital expenditure. Depreciation and capital
allowances allow the cost of an asset to match the income it generates in a year
Moveable property
Immoveable property
POM
S12C special depreciation
S13(1) (industrial buildings)
NOT POM
S11(e) Wear & tear allowance
S13 quin (commercial buildings)
ALL USES
S11(o) disposal allowance
N/A
S11(d) repairs
S8(4)(a) recoupments
Repairs
o
o
o
Preamble requirements
o Any person
o Carrying on a trade
Section 11(d) requirements:
 Expenditure actually incurred,
 During the year of assessment,
 On repairs of
- Property occupied for trade or inc-recievable OR
- Beetle treatment of abovementioned ; OR
Machinery, & other articles used for trade
Repair Case Law
 There must be damage
 The intention must be to restore the asset back to its original condition
(not improve)
 Repair is a restoration or replacement of a subsidiary part of the whole
 “Renewal” is a reconstruction or replacement of the whole or substantially
the whole; “improvement” creates a better asset
 The materials used need not be the same as the original material – NB to
determine if to repair or to improve
o
Not a repair if
 Taxpayer failed to prove that the existing asset in question had become
defective
 Restoring income-earning capacity is not a repair. Eg digging deeper
borehole to get more water is not a repair as its to restore inc-earning
capacity
Section
Type
Req
12C special depreciation allowance
Moveable , POM
S11(e) wear and tear allowance
Moveable, NOT POM







Apportioned
Based on
No



Rate


Time
Foundation/
supporting
structures
Moving
Expenses
Part EG
Moveable (machinery plant, equipment)
Owned
Brought into use for first time by TP (eg
can be used by another business first)
Purposes of trade
POM
ITO improvement same as abv & must be
done in during YOA

Preamble
o Any person
o Carrying on a trade
S11(e)
o Owned by TP
o Used for trade
o Diminished due to Wear and tear
o During YOA
Yes (Only cap allowance that’s apportioned)
LOWER OF COST or OMV
Improvement & moving cost included
accordingly
IF NO COST THEN NO s12C
allowance. If machine donated to TP
no S12C only 11e


Lower of acquisition cost or Market value
Take lower of acq cost and OMV then only add
direct cost of installation/erection
NEW & UNUSED = 40% in year 1, 20%
in year 2,3&4
USED/NOT NEW = 20% each year over
5 year period (may be new to TP though)

Normally they give you SARS write off period (#
years)
Divide amt by # years (may hv to apportion for
# months in YOA)

From YOA brought into use
Qualifies for allowance if:
(a) Designed/ integrated with asset and
(b) useful life is limited to the asset
- Written off over the period left for claiming
the write-off.
- If the asset is fully written off – moving costs
are fully written off in that year.
From date brought into use
Qualifies for allowance if:
(c) Designed/ integrated with the asset and
(d) useful life is limited to the asset
S11(e)proviso (v) moving costs increase asset
value
- Written off over the period left for claiming the
write-off.
- If the asset is fully written off – moving costs are
fully written off in that year.
EG LE 7: Buy asset for 40k in 2021, qualifies
for S12C. Asset is new and unused. Moving

If there’s acquisition costs and moving costs
later do whole acquisition per s11(e) separately
exp on 31 oct 2023 of 15k. (31 dec is year
end)
2021 deduction 40k x 40%
2022 deduction 40k x 20%
2023 deduction 40k x 20% & 15k/2
2024 deduction 40k x 20% & 15k/2


then do moving costs per s11(e) and then add
the two.
But if moving costs incurred at same time as
acquisition, add moving costs to initial amount
and calc s11(e) based on full amount.
Moving costs written off over rem EUL,
apportion for months as well.
Do moving exp/ Rem UL. Do not apportion
by month, do not x 20%
SMALL Asset rule: ITO s11(e) a “small asset” is:
 an item that is able to function in its own right
Other
 an item that does not form part of a set; and
 an item that is acquired at a cost of less than R7
000 per item.
MUST STATE 11(e) used as “MOVEABLE, NOT
POM” don’t just say “Small asset rule”. Also show
how COST is less than 7k/unit with calc
Thus if 10 laptops bought for 30k total, the full 30k
can be deducted as each unit =3k each
Section
Type
S13(1)
Immoveable, POM (for industrial buildings)
S13quin
Immoveable, NOT POM (for
commercial buildings)
Req

 any new and unused
building







Building was wholly or mainly (> 50% usage) used for POM
o SN: if you use 2/3 stories for POM you claim 100% of the
(2-5%) allowance as mainly used for trade
Carrying on trade
(other than mining or farming)
During the year of assessment;
S13(1)(b) – Built by TP
S13(1) (d)- building bought by TP from any other person who was
entitled to an allowance (buyer will claim same allowance as
seller)
S13(1)((dA)- bought by TP but not used/new
Section 13(1)(f)- any improvements (other than repairs) to any
building.
o Only an improvement if increases/ improves industrial
capacity of the building.
o Separate asset (EG. Making factory bigger)
o If it doesn’t meet case law for repairs, it’s likely an
improvement
 owned by TP, or any new
and unused improvement to
any building owned by TP
 wholly or mainly (>50%)
used by the taxpayer during
YOA for purposes of
producing income
 in the course of the
taxpayer’s trade,
 other than the provision of
residential accommodation.
Apportioned
Based on
No
COST ONLY, IGNORE MV (this is only cap allowance to do this)
No
LOWER of cost and OMV
Rate
S13(1)(b) –(built) 5%
S13(1) (d)- (Bought (used)) 2-5% but must claim same allowance as
seller was entitled to
S13(1)((dA)- (bought (unused/new)) 2%
Section 13(1)(f)- (improvement) 5%
From YOA brought into use
5%
Time
Special


S13(3) recoupment of allowances of a replaced asset under
S13(3):
If you sell building that has S13(1) allowances and replace it within
12 months for another building that will get S13(1) allowances the
cost of the new building on which you will calc allowances is (cost
incurred – recoupment on initial building)
From YOA brought into use
S13quin(7): If TP acquires a
part of a building without
erecting or constructing that
part—
Deemed cost:

Because you would have had to recoup the capital allowances
upon disposal of initial building under s(8)(4)(a) but S13(3)
overrules this; hence recoupment is not incl. in TI
 But when doing step 3 of CGT calc for asset disposal still do
Proceeds
t
Selling Price
x
Less recoupment
(y)
 The allowance calc will look as such:
Cost of the replacement building
1500k
400k
Less recoupment of deduction on the
building sold
New cost
1100k
Cap allowance 1100k x 5% in YOA 1
55k

SN: cost will exclude repairs (s11(d) deduction), land cost
(land appreciates) and clearing/levelling costs(general
deduction)
 Part(s) acquired: Deemed
cost = 55% x cost
 Improvements acquired (not
built/constructed): Deemed
cost = 30% x cost
(improvement
Where cost is lower of cost
and MV
Eg CO. sells handbags &
purchased a floor of a new
building to be used exclusively
as showroom for cust to make
orders for delivery. Floor cost
570K (MV=600K).
 As a part of a building was
purchased: Deemed cost =
R570 000 x 55% =
R313 500.
 R313 500 (deemed cost) x
5% (not apportioned) =
R15 675
 EG of new improvement is
a parking lot
Other capital assets such as
Non-depreciable assets, personal use assets
 On acquisition:
 Acquisition costs are not deductible (capital in nature)
 Held and not disposed of:
 No capital allowance can be claimed
 Upon disposal:
 No capital allowance to date of disposal
 No recoupment or disposal allowance
 May be subject to capital gains tax
DISPOSAL OF ASSETS: Recoupments – s8(4)(a) Applies to moveable and
immoveable assets Disposal allowance – s11(o) Applies to moveable assets only
Mod 9 Capital Gains Tax
SUMMARY: 3 amounts included in taxable income:
Step 1: Current Year capital allowance
Step 2: Recoupment/scrapping allowance
Step 3: Taxable capital gain (if capital loss, will be carried forward) except if excluded
STEP 1: CALCULATE CURRENT YEAR CAPITAL ALLOWANCE
• A cap allowance will be deductible in YOA when the asset is disposed of
STEP 2: CALCULATE RECOUPMENT/SCRAPPING ALLOWANCE
• Proceed less tax value where:
o Proceeds = Selling price ("SP") limited to initial value (initial value=cost/value used
to calc cap allowance)
o Tax value = cost/initial value less capital allowances
o Recoupment s8(4)(a): Proceeds > TV S8(4)(a) OR
o Scrapping allowance s11(o): Proceeds < TV (movable assets only)
STEP 3: CALCULATE CAPITAL GAIN/LOSS
• Proceeds less Base Cost
o Proceeds = Selling price less S8(4)(a) recoupment if applicable
o Base Cost = Cost less capital allowances less s11(o) if applicable
Taxable
income
(20 000)
Step 1: current year allowance
s11(e), s12C, s13(1),s13quin
Amt which cap allowance based on x rate
Eg: R100 000x20%
Step 2: Recoupment/ Scrapping allowance
Proceeds:
10 000
Selling price limited to initial val/amt (initial amt/val is first amt
from step 1)
10 000 limited to 100 000
Less Tax value
Initial value:
100 000
Less all allowances including current YOA
Eg Less 12C
- 2022:
(20 000)
- 2023:
(20 000)
- 2024:
.
(20 000) .
40 000
Recoupment s8(4)(a): Proceeds > TV S8(4)(a) included via
gorss income para (n)
Scrapping allowance s11(o) (Proceeds
Step 3: Cap Gain/Loss
Proceeds (para 35 8th schedule)
Selling price
10 000
Less S8(4)(a)
(xxxx)
Base cost
Cost
100 000
Less 12C
(60 000)
Less s11(o)
(30 000)
Capital Gain
Annual exclusion for capital gains (R40 000 for individuals
only)
Aggregate capital gain/(capital loss for the year)
Accumulative capital loss carried forward
Net capital gain/(capital loss)
Inclusion rate (40% for an individual/special trust or 80% for a
company)
Taxable capital gain to be included in taxable income S26A




(40 000)
xxxx
(30 000)
10 000
(10 000)
0 imagine
it was 50
000
yyyyyy
Tax value (capital assets) = Initial amount* – Capital allowances namely
s11(e),s12C,s13(1),s13quin. Where *Initial amount = The value that you used to
calculate the capital allowance on
Selling price > Tax value = Recoupment S8(4)(a) Taxable income increases
Selling price < Tax value = Possible disposal allowance s11(o) only for moveable asset
Taxable income decreases
Persons Liable for CGT
Any capital asset of a South African resident

The following capital assets of a non-resident:
o Immoveable property situated in South Africa. Includes interest/right in property;
o Assets effectively connected with a permanent establishment in South Africa.
o 80/20 rule: Non-resident will be liable for CGT on immovable property where:
  at least 80% of the value of shares/ trust is attributable to immovable
property in South Africa AND
  the non-resident holds at least 20% of the equity shares/ rights to
ownership in the company



CGT 4 requirements: Asset, disposal, proceeds, base cost
Disposal definition includes “sale, donation…”
Para 38 8TH SCHEDULE “DEEMED PROCEEDS”
o The seller: Deemed proceeds = MV in the following instances:
 - Donation
 - Consideration not measurable in money
 - Disposal to a connected person not at arms length price
o The purchaser: Deemed to have acquired the asset at such MV (and their base
cost if they dispose of it as a capital asset as well)
Base cost
o Includes: cost of acquisition, valuation, exp directly related to aforementioned,
installation, supporting structures cost, donations tax payable,
improvement/enhancement costs
o Excludes: repairs, borrowing costs, maintenance, protection, insurance
Disposal allowance S11(o)
o Moveable asset
o Expected useful life must not exceed 10 years
o Must have a cost (can’t have asset received for no consideration)
 (SN: if moveable asset donated you can’t claim S12C allowance (only
s11(e)) as must have a cost you also won’t be able to claim S11(o) if sold)
o Not disposed to a connected person
For understanding purposes:
o ITO s11(0): • Tax value is more than the Proceeds calculated (selling price limited
to initial amount), it means that the taxpayer reduced taxable income by too little.
Therefore, the disposal allowance is used to claim more capital allowance and
decrease the taxable income to correct the under-claim.
o ITO s(8)(4)(a) recoupment:  If the Tax value is less than the Proceeds
calculated (selling price limited to initial amount), it means that the taxpayer
deducted too much capital allowances (reduced taxable income by too much). 
Therefore, the recoupment is used to reverse the "extra" capital allowances and
increase the taxable income
Connected person:
o For a natural person:  Any relative  Any trust of which they/their relative is a
beneficiary
o For a non-natural person:  Any company that is part of the same group of
companies (parent & subs).  A natural person who, along with other CP, own
20% of the equity shares
Annual exclusion
o = R40 000 per annum (limited to total gain/loss)
o Only applies to natural persons/ special trusts. NOT TO COMPANIES
o Reduces the total capital gain/loss for YOA
o If annual exclusion bigger than cap gain/loss the excess is NOT carried fwd






Land disposal / disposal of holiday house
Proceeds
Base cost
Cap Gain/ loss
Xx
(tt)
Yy
Land =Non depreciable asset; holiday house = asset not used for trade, therefore no
capital allowances, no recoupment and no scrapping allowance
EXCLUSIONS FROM CGT
EXCLUSION PRIMARY RESIDENCE EIGHTH SCHEDULE PARA 44&45
For a natural person or special trust, cap gain/ loss will be disregarded if:
 Proceeds are equal to or less than R2m – full capital gain is disregarded
 Proceeds > R2 million - Up to R2 million of capital gain/loss is disregarded
Where the primary residence is jointly held by more than one natural person:
 The R2 million must be apportioned in relation to their interests.
Primary residence definition (only for natural persons/special trusts):
 A residence;
 In which a natural person holds an interest
 Ordinarily resides as his/her main residence; and
 Used mainly for domestic purposes
 A natural person can only have one primary residence at a time
EXCLUSION PERSONAL USE ASSETS EIGHTH SCHEDULE PARA 53
 Disregard cap gain/loss on disposal of personal-use assets
 A personal-use asset is an asset of a natural person or a special trust that is used mainly
for purposes other than the carrying on of a trade.
 Personal use assets exclude:
o Gold & platinum coins
o Immovable propertyo Aircraft > 450kg
o Boats > 10m
o Financial instrument
o Right/interest in any of the assets listed above
o So this means if an asset is any on of these above then its not a personal use
asset hence capital gain/loss is not disregarded
…However…
EXCLUSION PERSONAL USE ASSETS EIGHTH SCHEDULE PARA15
 ITO personal use assets
 Capital loss only will be disregarded to the extent the following purposes are not used
for trade:
 Aircraft > 450kg
 Boat >10m in length
 any fiduciary, usufructuary or other similar interest, the value of which
decreases over time
 Lease of immovable property
 Any right/interest of any of the assets above
 So if any of the assets above are personally used and not used for trade
then capital loss only is disregarded. (Because only rich peeps have these
things thus capital loss doesn’t matter to them/ SARS doesn’t want to give
rich people relief)
 Therefore, if any of the above assets are used for trade, the capital loss will
not be disregarded and instead will taken into account when calculating
the taxable capital gain to include in taxable income
 SN if you own a boat but 3 months personal use and 9 months trade then
apportion loss (9/12 cap loss included; 3/12 cap loss
disregarded/excluded)
EXCLUSION GAMBLING, GAMES AND COMPETITIONSEIGHTH SCHEDULE PARA 60
TRIGGER: Disposal of asset won from gambling, games, competitions
 Only applies to natural persons
 If co. you cannot disregard gain
 If authorized by Laws of SA (legal) cap gain/loss disregarded
 If unauthorised/ international comp then not disregarded