TERMS...........................................................................................................................13
CH1 INTRODUCTION.....................................................................................................14
I. Terms and definitions:......................................................................................................14
II. TAXATION IN SA...............................................................................................................14
III. TAX MAXIMS..................................................................................................................14
IV. SARS..............................................................................................................................15
V. ANNUAL BUDGET:...........................................................................................................15
VI. TYPES OF TAX................................................................................................................15
1. ANNUAL AMENDING ACTS.................................................................................................15
VII. YEAR OF ASSESSMENT...................................................................................................15
VIII................................................................................................................INCOME TAX ACT
15
IX. ESTATE DUTY.................................................................................................................16
X. INDIRECT TAXES............................................................................................................16
XI. INTERPRETATION OF STATUTES:...................................................................................16
XII. COURT DECISIONS:........................................................................................................16
A. TAX BOARD :...................................................................................................................................16
B. TAX COURT......................................................................................................................................16
XIII..........................................................................................................Interpretation Notes:
16
Ch 8 –INDIVIDUALS......................................................................................................17
TERMS...................................................................................................................................17
I. CALCULATION OF AN INDIVIDUALS TAX LIABILITY..........................................................17
II. TAX TABLEs......................................................................................................................18
III. TAX COLLECTION...........................................................................................................18
IV. NORMAL TAX REBATES...................................................................................................18
A. Normal Tax Rebates..........................................................................................................................18
B. Tax Threshholds...............................................................................................................................18
2|Page Income Tax 301 INDIVIDUALS own notes.
CHAPTER 9: PARTNERSHIPS.........................................................................................38
I. INTRODUCTION:...............................................................................................................38
1. ANY PROPERTY:..........................................................................................................................38
2. TYPES OF PARTNERSHIP:................................................................................................................38
3. FUNNY THINGS:............................................................................................................................38
4. FAMILY PARTNERSHIPS:.................................................................................................................38
II. TAXATION OF A PARTNERSHIP:........................................................................................39
1. 3 SECTIONS IN THE ACT DEAL WITH PARTNERSHIPS :.......................................................................39
2. LIMITED PARTNERS........................................................................................................................40
3|Page Income Tax 301 INDIVIDUALS own notes.
3. ACCRUAL......................................................................................................................................40
4. YEAR END OF PARTNERSHIP...........................................................................................................40
III. CONNECTED PERSONS....................................................................................................41
IV. NOTES............................................................................................................................41
V. CAPITAL GAINS TAX.......................................................................................................42
VI. VAT................................................................................................................................42
A. GENERAL –PARTNERSHIP VAT SEC 51.(1) of VAT ACT...........................................................................42
B. RENTAL POOL SCHEMES:...................................................................................................................43
3.1.2.1. Self or wife,child,dependant is handicapped –no limit – even if the expense was for a person other
than the disabled person- it need not be for the disabled person.
3.1.3.Taxpayers under 65 with no disabled family members
3.1.3.1.Med Aid contributions – as set out earlier
3.1.3.2.Other med expenses + Med Aid contributions not allowed as deduction.: any amount ABOVE 7.5%
of TAXABLE INCOME is deductable.: (before 7.5% but after deductable med aid contribution is taken
off taxable income but after fringe benefits are added((also taxable income must EXCLUDE 2nd
schedule retirement lump sums & retirement fund withdrawal benefits, but INCLUDES taxable
portions of Capital Gains.)(ALSO after the deduction of donations and after RFA and after Med Aid ,
after everything –at end-last of all!!!! ) of taxpayer as calc. before allowing any deduction under
sec.18A or sec 18.
3.1.3.2.1.A specific sequence of deduction should be applied when taxpayer contributed to a
retirement annuity fund,received a taxable allowance per sec 8.1.a,made a taxable capital
gain,made deductable donation to an organization under sec 18.a,contributed to a med aid
scheme & paid med expenses per sec 18. This sequence is illustrated by example pg 225.
1. METHOD : there are 3 + 1 = 4 methods currently allowed to calculate this travel allowance deduction.
1.1. USING ACTUAL FIGURES :
1.1.1.If can furnish acceptable calc. based on data acceptable to the commissioner.: He can deduct the actual
cost of his business travel for the year.
1.1.2.You can say all costs to person incl. licence,maintenance,fuel,finance charges(for a max 400000car)
MULTIPLIED BY x [business km’s / {total business + Private km’s} ]
1.1.3.The value of vehicle is limited to 400 000 (2010). Depreciation must be done over 7 years per
s8.1.b.iiia. Finance charges are limited as if it had a cash cost of max 400000. For a Leased vehicle,
installments themself for the year cannot exceed the fixed cost per the standard “table” issued by
minister” on that vehicles ‘cash cost’.( I think cash cost is also limited to 400 000 here too)
6|Page Income Tax 301 INDIVIDUALS own notes.
1.2. USING ACTUAL BUSINESS KILOMETERS TRAVELED AND A DEEMED COST PER Km.
1.2.1.Actual km recorded for year LESS Actual private Travel = actual business travel.(proved to
satisfaction of commissioner) The travel allowance will be the actual business travel X rate per km in
table. (Note: in this case actual Km are not limited to 32000.)\
1.3. USING A DEEMED FIGURE FOR BOTH BUSINESS Km AND THE COST PER Km.
1.3.1.Rate per km is taken from the table.
1.3.2.18000 km private travel is deemed to have been used - BUT pro-rata if only used for a portion of
year/365. (Fractions Rounded up)
1.3.3.The total km traveled (private +business= whats on the clock) is limited to 32000, pro-rata for part
of year used/365 days. (Fractions Rounded up)
1.3.4.More than 1 vehicle used – you must add 18000km separately PER vehicle. , and also the 32000 total
km traveled limit applies separately per vehicle – so each vehicle is calc. separately and each gets a
fresh 18000 & 32000 limit.
1.3.5.1Mar 2010 :The use of DEEMED km will FALL AWAY on 1 Mar 2010.
1.4. NOTE: 4TH POSSIBLE METHOD : If the travel for business purposes does not exceed 8000km per year, he
can deduct 292 cents per km if he so wishes. It can only be used if employee receives NO OTHER
reimbursement or travel allowance.
1. The monthly value of benefit is 2,5 % of value of car ,also Pro-Rata in half months, less any consideration
PAID by the employee to the employer for it.
1.1. If more than 1 vehicle was used then the vehicle with the highest value is the one you use to calc. unless
commissioner directs otherwise.
7|Page Income Tax 301 INDIVIDUALS own notes.
1.2. If more than 1 vehicle is used at the same time(eg spouse&employee) then it is 2.5% of highest value
vehicle and 4% of each next vehicle.
1.3. You can reduce the value of the car by 15 % depreciation for each year beteen employer got it and employee
got it from employer- but after that it stays same-does not reduce each year at all.
1.3.1.MAINTENANCE & FUEL COSTS: if employee gets the right to use employers car
1.3.1.1.If worker pays for fuel & maintenance the “value for private use 2.5% figure” you use in the calc.
to determine the deemed fringe benefit per month can be reduced by :
1.3.1.1.1.FUEL : 0.22%
1.3.1.1.2.MAINTENANCE: 0.18%
1.3.1.1.3.Eg : 2.5% -0.18% -0.22%= 2.1% is what to use if both are paid for by worker.
2. Med aid contributions For before this date : 1Mar 2010(after this date it is considered a contribution
by employee himself to his med aid – he applies his own deductions then)
2.1. The amount by which any contributions to a med aid by employer exceeds following, is taxable so add to
gross income:
2.1.1. 625 employee no dependants OR
2.1.2. 1250 employee with 1 dependant
2.1.3. 380 for each additional dependant
2.2. If the exact amount cannot be determined it is worked out as : total paid by employer / no of
employees, regardless of no. of dependants.
3. Bravery Awards :The value of the benefit is 1-market value or 2-cost to employer of acquiring asset whichever
is appropriate, reduced by the lesser of R5000 or the aggregate cost of all such awards given to the employee
during the year.(so for the first award that year it is the lesser of award value or 5000.)
4. SUBSISTENCE ALLOWANCE:
4.1. If employee pays , he can deduct any of it it from what his employer gave as an allowance,but limited to his
allowance.
4.2. If employer pays for accommodation, employee can deduct ‘incidental costs-R80’ or ‘meals &incidental costs
R260’ from his allowance. It is here that the subsistence allowance is set.
5.
I. PARTNERSHIPS
1. Pension funds/Retirement : If a new member of a PARTNERSHIP was part of a Pension Fund before he joined
the new partnership :
1.1. His contributions are limited to 7.5% of his salary in the 12 mnths preceding date he became a partner.
1.2. Definition of retirement funding employment provides that it is restricted to his share of the profits/
salary/etc that does not exceed his pensionable emoluments in the 12 mnths prior to becoming a partner.
1.3. So the limit as per S 11(k) is the greatest of 1750 or 7.5% of earnings as explained above.
1. For employers :
1. Deduction NOT allowed unless:
1.1. It is written in the service contract of employee
1.2. It acts as an incentive to other staff (it must be PART OF company policy )
1.3. If it is for good service it is not allowed, ie: on the whole basicly if it is not an expense incurred in generating
income, it is not allowed..
1. For employess:
1. Employee may deduct R30 000 of this lump sum from his gross income = and the s5.10 rating formula below
only applies after the 30000 is deducted : if he is :
8|Page Income Tax 301 INDIVIDUALS own notes.
1.1.1.Over 55
1.1.2.Superannuation(too old for type of work he was doing) OR ill health OR infirmity
1.1.3.Retrenchment OR
1.1.4.Business is closing down
1.1.5.AS LONG AS :
1.1.5.1.Person does not hold >5% of issued shares capital
1.1.5.2.Person was Not a director
2. :SECTION 7A(4A) Rating Formula: the rating formula of S5(10) must be applied if :
2.1.1.Similar to above provisions exept :
2.1.1.1.Commissioner must be satisfied that if it is for either : 1-redundancy or 2-closing business : that
circumstances of case warrant concession
2.1.1.2.Director or >5% shareholder clauses do not apply here at all though
RAF deduction : limited to 15 % of non-retirement funding income = “interest income AFTER 21000 deduction” +
“lump sum after 30000 deduction” but not capital gains and not salary and not pension fund lump sum
–
–
9|Page Income Tax 301 INDIVIDUALS own notes.
A. Ch9 partnerships:
1. See Pg 236, 9.7, “notes” 6th arrow = chipkin ??what does this mean?? No idea!!!!
2. .(???must the seller pay the buyer transfer duty on property value only, or also on value of car, desks and
goodwill.2-is it sellerpay buyer or not? 3- if the seller was personally registered for vat, must he charge buyer vat
and thus get exemption –is vat charged on sale of shares or only on value of property included in the share
value????)
3. S14.4 Vat Act : If a partner transfers property to partnership for its use, but even still keeping it registered in
his own name, any VAT paid by partner himself previously when he bought the property, is reclaimable as Vat
input by the partnership in the period of the ‘transfer’. (what if he already claimed input vat on it when he bought
it?)
3.1.1.SEC 10.4 Vat Act : if a partner takes asset out of partnership, and he would not have been able to
claim Vat on the asset if he had bought it – The asset is DEEMED to have been sold at MARKET VALUE to
partner and partnership must account for /pay output vat to the SARS. : BECAUSE the partner is a
connected person in relation to the partnership. –avoidance measure.???If he would have been able to
claim input vat on it if he had bought it then partnership would not be liable for output vat on it Yes or
No -make this part of note if yes-?? Why?? What if he did not claim input vat when he originally bought
it?? ???It seems if he could have claimed vat input then entity does not have to account for output
vat???? Pg 240 last para.
3.2. However : IF A PARTNER sells his share of a partnership to another partner, and the company owns
land, then the seller must pay the BUYER (note : not buyer pays seller) transfer duty. This must happen even
if the partnership itself is a Vat vendor, because it is not the partnership selling the shares , it is the old
partner selling to the new partner. So , because NO VAT was charged on the sale of the shares, transfer duty
equal to the pro-rata portion of the Fixed Property Value per the number of shares sold, is charged by buyer
to seller of the shares in the partnership.(???must the seller pay the buyer transfer duty on property value
only, or also on value of car, desks and goodwill.2-is it sellerpay buyer or not? 3- if the seller was personally
registered for vat, must he charge buyer vat and thus get exemption –is vat charged on sale of shares or
only on value of property included in the share value????)
3.3.
YEAR END OF PARTNERSHIP
1. What happens, do they just hand in late ?for their 28 feb year of assessment if before sept, or use old method if
after sept. ONCE ONE GETS THIS PERMISSION.
2. After introduction of s24H.5, SARS changed rules so that , if a company has a year end on 31 june, and
partner does his tax year end on 28 Feb, then partner is liable for personal tax for his share of all income less
expenses earned by partnership up to 28 feb , ie half way through entities year but at the end of his personal tax
year.- as long as the partnership accounts for profit annually and not other times??? What if monthly? Before
SARS changed this the tax on the net income of partnership at its year end would only have had to have been
paid by each partner on 28 feb of following year – ie at their first tax date in the future – meaning the net income
from business was only ‘accrued’ to them at year end of entity,after it was all worked out.
3. It seems that the partners may still continue in the same old way if they get permission from sars, but then the
previous years rates& rebates must be used, and not the current years one’s – I think for only that portion which
fell into the previous years tax assessment of the partners themselves + the part which fell into the current years
tax assessment of the partners after feb 28 must use that years RATES & REBATES . . , but maybe both portions
should be done at last years rate&rebates , not sure.!!
4. A taxpayer,incl. (individual, partnership of individuals, or trust) may apply to commissioner to submit a return for
a date other than the end of February, for less or more than 12 mnths, if there is a problem with??what? different
year ends?? Or what??) determining income etc from a specified matter during the normal period .A person with
different sources of income may apply for different dates for each source of income – ???is it to change the date
of fin year end and assessment, or to something else???
(i) to a former employee who has retired from the taxpayer's employ on grounds of
old age, ill health or infirmity; or
(ii) to a person who was for a period of at least five years a partner in an undert aking carried on by the taxpayer and who retired
from the partnership in respect of that undertaking on grounds of old age, ill health or infirmity, provided that the
amount so paid to such person is reasonable, having regard to the services rendered by such person as a partner in such
undertaking prior to his retirement and the profits made in such undertaking, and that the said amount does not represent
consideration payable to such person in respect of his interest in the partnership; or
[Sub-para. (ii) substituted by s. 9 (1) (f) of Act 113 of 1993.]
(iii) to any person who is dependent for his maintenance upon a former employee or a
former partner in an undertaking carried on by the taxpayer or (where such former
employee or former partner is deceased) was so dependent immediately prior to
his death:
Provided that the deduction under subparagraph (iii) shall not exceed in respect of the
persons so dependent on any one retired or deceased employee or former partner, the sum of R2 500;
6.1. There is a provision in 5.10.f.i.bb that makes lump sums cumulative – so the previous years must be
included ( ?don’t understand this?) see page 603 no.3
7. For what the employer may deduct from giving any lump sums to employees : what does this mean : (pg605 top) Provided that the deduction
under subparagraph (iii) shall not exceed in respect of thePersons so dependent on any one retired or deceased employee or former partner, the
sum of R2 500; ?? GROSS INCOME deduction per yr or per mnth or the eventual EFFECT on the tax to be paid itself. Also , does oit
mean the employer may deduct it as salaries ie an expense , from the profit , ot what exactly???
8. For the formula R= .. what if they say the man is 53 years old(under 55) and he is retired – how do you know
if it is superannuation or ill health etc , so how do you know to apply the formula or not? What would one do in
this case specifically?
9. THE TAXATION OF AMOUNTS RECEIVED AS A RESULT OF RETIREMENT
ANNUTIES :from employer direct
1. Resident of S.A.: Annuities are taxed in full in the hands of a resident
1.1. IT SEEMS (from employer direct pg 600&606) is this EXEMPT : Any pension direct from employer not pension
fund from source outside SA in consideration of employment outside SA, not deemed to be from a source in
SA per S.9.1.g. , is it exempt or not – or just for pension funds only?
2. See yellow : Retirement Fund Lump Sum Benefits : Retirement , Death , Retrenchment(business
closesORperson redundant) – para 2.1.a of 2nd Sched. Often called ‘ retirement benefits’.
If this benefit is paid out for a Director/or Ex-Director nor a person who held more than 5% of shares in company
or CC, due to ‘Retrenchment” – he cannot claim any concession at all here – he must pay the full tax.???true???
see pg 608
3. See yellow : Method : Para 5 of 2nd schedule : Deductions from Retirement Benefit :
3.1. Start with Lump Sum :
3.1.1.Deduct -1-: Taxpayers Own Contributions to any fund which did not rank for deduction –even if he is
still a member of that fund.( all provident fund contributions +??any pension&retirement funds over the
limit allowed that year and never deducted?? Yes or no??) pg 608 – (can you deduct contributions to a
pension/provident fund he is a member of from a withdrawal from a RAF fund or something?)
4. For the Retirement lump sum benefits : None of the above must have been allowed as a tax deduction by any
2nd Schedule before .( ??like a transfer to another fund – you can only transfer the same amount ONCE to another
fund like a pension to a another pension fund , or to a provident fund etc. – next time you must pay full tax on
the transfer?? Is this true)
5. Deduct -3-Transfer : by member from any 1 fund to another where he is/was member of both funds. per
para2..1.b.ib. (except ONLY pension to provident –does not count you must pay tax)-are all the others disallowed
for ‘transfer’ above – what is the difference between the 2 see pg 609&610 2X yellow.-for a withdrawal from a
fund_
6. See yellow for question: MULTIPLE FUNDS:
1. Where the taxpayer belongs to more than 1 fund or received more than 1 retirement or withdrawal benefit
in his lifetime, the tax in terms of the above tables is meant to be cumulative. It does not matter this time
though, whether you previously received a retirement or a withdrawal benefit – which ever you received you
will still have to include it in your calculation.
2. The general rules are as follows:
2.1. The only previously received lump sum benefits which apply to this method must have been after the
following dates:
2.1.1.Retirement Fund Lump Sum Benefits (from any type of fund on Retire/Death/Retrench): received
on or after 1 OCT 2007
2.1.2.Withdrawal benefits (?? Is it only from a retirement annuity fund ONLY(not from any other type
fund eg provident??very unclear in book see page 611 ) :received on or after 1 Mar 2009
1.
12 | P a g e Income Tax 301 INDIVIDUALS own notes.
13 | P a g e Income Tax 301 INDIVIDUALS own notes.
TERMS
1. Direct Tax : Is a tax levied on persons. (incl. income tax, levied on SA residents & foreigners who earn any income from in
SA.)
2. Indirect tax: Is a tax levied on Transactions : (when a person spends money in SA, eg VAT, transfer duty, securities transfer
tax, customs duties, fuel levies.)
3. Person: 1- Natural person + 2-Legal persons eg Companies + 3-Arrangements defined as persons eg trusts, deceased
estates, insolvent estates. Also in ‘Definitions Act” it says : divisional council, municipal council, village management
board,any body of persons ‘corporate or unincorporated’. ”A body of persons unincorporated includes a Partnership”
4. Partnership : 1- For income tax its partners are individually taxed , 2- for vat it is taxed as an entity.
4.1. Settlement : gratitious disposal of property subject to specific terms & conditions usually to trustees of a
trust.
4.2. Donation : per roman-dutch law it is disposal of property for no consideration
4.3. Other Disposition : means any disposal gratioutously,out of liberality or generosity of the dispenser. Eg
interest-free loan.
4.4. Spouse: defined in sec 1 of act as the partner of a person -
4.4.1.In a marriage or customary union recognized by the laws of the republic
4.4.2.In a union recognized as a marriage in accordance with the tenets of any religion.
4.4.3.In a same sex or heterosexual union which the commissioner is satisfied is intended to be permanent.
5. DEFINITION :CHILD :for purposes of section ON Med Aid expenses: will qualify for deduction if
5.1. 1) <18 & unmarried
5.2. 2)18-21 & unmarried &wholly or partially dependant on & not liable for normal tax in that year in his own
right.
5.3. 3)21-26 &full time student at educational institution of a public character & unmarried &wholly or partially
dependant on & not liable for normal tax in that year in his own right.
5.4. 4)any age iincapacitated by mental/physical infirmity from maintaining himself, wholly/partially dependant
for maintenance on taxpayer & not liable normal tax for year
5.5. ALSO: child must have lived for part of year
5.6. To determine if liable for tax - A child who would not be liable for tax were it not for the site provisions,is not
regarded as being liable for the payment of of normal tax .
6. Public Benefit Organisation(PBO) registered under Part II of the Ninth Schedule (see ch10) (ie :approved by
commissioner per sec30 and certain other institutions) and must issue a tax deduction certificate to donor.\
7. Pensionable Salary.-(or Non-retirement funding income)(.(means excl.interest+rental+business income-
does not include travel allowances or capital gains)
8. Non- Pensionable Salary. (or Non-retirement funding income) (.(means excl.interest+rental+business
income-does not include travel allowances or capital gains)
14 | P a g e Income Tax 301 INDIVIDUALS own notes.
CH1 INTRODUCTION
I. TAXATION IN SA
1. Tax IS the means whereby the state collects funds from persons to pay for its administration & benefits it provides its citizens.
2. Important parts of ch.: Types of taxes levied ; Framework for calc. of normal tax. ; difference direct/indirect tax ; year of
assessment ; definition of person.
3. Direct&Indirtect taxes are collected by SARS for the State, & paid into the National Revenue Fund.
4. Shortfalls are funded by borrowings
5. Local Authorities collect their own tax in form of rates on fixed property.(land&buildings)
I. TAX MAXIMS
By Adam Smith – in The Wealth of Nations 1776
1. In Proportion :The subjects of a State should contribute towards the support of the Gov. in proportion to their revenue they
enjoy, same as the tenants of a great estate contribute toward management of it in proportion to their interests.
2. Certain : The tax each individual must pay should be Certain, not Arbitrary
15 | P a g e Income Tax 301 INDIVIDUALS own notes.
3. Convenient : Ought to be levied at the Time and Manner most convenient for contributor to pay it.
4. As little to others exept State:, Each Tax should be formulated to take out and keep out of the pockets of the people as
little as possible over and above what what it brings to the public treasury.
I. SARS
1. Income tax act administered by Commissioner for the SARS, known as CSARS, under the Minister of Finance.
2. It is an organ of the state but outside the public service- so it can employ people etc. per its own rules, not the public service’s
I. ANNUAL BUDGET:
1. Gov fiscal year is 1 Apr to 1 31 Mar. Min. of Finance presents Annual budget each year in Feb- sets out expenditure for next
year & manner it will be funded- 1st by tax, 2nd sundry income(fines, sales of goods etc) and Loans.
2. SA budgeted tax collections was 643 billion 2009/2010
I. TYPES OF TAX
I. YEAR OF ASSESSMENT
1. Normal Tax is calc. on annual basis, covers the ‘Year of Assesment’
2. For Individuals & Trusts : 28Feb
3. For Companies etc : at date of Fin Year End. Of specific company.
3. It contains provisions for 5 different types of taxes ( plus 1 = dividends tax – to come into effect second half 2010)
3.1. Normal Tax
3.2. Turnover Tax
3.3. Withholding tax
3.4. Secondary tax on Companies
3.5. Capital Gains Tax
I. ESTATE DUTY
1. It is a DIRECT TAX - +/- 20% after deducting 3.5mil.
I. INDIRECT TAXES
1. VAT
2. Transfer Duty
3. Securities Transfer Tax
I. INTERPRETATION OF STATUTES:
1. Tax law is interpreted the same as any other law, EXCEPT that as tax needs to be certain, and as the law is drafted by the
legislature, the LITERAL TRANSLATION IS THE STARTING POINT.
2. Contra fiscum rule : The full maxim is “in dubio contra fiscum” which means when in doubt, interpret the law in favour of
the tax payer if possible. In other words tax law works like this : ‘allways give the benefit of the doubt to the taxpayer’.
3. The Intention of the Iegislature is always what is to be considered when interpreting legislation. This refers to their
meaning in their context and in the context of the act as a whole. See ITC(1984 , 47 SATC 141) and also (1962(1)SA458
(AD) at 476Wessels AJA ) for judgements relating to interpreting tax laws, concerning usage of words and interpretation
thereof.
4. Word interpretations : first check 2- “Income Tax Act the definitions sect. 1 of act ” , then 2-check “The Definitions Act “
itself ,then normal dictionary meaning.
4.1. No word may be seen as superfluous
4.2. Sect. 1 of act also says defined meaning must not be used where context inticates a different meaning.
5. The constitution – must also be kept in mind legally when interpreting any law
6. Person: 1- Natural person + 2-Legal persons eg Companies + 3-Arrangements defined as persons eg trusts, deceased
estates, insolvent estates. Also in ‘Definitions Act” it says : divisional council, municipal council, village management
board,any body of persons ‘corporate or unincorporated’. ”A body of persons unincorporated includes a Partnership”
7. ANTI-AVOIDANCE: these sections are interpreted a bit differently, it is basicly not illegal to avoid tax, so an anti avoidance
section does not contain penalties, it just allows the person to be taxed as if the avoidance measure was not entered into.
I. COURT DECISIONS:
1. If a taxpayer is not satisfied with his assessment and his objection has been overruled, he may apply to the Tax Court. Any
decision of the Tax Court is subject to an appeal to the high court. The taxpayer has the option of entering into an alternative
dispute resolution process(ADR) prior to resorting to the courts.
2. Any high court decision has ‘stare decisis’ ie it is binding on the courts below it. Only another decision of the same level can
change a previous one.
A. TAX BOARD :
1. Deals with appeals of 500 000 or less. The loser May appeal to the tax court.
A. TAX COURT
1. Judgements here do NOT create legal precedent, only high court judgements do.(they may only be persuasive)They are not
pub;lished in the SA Law Reports, but may be published in the SA Tax Cases Reports.
I. Interpretation Notes:
1. SARS issues “interpretation notes” to explain how certain parts of the act are to be interpreted. (previously called Practice
Notes)( these do not have force of law and may be challenged by the taxpayer in court)
2. SARS also issues guides & Media releases to just generally inform the public.
17 | P a g e Income Tax 301 INDIVIDUALS own notes.
Ch 8 –INDIVIDUALS
Quick reference Rand Amounts:
TERMS
1. Direct Tax : Is a tax levied on persons. (incl. income tax, levied on SA residents & foreigners who earn any income from in
SA.)
2. Indirect tax: Is a tax levied on Transactions : (when a person spends money in SA, eg VAT, transfer duty, securities transfer
tax, customs duties, fuel levies.)
3. Person: 1- Natural person + 2-Legal persons eg Companies + 3-Arrangements defined as persons eg trusts, deceased
estates, insolvent estates. Also in ‘Definitions Act” it says : divisional council, municipal council, village management
board,any body of persons ‘corporate or unincorporated’. ”A body of persons unincorporated includes a Partnership”
4. Partnership : 1- For income tax its partners are individually taxed , 2- for vat it is taxed as an entity.
4.1. Settlement : gratitious disposal of property subject to specific terms & conditions usually to trustees of a
trust.
4.2. Donation : per roman-dutch law it is disposal of property for no consideration
4.3. Other Disposition : means any disposal gratioutously,out of liberality or generosity of the dispenser. Eg
interest-free loan.
4.4. Spouse: defined in sec 1 of act as the partner of a person -
4.4.1.In a marriage or customary union recognized by the laws of the republic
4.4.2.In a union recognized as a marriage in accordance with the tenets of any religion.
4.4.3.In a same sex or heterosexual union which the commissioner is satisfied is intended to be permanent.
5. DEFINITION :CHILD :for purposes of section ON Med Aid expenses: will qualify for deduction if
5.1. 1) <18 & unmarried
5.2. 2)18-21 & unmarried &wholly or partially dependant on & not liable for normal tax in that year in his own
right.
5.3. 3)21-26 &full time student at educational institution of a public character & unmarried &wholly or partially
dependant on & not liable for normal tax in that year in his own right.
5.4. 4)any age iincapacitated by mental/physical infirmity from maintaining himself, wholly/partially dependant
for maintenance on taxpayer & not liable normal tax for year
5.5. ALSO: child must have lived for part of year
5.6. To determine if liable for tax - A child who would not be liable for tax were it not for the site provisions,is not
regarded as being liable for the payment of of normal tax .
6. Public Benefit Organisation(PBO) registered under Part II of the Ninth Schedule (see ch10) (ie :approved by
commissioner per sec30 and certain other institutions) and must issue a tax deduction certificate to donor.\
7. Pensionable Salary.-(or Non-retirement funding income)(.(means excl.interest+rental+business income-
does not include travel allowances or capital gains)
8. Non- Pensionable Salary. (or Non-retirement funding income) (.(means excl.interest+rental+business
income-does not include travel allowances or capital gains)
I. TAX TABLEs
1. The tax tables for individuals and special trusts is set out tin the tax table for each year of assessment.People with higher
income pay more, those with less pay less.
2. AVERAGE RATE OF TAX : means the one on the tax table itself shown
3. MARGINAL RATE OF TAX : means the effective rate as worked out after the whole thing
I. TAX COLLECTION
A. Tax Threshholds
1. Tax Threshold : the point at which tax becomes payable: as a result of the rebates, persons are not liable for tax
if the tax payer the table is equal to or less than the rebates to which they are entitled.
2. For 2010 year of assessment the tax thresholds are as follows :
2.1. >65 = 84200 ( 2009 =74000)
2.2. < 65 = 54200(2009=46000)
1.2.1.2.Such income is deemed to be the income of such persons spouse (the DONOR) in 1 of 2
situations:
1.2.1.2.1.Situation 1 :The income was derived in consequence of a donation , settlement, or other
disposition, OR by reason of a transaction operation or scheme carried out by the donor, : all
on or after 20 Mar 1991, the sole or main purpose of which was the reduction ,postponement
or avoidance of the donors liability for any tax,levy,or duty in terms of any act administered by
the commissioner.
1.2.1.2.2.Situation 2 :the income was derived from any trade carried on by recipient in partnership or
association with their spouse,or which is connected with the trade of the spouse,
OR
The income was derived from the 1- spouse , or from a 2- partnership in which the spouse is
a member, or from a 3-private company in which the spouse is a sole or main or one of
the principal shareholders
AND
Such income exceeds an amount that the recipient may reasonably be expected to earn having
regard to 1- the nature of the trade 2-the extent of the recipients participation 3-any other
relevant factor.
1.3. Note : (the sect .7.2 does not affect the taxability of donations between spouses- it will still be exempt from
donations tax.)
1.4. This section works in both directions : if husband works for wife, any excessive income he earns will be
deemed to be his wife’s income for tax purposes.
I. ANTEDATED SALARY OR PENSION(back pay received in a later year for services in a past
year)
1. Accrual period: the period in respect of which an antedated salary or pension has become payable.
21 | P a g e Income Tax 301 INDIVIDUALS own notes.
2. IF ACCRUAL PERIOD COMMENCED 2 YRS OR LESS before commencement of current year : employee may
choose to have antedated amount spread over 2 yrs. The assessment for each accrual period is re-opened and
the ante-dated amount is taxed in those periods per rules active in that period.
3. IF MORE THAN 2 YEARS BEFORE COMMENCEMENT OF TAX YEAR in which back-pay is received: taxpayer
CAN ELECT (not must) to have the lump sum taxed in ONLY 3 equal installments - 1/3 per year –not more or
less installments allowed.
I. DIVORCED PERSONS
1. Alimony & maintenance is not deductable by the paying ex-spouse ,and not taxable in the hands of the
receiver.
2.
3.
25 | P a g e Income Tax 301 INDIVIDUALS own notes.
26 | P a g e Income Tax 301 INDIVIDUALS own notes.
I. INTRODUCTION
TABLE OF Act references for this chapter.
1.1. Where the amount is an “advance” : the employee has to prove the business expenditure and refund
any excess to the employer.
1.2. Where the amount is a “reimbursement” : the employee has already incurred the business expenditure ,
paid for it out of his own pocket, and then recovers the expense from the employer. He ususlly must provide
employer with expense voucher showing he incurred the expense on behalf of the employer.
2. Definition of taxable income in S 1 : states that it is the aggregate of
2.1.1.Income minus allowable deductions and set- offs and
2.1.2.All amounts to be included or deemed to be included in taxable income
3. SEC 8.1 : deals with 3 categories of allowances or advances that have to be inc;. in taxable income after
certain portions of the allowance or advance are deducted or excluded.
3.1. Travel Allowance
3.2. Subsistence allowance
3.3. Other allowances received by virtue of recipients office or duties eg entertainment allowance.
4. ALL OTHER ALLOWANCES other than these above, ARE FULLY TAXABLE.
A. TRAVEL ALLOWANCE
1. S 8.1.b deals with travel allowance. There are 2 types of travel allowance:
1.1. An allowance or advance in respect of transport expenses eg bus/train, and
1.2. An allowance or advance to be used by the recipient for paying expenses in respect of a motor vehicle used
by the recipient for business purposes (the so-called ‘motor car travel allowance’)
2. There is a Presumption in para ii that the employee owns the vehicle, but it need not be.
3. Private Travel : any portion of allowance used for private travel will be included in his taxable income. Private
travel includeds travel between his residence and place of work. One may only deduct pure ”business travel” from
your tax – whether its for a train or bus or own car -that’s it.
3.1. Private travel includes travel between his residence and place of work. This is NOT deductable at all.
4. Sec 8.1 is not confined only to persons who use their own car and also not only to persons who are
employees.All that is required is:
4.1. That the person receives a travel allowance
4.2. That the recipient uses the vehicle , in respect of the allowance received, for business purposes for all or part
of the year.
5. Excessive allowance : Interpretation Note : 14, any allowance which is excessive will be regarded as normal
salary. Employers are liable for the deduction of employees tax(PAYE) in these circumstances .
6. Employer owned vehicle : you may NEVER use any method other than method 1 – “deduct actual business
expenditure incurred” –This is to combat a scheme where the employer provides a vehicle and also gives a travel
allowance.
7. METHOD : there are 3 + 1 = 4 methods currently allowed to calculate this travel allowance deduction.
7.1. USING ACTUAL FIGURES :
7.1.1.If can furnish acceptable calc. based on data acceptable to the commissioner.: He can deduct the actual
cost of his business travel for the year.
7.1.2.You can say all costs to person incl. licence,maintenance,fuel,finance charges(for a max 400000car)
MULTIPLIED BY x [business km’s / {total business + Private km’s} ]
7.1.3.The value of vehicle is limited to 400 000 (2010). Depreciation must be done over 7 years per
s8.1.b.iiia. Finance charges are limited as if it had a cash cost of max 400000. For a Leased vehicle,
installments themself for the year cannot exceed the fixed cost per the standard “table” issued by
minister” on that vehicles ‘cash cost’.( I think cash cost is also limited to 400 000 here too)
7.2. USING ACTUAL BUSINESS KILOMETERS TRAVELED AND A DEEMED COST PER Km.
7.2.1.Actual km recorded for year LESS Actual private Travel = actual business travel.(proved to
satisfaction of commissioner) The travel allowance will be the actual business travel X rate per km in
table. (Note: in this case actual Km are not limited to 32000.)\
7.3. USING A DEEMED FIGURE FOR BOTH BUSINESS Km AND THE COST PER Km.
7.3.1.Rate per km is taken from the table.
7.3.2.18000 km private travel is deemed to have been used - BUT pro-rata if only used for a portion of
year/365.
7.3.3.The total km traveled (private +business= whats on the clock) is limited to 32000, pro-rata for part
of year used/365 days.
28 | P a g e Income Tax 301 INDIVIDUALS own notes.
7.3.4.More than 1 vehicle used – you must add 18000km separately PER vehicle. , and also the 32000 total
km traveled limit applies separately per vehicle – so each vehicle is calc. separately and each gets a
fresh 18000 & 32000 limit.
7.3.5.1Mar 2010 :The use of DEEMED km will FALL AWAY on 1 Mar 2010.
7.4. NOTE: 4TH POSSIBLE METHOD : If the travel for business purposes does not exceed 8000km per year, he
can deduct 292 cents per km if he so wishes. It can only be used if employee receives NO OTHER
reimbursement or travel allowance.
A. SUBSISTENCE ALLOWANCE
1. ALLOWANCE USED TO COVER CERTAIN SMALL COSTS WHILE away from home.
2. Up to a certain limit it is tax free, but anything over the limit is subject to employees tax as well as forming part
of gross income for tax purposes.
3. Must spend at least 1 night away from home in order for allowance to be tax free.
4. There are 2 ways of calculating it:
4.1. If employee pays , he can deduct any of it it from what his employer gave as an allowance,but limited to his
allowance.
4.2. If employer pays for accommodation, employee can deduct ‘incidental costs-R80’ or ‘meals &incidental costs
R260’ from his allowance. It is here that the subsistence allowance is set.
32 | P a g e Income Tax 301 INDIVIDUALS own notes.
5. There is a tax free subsistence allowance for 6 weeks, or you have moved residence, except in special cases.
6. If you have not spent or refunded the allowance by the last day of following month it is deemed normal income.
A. OTHER ALLOWANCES (INCL. ENTERTAINMENT ALLOWANCES)
B. HOLDERS OF PUBLIC OFFICE
9. Vehicle leased by employee to employer : the price the employer pays him is seen as an allowance – so you
just treat it as an allowance and do the usual business travel deductions.
10. MAINTENANCE & FUEL COSTS: this can be deducted even if car is NOT used for any business purposes
10.1.If worker pays for fuel & maintenance the “value for private use 2.5% figure” you use in the calc. to
determine the deemed fringe benefit per month can be reduced by :
10.1.1.FUEL : 0.22%
10.1.2.MAINTENANCE: 0.18%
10.1.3.Eg : 2.5% -0.18% -0.22%= 2.1% is what to use if both are paid for by worker.
10.1.4.BUT : if worker has to pay licence, insurance or any other costs incl fuel(say he also gets an allowance
so does not qualify for the o.22%&0.18% deductions) then he may deduct it from his taxable benefit-but
then it is not allowed to be deducted anywhere else in any provision of this act anymore.
11.POOL CARS : NO VALUE :
11.1. Para7.10 states a pool car will have no taxable value if used for business purposes only or if for business
purposes after hours and then he had to travel from work to his residence with it after that.
11.2.Private use must be infrequent – many workers must use the car –not kept at residence of employee outside
business hours- if it happens often as stated above it is still ok-
35 | P a g e Income Tax 301 INDIVIDUALS own notes.
36 | P a g e Income Tax 301 INDIVIDUALS own notes.
A. SUBSIDIES
1. Per para 2ga, a benefit arises if employer paid a subsidy in respect of capital OR interest on any loan of employee
2. There are 2 possibilities:
2.1. If amount paid by employer + interest paid by employee is LESS than official interest rate applied to loan:
then it is treated as a low interest loan for tax purposes- so minus the % the employer pays from the
employees full bond % rate , and that is how much interest must be added to the employees ‘gross taxable
income’ – ie what the employer pays + [difference to official interest rate from bond rate]
37 | P a g e Income Tax 301 INDIVIDUALS own notes.
2.2. If amount paid by employer + interest paid by employee is GREATER than official interest rate applied to
loan: the full amount paid by employer is treated as a taxable subsidy
CHAPTER 9: PARTNERSHIPS
I. INTRODUCTION:
1. A partnership is a legal relationship arising from an agreement between 2 or more persons.
2. SA has no partnership act, a partnership is formed under Roman Dutch common law.
3. Joint venture is a TYPE of partnership. It need not be a partnership however, it can be for the benefit of it’s
shareholders.
4. This chapter only deals with actual partnerships : of companies, trusts or individuals-nothing else
5. The essentials of the contract are :
5.1. Each partner makes a contribution eg assets, money,labour,skill
5.2. Carried on for the benefit/profit of the partners
5.3. The partners must share in the profit or losses of the venture
5.4. The partnership contract must be legitimate.
1. ANY PROPERTY:
1. of the partnership does not belong to the individual members but is held by them as partners in joint and
UNDIVIDED shares in the partnership.
1.1. Any property is transferred by a partner to the partnership is transferred by ‘constitutum possessorium’
which is transfer of ownership as a result of a contractual change of intention on the part of the partner
bringing the property into the partnership.If he retains physical control over it he effectively controls the
property as principle(partner) and as agent for his partners. (similar to law of agency)
1.1.1.Exeption :Immovable property only vests in the partnership by formal registration and when registered
in name of partnership- else it is still in name of individual.
1.1.2.Exeption :Intangible property ( rights) only vest in the partnership by actual cession.
1. TYPES OF PARTNERSHIP:
1.1. Ordinary : all the partners are jointly and severally liable for all the obligations incurred by any partner
acting within his powers in the course of the business enterprise.
1.2. Extraordinary: there are 2 types :
1.2.1.En Commandite: only one partner is “Disclosed” the business is carried on in his name only, the
others merely invest and their loss is restricted to their investment. (in the past livestock & film tax
planning schemes) The NO-Disclosed partners are seemingly?? called the ‘en commandite’ partners.
1.2.2.Anonymous: The same as above , exept the Undisclosed partners are also liable for any losses.
1. FUNNY THINGS:
1.1. A partner cannot be an employee as he is a principle(salary is a “share of the profits”)
1.2. A partner cannot sue the partnership or visa-versa, he basicly only sues the other partners(law is unclear)
1.3. A partner cannot contract with, be a debtor or creditor to a partnership – it is more with his partners.(law is
unclear though)
1. FAMILY PARTNERSHIPS:
1. The onus is on the taxpayer to prove that (and how) a family partnership exists, thus it is recommended that:
1.1. The partnership agreement/contract is in writing
1.2. Separate bank account in name of partnership
1.3. Assets transferred to name of partnership
1.4. Proper books and accounts be kept for partnership
1.5. Each partner brings something into partnership – money/labour/skills)
2. Advantage of partnership is that S7(3) does not apply between parent & child. If there is no donation,settlement
or similar disposition between the 2. The child can work for an increasing share in partnership –if he worked for
it- instead of S7.5.
2.1. Note: Capital Gains Tax : ‘value –shifting arrangement’ : if a person interest in the partnership increases,
while the other’s decrease, due to a change in their rights, it is seen as a ‘value –shifting arrangement’ for
“capital gains purposes” –IF IT WAS NOT MADE FOR A MARKET-RELATED CONSIDERATION.
40 | P a g e Income Tax 301 INDIVIDUALS own notes.
2.2. Husband & Wife : per S7.2 , Income accruing to either if in partnership with each other, will not be deemed
to be their spouses as long any portion is considered excessive, if a portion is excessive it will then be taxed
in the other spouses name.
I. TAXATION OF A PARTNERSHIP:
S66.15) Persons carrying on any business in partnership shall make a joint return as partners in
respect of such business, together with such particulars as may from time to time be prescribed, and each
partner shall be separately and individually liable for the rendering of the joint return.
S77.(7) Separate assessments shall, notwithstanding the provisions of subsection (15) of section sixtysix,
be made upon partners.
(2) Where any trade or business is carried on in partnership, each member of such partnership
shall, notwithstanding the fact that he may be a limited partner, be deemed for the purposes of this Act to
be carrying on such trade or business.
(3) Notwithstanding anything to the contrary in this Act contained, the amount of any allowance
or deduction which may be granted to any taxpayer under any provision of this Act in respect of or in
connection with any trade or business carried on by him in a partnership in relation to which he is a limited
partner shall not in the aggregate exceed the sum of-
(a) the amount, whether it consists of the taxpayer's contribution to the partnership or of any
other amount, for which the taxpayer is or may be held liable to any creditor of the
partnership; and
(b) any income received by or accrued to the taxpayer from such trade or business.
[Sub-s. (3) amended by s. 26 of Act 74 of 2002.]
(4) Any allowance or deduction which has been disallowed under the provisions of subsection (3)
shall be carried forward and be deemed to be an allowance or deduction to which the taxpayer is entitled in
the succeeding year of assessment.
(5) (a) Where any income has in common been received by or accrued to the members of any
partnership, a portion (determined in accordance with any agreement between such members as to the ratio
in which the profits or loses of the partnership are to be shared) of such income shall, notwithstanding
anything to the contrary contained in any law or the relevant agreement of partnership, be deemed to have
been received by or to have accrued to each such member individually on the date upon which such income
was received by or accrued to them in common.
(b) Where a portion of any income is under the provisions of paragraph (a) deemed to have been
received by or to have accrued to a taxpayer, a portion (determined as aforesaid) of any deduction or
allowance which may be granted under the provisions of this Act in the determination of the taxable
income derived from such income shall be granted in the determination of the taxpayer's taxable income so
derived.
[S. 24H inserted by s. 21 of Act 90 of 1988.]
S11(m) : 11 General deductions allowed in determination of taxable income ( very unclear –who can deduct here : the taxpayer or
the employee/partner who received it)
Cases
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-
6.1. any amount paid by way of annuity during the year of assessment by any taxpayer-
(i) to a former employee who has retired from the taxpayer's employ on grounds of
old age, ill health or infirmity; or
41 | P a g e Income Tax 301 INDIVIDUALS own notes.
(ii) to a person who was for a period of at least five years a partner in an undert aking carried on by the taxpayer and who retired
from the partnership in respect of that undertaking on grounds of old age, ill health or infirmity, provided that the
amount so paid to such person is reasonable, having regard to the services rendered by such person as a partner in such
undertaking prior to his retirement and the profits made in such undertaking, and that the said amount does not represent
consideration payable to such person in respect of his interest in the partnership; or
[Sub-para. (ii) substituted by s. 9 (1) (f) of Act 113 of 1993.]
(iii) to any person who is dependent for his maintenance upon a former employee or a
former partner in an undertaking carried on by the taxpayer or (where such former
employee or former partner is deceased) was so dependent immediately prior to
his death:
Provided that the deduction under subparagraph (iii) shall not exceed in respect of the
persons so dependent on any one retired or deceased employee or former partner, the sum of R2 500;
1. LIMITED PARTNERS
1. For the purposes of this section, 'limited partner' means any member of a partnership en commandite, an anonymous partnership or any similar
partnership, if such member's liability towards a creditor of the partnership is limited to the amount which he has contributed or undertaken to
contribute to the partnership or is in any other way limited.
2. S24H RESTRICTS any deduction or allowance a limted partner may claim to a& b below. (contribution/income received/or amount liable to
creditors)
2.1. Any normal deduction that is not allowed/stopped because of this rule may be carried forward to the next year.
2.2. S24 H (3) : copied vertabim : Notwithstanding anything to the contrary in this Act contained, the amount of any allowance
or deduction which may be granted to any taxpayer under any provision of this Act in respect of or in
connection with any trade or business carried on by him in a partnership in relation to which he is a limited
partner shall not in the aggregate exceed the sum of-
(a) the amount, whether it consists of the taxpayer's contribution to the partnership or of any
other amount, for which the taxpayer is or may be held liable to any creditor of the
partnership; and
(b) any income received by or accrued to the taxpayer from such trade or business.
[Sub-s. (3) amended by s. 26 of Act 74 of 2002.]
1. ACCRUAL
1. THE PURPOSE OF THIS IS TO OVERRIDE case of sacks vs CIR, about if his profit only accrued to him at the end
of the year.
2. S24H ( 5) [see above] says basicly : any revenue accruing to partnership accrues direct to partners on same date
in their profit sharing ratio, as well as related expenses, and any allowances or deductions related to this revenue
from SARS.
3. Any practical difficulties this creates may be overcome by making the year end of the partners the same as the
year end of the partnership.
I. CONNECTED PERSONS.
1. The act defines a connected person, for the purposes of certain anti-avoidance measures in the act.
2. Definition of connected person :
2.1. For Income tax act: means any other member of partnership or any other person connected to these
members eg: family. BUT not the partnership itself, just the partners- because it is seen as not a legal
person.
3. Vat tax act : same as above exept the ‘partnership’ is also seen as a ‘connected person’ (it pays vat)
I. NOTES
1. Method:
1.1. You do the Exam Calculation in 2 steps : first you do the 1-Entity then transfer all profits to the partners ,
then you do each of the 2-Partners individually.
1.2. Each full Step ends with : ‘TAXABLE INCOME” of whatever it was.
1.3. For partners in step 2, you add in (deductable ) interest income, then deduct it again as a
deductable(deductable to 21000) .-don’t just leave it out if below 21000!
1.4. Also write ‘ drawings’ as a heading and then a dash/zero – don’t just ignore it for marks
1.5. Also if you minus 21000 from 16000 for interest exempt – you write 16000-16000 for points,
1.5.1.STEP 1 :You deduct all salaries paid to partners + interest paid to partners along with all other normal
expenses from the total revenue of partnership to get the total profit to be divided between partners –
AS IF THEY COULD CONTRACT WITH PARTNERSHIP. So any expense from contracting/transactions with
partners which would normally be deductable if it were an outside party who contracted/transacted with
the Entity, is still deducted in this frist calculation (to get all the profit sharing ratios correct)
1.5.2.STEP 2 :In second calculation for each individual partner, you add back the salaries + interest charged
to Entity + any other income gained from Entity, to the INCOME each partner RECEIVES from ENTITY
and is now liable to PAY TAX ON. All this income is treated as profit from the received by partner ,
because a partner cannot REALLY contract with his own partnership. (himself)
2. The source of partnership profits is located where the services of each partner are rendered.
3. Partners are taxed on their profits earned, irrespective of their drawings
4. When a new partner is admitted, or resigns, or dies or retires, the old partnership comes to an end and a new
one comes into existence.
5. If partner sells his goodwill it is of a capital nature- as lump sum or as installments.
5.1. If paid by annuity, seller is taxed in terms of paragraph (a) of gross income definition, but purchaser gets no
deduction for the annuity because it is of a capital nature ( asset for an asset exchange)
5.2. S11m provides for a deduction (by all the partnerships individual taxpayers)of annuities paid to former
partners (by the partnership) if following conditions:
S11(m) : 11 General deductions allowed in determination of taxable income ( very unclear –who can deduct here : the taxpayer or the
employee/partner who received it)
Cases
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-
6.1. any amount paid by way of annuity during the year of assessment by any taxpayer-
(i) to a former employee who has retired from the taxpayer's employ on grounds of
old age, ill health or infirmity; or
(ii) to a person who was for a period of at least five years a partner in an undert aking carried on by the taxpayer and who retired
from the partnership in respect of that undertaking on grounds of old age, ill health or infirmity, provided that the
amount so paid to such person is reasonable, having regard to the services rendered by such person as a partner in such
undertaking prior to his retirement and the profits made in such undertaking, and that the said amount does not represent
consideration payable to such person in respect of his interest in the partnership; or
[Sub-para. (ii) substituted by s. 9 (1) (f) of Act 113 of 1993.]
(iii) to any person who is dependent for his maintenance upon a former employee or a
former partner in an undertaking carried on by the taxpayer or (where such former
employee or former partner is deceased) was so dependent immediately prior to
his death:
Provided that the deduction under subparagraph (iii) shall not exceed in respect of the
persons so dependent on any one retired or deceased employee or former partner, the sum of R2 500;
43 | P a g e Income Tax 301 INDIVIDUALS own notes.
7. Paragraphs (d) [termination gratuities] and (i) [fringe benefits] cannot apply to partners because they are
neither employees NOR holders of an office , of the partnership.
8. Bad Debts : If a debt goes bad the S11(i) deduction is only available to those partners who originally had the
sale giving rise to the debt included in their income.
8.1. The share deductable of the bad debt is IN THE NEW PROFIT SHARING RATIO, NOT the old one. Because the
share of the loss bourne by the old partners is reduced by the new partners share in the loss. (So there will
always be some of the original bad debt missing in the claim-the share now bourne the the new partner.)
9. Insurance policies on the life of partners paid by the partnership :
9.1.1.Goodwill deceased estate policy : cannot be claimed as a deduction because in terms of S11(w) because
it only applies to policies in terms of employees. – BUT this only applies to premiums for joint life policies
in respect of payments for goodwill to deceased estates –
9.1.2.Normal life policy partners own benefit :SARS does allow deductions for these policies by the
partnership, but the premium is then treated as a partners share of the profits and taxable in his hands.
10. VAT : a change in the composition of partnership does not affect VAT status of business as long as any member
still carries on with the partnership business.It continues under the VAT registration number of old partnership.
11. Pension funds/Retirement : If a new member of a PARTNERSHIP was part of a Pension Fund before he joined
the new partnership :
11.1.His contributions are limited to 7.5% of his salary in the 12 mnths preceding date he became a partner.
11.2.Definition of retirement funding employment provides that it is restricted to his share of the profits/
salary/etc that does not exceed his pensionable emoluments in the 12 mnths prior to becoming a partner.
11.3.So the limit as per S 11(k) is the greatest of 1750 or 7.5% of earnings as explained above.
11.4.P.S. for the purposes of computing the tax free portion of a lump sum from a pension fund , formula A of
the second schedule deems the highest annual average salary of a partner to be his pensionable
employments in the 12 mnths prior to becoming a partner (where this fits in here I don’t know- maybe see
later)
I. VAT
No -make this part of note if yes-?? Why?? What if he did not claim input vat when he originally bought
it?? ???It seems if he could have claimed vat input then entity does not have to account for output
vat???? Pg 240 last para.
5.4. However : IF A PARTNER sells his share of a partnership to another partner, and the company owns
land, then the seller must pay the BUYER (note : not buyer pays seller) transfer duty. This must happen even
if the partnership itself is a Vat vendor, because it is not the partnership selling the shares , it is the old
partner selling to the new partner. So , because NO VAT was charged on the sale of the shares, transfer duty
equal to the pro-rata portion of the Fixed Property Value per the number of shares sold, is charged by buyer
to seller of the shares in the partnership.(???must the seller pay the buyer transfer duty on property value
only, or also on value of car, desks and goodwill.2-is it sellerpay buyer or not? 3- if the seller was personally
registered for vat, must he charge buyer vat and thus get exemption –is vat charged on sale of shares or
only on value of property included in the share value????)
I. GENERAL :
1. You get 1-annuities(yearly payments) - which are normally taxed in full and 2-lump sum payments which are
subject to various deductions etc.
2. Sections in act relevant : see text book.
2.1. Gross income definition
2.2. Sec 7a.4a , 5.10 : rating formula
2.3. Sec 10.1.x which exempts first 30000
2.4. Sec 11 k & n deductions for deductions for pension & retirement annuity funds contributions
2.5. Second schedule : tax treatment of lump sums from pension,pension preservation, provident, provident
preservation, retirement annuity funds.
3.2.2.did not at any time hold more than five per cent of the issued share capital or members' interest in such company.
1. The RATING FORMULA of sec5.10 below must be applied where taxable income includes:
1.1.1.Similar to above provisions exept :
1.1.1.1.Director OR >5% shareholder clauses do not apply here at all though
3.8.4.If they just give you last years tax rate as R was = 21% etc : just use this figure for last year, you don’t
have to work it out again for last years L+G etc etc.
4. NOTES :
4.1. METHOD :
4.1.1. it seems you must first do a long basic sum to get the basic figures before you work out each A,B,etc.
REM: to add in the full interest and then deduct the amount of interest exepted(21000). Do this with all
deductions. ALSO : add in the ‘retirement fund lump sum” and then get your final sum =total taxable
income. Then deduct it again to get “taxable income excl. retirement fund lump sum benefit”-this was
wrongly included in “B” in the ACT but the book says to treat it like this - excluded. This add and minus
out story is just to show calculations for marks.
4.1.2.After this you work out each letter separately : ie A,B,C etc. and fill in final formula.
4.2. The tax rate finally arrived at from formula CANNOT BE LOWER THAN the lowest current tax rate = currently
18% (you must work this out after you get the answer, to see if your answer is not lower)
4.3. RAF deduction : When you work out “B” : The total RAF deduction allowed is limited to : the greater of
either : -1- 1750 or -2- [3500-deductable pension contributions] or -3- 15% of taxable income from non-
pensionable income(????or non-retirement funding income????)before deducting MedAid +MedExpense +TaxDeductDonations
+certain farming expenses. = “interest income AFTER 21000 deduction” + “lump sum after 30000 deduction”
+pension/other annuity :BUT not capital gains and not salary and not pension fund lump sum . Also any
disallowed portion from this year can be carried over to following year.( for the next 100 years until it
disappears or just 1 year ahead?)
4.3.1.Note though: When you work out RAF deduction for “D” however leaves out any ‘interest income’
or anything except L=lump sum. So the RAF deduction used to work out “B” will be different to the RAF
deduction used to work out “D”, because “D” only uses the lump sum less possible 30000.
4.4. R : below is a tax rate % , and must be worked out for current as well as last year. The greater of the 2 is
used. ALLWAYS USE 2 DECIMALS eg 19.35 % not 19.4 %
4.5. There is a provision in 5.10.f.i.bb that makes lump sums cumulative – so the previous years must be
included ( ?don’t understand this?)
4.6. L= lump sum: is limited to lesser of
4.6.1.1.EITHER : 3x average annual salary BEFORE begin of year lump sum is received.
4.6.1.2.OR [lump sum minus any applicable deduction of 30 000]
4.6.2. If you must use this 3X formula instead of actual lump sum, then you do NOT subtract the 30 000
from it first before it goes in formula – the 30000 falls away.
4.6.3.L=lump sum is the total after you have deducted the 30 000 deduction as per SEC 10.1.x.
4.7. TAX REBATE :always remember to deduct the normal Tax Rebate ( Primary&Secondary:5400 & 9756) from
your final answer!!!
48 | P a g e Income Tax 301 INDIVIDUALS own notes.
(10) Where any taxpayer's income includes any special remuneration, or where the provisions of
section 7A (4A) or paragraph 15 (3) or 17 or 19 (1) of the First Schedule or paragraph 7 of the Second
Schedule are applicable in the case of the taxpayer in respect of any year of assessment, the normal tax
payable by the taxpayer in respect of such year (as determined before the deduction of any rebate) shall be
determined in accordance with the formulain
which formula-
(a) 'Y' represents the amount of normal tax to be determined;
(b) 'A' represents the amount of normal tax (as determined before the deduction of any
rebate) calculated at the full rate of tax chargeable for the said year in respect of a taxable
income equal to the amount represented by the expression 'B + D - (C + L)' in the
formula;
[Para. (b) substituted by s. 4 (b) of Act 91 of 1982, by s. 3 of Act 65 of 1986 and by s. 5 (b) of Act 21 of
1994, amended by s. 4 (b) of Act 21 of 1995 and substituted by s. 7 (1) (b) of Act 5 of 2001.]
(c) 'B' represents the taxpayer's taxable income for the said year;
(d) 'C' represents an amount equal to the sum of-
(i) the amount of any special remuneration (as defined in subsection (9)) which is
included in the taxpayer's income for the said year.
(iA) ......
49 | P a g e Income Tax 301 INDIVIDUALS own notes.
[Sub-para. (iA) inserted by s. 4 (b) of Act 96 of 1981, substituted by s. 4 (c) of Act 91 of 1982, amended by
s. 3 (c) of Act 94 of 1983, substituted by s. 4 (c) of Act 21 of 1995 and deleted by s. 7 (1) (c) of Act 5 of
2001.]
(ii) where the provisions of paragraph 15 (3) of the First Schedule are in the case of
the taxpayer applicable in respect of the said year, an amount determined in
accordance with those provisions as being the amount, if any, by which the
taxable income derived by the taxpayer during the said year from the disposal of
plantations and forest produce exceeds the annual average taxable income derived
by him from that source over the three years of assessment immediately preceding
the said year;
(iii) where the provisions of paragraph 17 of the First Schedule are in the case of the
taxpayer applicable in respect of the said year, an amount equal to so much of the
taxable income of the taxpayer for such year as has been derived from the disposal
of sugar cane as a result of fire in his cane fields and but for such fire would not
have been derived by him in that year;
[Sub-para. (iii) substituted by s. 3 (b) of Act 129 of 1991.]
(iiiA) where the provisions of subparagraph (1) of paragraph 19 of the First Schedule are
in the case of the taxpayer applicable in respect of the said year, the amount by
which his taxable income derived from farming for that year exceeds his average
taxable income from farming as determined in relation to that year in accordance
with subparagraph (2) of the said paragraph; and
[Sub-para. (iiiA) inserted by s. 3 (d) of Act 94 of 1983.]
(iv) ......
[Sub-para. (iv) substituted by s. 4 (e) of Act 21 of 1995 and deleted by s. 7 (1) (c) of Act 5 of 2001.]
(v) ......
[Sub-para. (v) deleted by s. 5 (c) of Act 21 of 1994.]
43
(e) 'D' represents an amount equal to so much of any current contribution to a retirement
annuity fund as is allowable as a deduction in terms of section 11 (n) (aa) (A) solely by
reason of the inclusion in the taxpayer's income of any amount contemplated in paragraph
(d) (i), (ii), (iii) and (iiiA) and paragraph (f);
[Para. (e) inserted by s. 4 (d) of Act 91 of 1982, deleted by s. 3 (b) of Act 121 of 1984 and added by s. 4 (f)
of Act 21 of 1995.]
(f) 'L' represents an amount equal to the sum of-
(i) in relation to any amount which accrued to the taxpayer on or after 1 September
1995 to which the provisions of section 7A (4A) are applicable in respect of the
said year, the lesser of-
(aa) that amount; or
(bb) an amount equal to three times the annual average of the amounts derived
by such taxpayer during the three years of assessment which immediately
preceded the year of assessment under charge by way of remuneration as
defined in paragraph 1 of the Fourth Schedule, including any amount
referred to in paragraph (vii) of that definition but excluding so much of
the sum of any other amounts contemplated in the said section 7A (4A) as
were included in the amounts represented by the symbols 'C' and 'L' in
respect of the said year and any previous year of assessment; and
(ii) in relation to any amount which accrued to the taxpayer on or after 1 September
1995 to which the provisions of paragraph 7 of the Second Schedule are
applicable, any amount determined in accordance with the provisions of that
Schedule and included in his income for the said year; and
[Para. (f) added by s. 4 (f) of Act 21 of 1995.]
(g) 'R' represents the greater of the amounts determined by applying the formulain
respect of the said year and the preceding year of assessment, in which formula-
(i) the amounts represented by the symbols 'B', 'C', 'D' and 'L' shall be determined in
accordance with the aforegoing provisions of this subsection as applicable in the
said year or in the said preceding year, as the case may be;
(ii) 'F' represents the amount of normal tax (as determined before the deduction of any
rebate) calculated at the full rate of tax chargeable for the said year or the said
preceding year in respect of a taxable income equal to the amount represented by
the expression 'B + D - (C + L + G)' in the formula for that year or preceding year,
as the case may be; and
(iii) 'G' represents an amount of the taxable capital gain included in the taxable income
in terms of sect ion 26A for the said year or the said preceding year, as the case
may be:
Provided that where, as a result of the death or insolvency of the taxpayer, the period
assessed is less than 12 months, the symbol 'R' shall be determined with reference to the
said year only
50 | P a g e Income Tax 301 INDIVIDUALS own notes.
[Para. (g) added by s. 4 (f) of Act 21 of 1995 and substituted by s. 7 (1) (d) of Act 5 of 2001 and by s. 5 (1)
of Act 19 of 2001.]
Provided that in no case shall the amount of normal tax so payable be less than the amount of normal tax
which would be chargeable at the relevant rate fixed in terms of subsection (2) in respect of the first rand of
taxable income, and nothing in this section contained shall be construed as relieving any person from
liability for taxation under this Act upon any portion of his taxable income: Provided further that where the
sum of the amounts included in symbol 'L'exceed the taxpayer's taxable income for the said year, the
amount of normal tax so payable shall be calculated on the taxpayer's total taxable income for the said year,
at the greater of the relevant rate contemplated in the preceding proviso and the amount determined as
symbol 'R' in relation to the preceding year only.
1. Types of fund:
1. Pension Fund:
1.1.Established under Pension funds Act as Private or state types
1.2. Max 1/3 may be paid out as lump sum , the rest ONLY as annuities.
1.3. You Must be an Employee
2. Pension Preservation Fund : May only Comprise :
2.1. Former members of a pension fund whose membership was terminated due to certain allowed reasons
2.2. Member transfers from another pension preservation fund
2.3. Specified benefits of a pension fund that have not been paid out within 24 mnths of due date can transfer
2.4. Max 1/3 may be paid out as lump sum , the rest ONLY as annuities.
2.5. For Employee’s (from pension fund)
3. Provident:
3.1. Established under Pension Funds Act
3.2. The FULL amount can be paid out as a lump sum
3.3. (For employees only??)+ what is difference to “pension fund”
4. Provident Preservation :
4.1. Established under Pension Funds Act
4.2. Same requirements as for pension preservation fund, but former membership MUST have been “Provident
Fund”.
4.3. The FULL amount can be paid out as a lump sum
A. TAXATION OF LUMP SUMS: Pension Funds Etc.( See : S9.1.g & also para e of definition
of gross Income
51 | P a g e Income Tax 301 INDIVIDUALS own notes.
1. Retirement Fund Lump Sum Benefits : can be paid out for the following reasons : Retirement , Death ,
Retrenchment(business closes! OR person redundant) – para 2.1.a of 2nd Sched. Often called ‘ retirement
benefits’.
2. Retrenchment director /5% Not Valid :If this benefit is paid out for a Director/or Ex-Director nor a person
who held more than 5% of shares in company or CC, due to ‘Retrenchment” from his last job– he cannot claim
any concession at all here – he must pay the full tax So it must be retirement or withdrawal for him
3. Definition : Retire : in para 1 of 2nd schedule defined as “entitled to annuity or lump sum benefit as per
definition of ‘retirement date’ – means ‘on or subsequent to attaining normal retirement age’ . If member dies
before ‘retirement date’ that dependant becomes entitled to benefit in terms of rules of fund( there may be some
rule to say immediately or in 5 years etc.”
4. No rebates (primary & secondary rebates – 5400 & 9756) ARE EVER DEDUCTED FROM THIS TAX.
REBATES ONLY COME OFF THE NORMAL TAX THAT IS WORKED OUT USING THE NORMAL TAX TABLES.LUMP
SUMS ARE WORKED OUT USING THEIR OWN TAX TABLES, AND THE REBATES DO NOT APPLY TO THIS TYPE OF
TAX!
5. Note : Insurance policy ceded : if fund cedes an insurance policy to member , the policy or cash surrender
value may be paid to another fund to entitle taxpayer to para 5 deduction.
6. Own tax table: ‘Retirement Benefit funds lump sums’ has its own special ‘tax table’ only for this fund type. It
does not apply to ‘withdrawal benefits lump sums’, they have their own tax table. They do not use the normal tax
tables and are not included in the normal tax calculation- they are left out of the normal tax calc. completely and
done on their own separately.
7.
8. Method : Para 5 of 2nd schedule : Deductions from Retirement Benefit :
8.1. Start with Lump Sum :
8.1.1. Deduct -1-: Taxpayers Own Contributions to any fund which did not rank for deduction.( all
provident fund contributions +??any pension&retirement funds over the limit allowed that year
and never deducted?? Yes or no??) pg 608
8.1.2. Deduct -2-: Transfer Divorce to another fund (on retirement/death/retrench) (37.d.4.b.ii Pension
Act)
8.1.3. Deduct -3-: Transfer any to another fund of member (to any type of these funds-even to
provident) (on retirement/death/retrench)
8.1.4. Deduct -4-: Transfer Unclaimed benefit : to any ‘preservation‘ fund. (on
retirement/death/retrench)
8.1.5. Deduct -5-: Transfer : from Gov. pension. Fund to private pension fund. (on
retirement/death/retrench)
8.1.6. FINISHED.
8.2. None of the above must have been allowed as a tax deduction by any “Entire 2nd Schedule” before .( ??like a
transfer to any other fund – you can only transfer the same amount ONCE – next time you must pay full tax
on the transfer??)
8.3. The deduction may not go below zero- it cannot exceed the lump sum benefit.
tax tables and are not included in the normal tax calculation- they are left out of the normal tax calc. completely
and done on their own separately.
8.
9. METHOD: Para 6 deductions from withdrawal benefit :
9.1. Start with Lump Sum
9.1.1.Deduct :Divorce :Amount deducted from the taxpayers (who money came from) minimum initial
reserve of former spouse on divorce per 37d of Pension Act & transferred to other fund in following order
of priority:
9.1.1.1.Pension- to pension/pension preservation,retirement annuity
9.1.1.2.Pension Preservation – to pension/pension preservation.
9.1.1.3.Provident – to pension/provident/provident preservation/retirement ann.
9.1.1.4.Provident Preservation – to provident or provident preservation.
9.1.1.5.RAF – to RAF
9.1.1.6.(note : it seems RAF to other type OR Pension/PensionPreservation to Provident/Provident
Preservation =not allowed,so you will pay tax on it. Also any preservation must go to same type of
fund ie a provident preservation can go ONLY to a provident OR another provident preservation.
9.1.2.Deduct :Transfer : from one fund to other of same taxpayer (same priority as above again) (whole
amount deduct)
9.1.2.1.Pension- to pension/pension preservation,retirement annuity
9.1.2.2.Pension Preservation – to pension/pension preservation.
9.1.2.3.Provident – to pension/provident/provident preservation/retirement ann.
9.1.2.4.Provident Preservation – to provident or provident preservation.
9.1.2.5.RAF – to RAF
9.1.2.6.(note : it seems RAF to other type OR Pension/PensionPreservation to Provident/Provident
Preservation =not allowed,so you will pay tax on it. Also any preservation must go to same type of
fund ie a provident preservation can go ONLY to a provident OR another provident preservation.
9.1.3.Deduct :Withdrawal:
9.1.3.1.Deduct -1-: Taxpayers Own Contributions to any fund which did not rank for deduction –even
if he is still a member of that fund.( all provident fund contributions +??any pension&retirement
funds over the limit allowed that year and never deducted?? Yes or no??) pg 608 – (can you deduct
contributions to a pension/provident fund he is a member of from a withdrawal from a RAF fund or
something?)
9.1.3.2.Deduct -2-:Divorce : any amount received from ex. but transferred to another fund per
37.d.4.b.ii.cc.–?to any of the 5 types of funds?
9.1.3.3.Deduct -3-Transfer : by member from any 1 fund to another where he is/was member of both
funds. per para2..1.b.ib. (except ONLY pension to provident –does not count you must pay tax)-are
all the others disallowed for ‘transfer’ above – what is the difference between the 2 see pg 609&610
2X yellow.-for a withdrawal from a fund_
9.1.3.4.Deduct -4-Transfer : any unclaimed benefit transferred to a preservation fund.
9.1.3.5.Deduct -5-Transfer : certain Gov. Pension fund transfers to a private fund.
9.1.3.6.ALL THESE DEDUCTIONS ARE ONLY ALLOWED IF THEY HAVE NOT PREVIOUSLY BEEN
ALLOWED AS A DEDUCTION BEFORE AND THE AMOUNT OF THE DEDUCTION MAY NOT
EXCEED THE AMOUNT OF THE LUMP SUM BENEFIT FROM WHICH IT IS DEDUCTED(not
below 0)
1. MULTIPLE FUNDS:
1. Where the taxpayer belongs to more than 1 fund or received more than 1 retirement or withdrawal benefit
in his lifetime, the tax in terms of the above tables is meant to be cumulative. It does not matter this time
though, whether you previously received a retirement or a withdrawal benefit – which ever you received you
will still have to include it in your calculation.
2. Note : if you want to see if you will pay more tax by taking the retirement lump sum first or the withdrawal
lump sum first, you must work it out both way and compare.
3. The General Rules :
3.1. The only previously received lump sum benefits which apply to this method must have been after the
following dates:
3.1.1.Retirement Fund Lump Sum Benefits (from any type of fund on Retire/Death/Retrench): received
on or after 1 OCT 2007
3.1.2.Withdrawal benefits (?? Is it only from a retirement annuity fund ONLY(not from any other type
fund eg provident??very unclear in book see page 611 ) :received on or after 1 Mar 2009
54 | P a g e Income Tax 301 INDIVIDUALS own notes.
3.2. It does not matter if it is withdrawal lump sum or retirement lump sum, any lump sum at all received in
the past must be used and considered, in the case of a second new Current Retirement or Withdrawal
benefit being received.(this rule is a bit unclear in the Act and may be changed in the future after 2010)
3.3. For the previously received lump sum, you do not do any deductions or use any of the deductions you
used for it previously when it was done.You ONLY use the sum actually paid out by the fund itself.
3.4. You use this years tax tables to work out everything, not tables from the relevant year or anything.
3.5. The tax paid in the former year for the former lump sum is not used at all , you work out the tax again
brand new from this years tax tables.
4. Method:
4.1. You work out the tax on the total of the following amounts added together [current Lump sum after
deductions + Old lump sums before deductions ]
4.2. NOW : deduct the tax on the Old Lump sums before deductions (at current tax rates) FROM tax on the
total of all the amounts added together = tax you OWE ANSWER.
4.3. ( so you’re saying you bring it to the high levels then deduct any tax you paid previously already)
3. One of the instances where it is free is where Funds pay out accumulated surpluses as lump sums to retired
members in later years. As they are tax free retirement fumd administrators do not have to apply for a “Tax
Directive” prior to paying the amounts out.
A. DIVORCE
1. Pension Funds amendment Act 2007 from 13 sep 2007 ,states a court can order a member spouses fund to pay
the divorced other member a certain portion of the Pension benefit to them in cash or transfer it to another fund
of these types. Sec 7,8 of Divorce Act decrees the same. This can be done before the member retires (somehow).
2. Sec 37 d of Pension Funds Act says it iss deemed to accrue to other spouse on date of court order- this is only for
purposes of the divorce act though.
3. For income tax purposes we look at the following amounts paid to a non-member spouse:
55 | P a g e Income Tax 301 INDIVIDUALS own notes.
3.1. Maintenance
3.2. Lump Sum
1. MAINTENANCE
1. Per pension funds act, a court can order amounts assigned as per divorce act as well as maintenance per the
Maintenance Act. These funds can deduct employees tax (PAYE) from these deductions.
2. Sec 7.11 of Income Tax Act says any deduction from ‘minimum individual reserve’ per sec 37d.1.d is deemed to
be income accruing to the member on date of deduction.
3. If any such amount is included as income of member per 7.11 , (taxed as PAYE ) it will NOT BE CLASSIFIED AS A
LUMP SUM BENEFIT- so it is not taxed in the hands of the ex-spouse.
1. LUMP SUM
1. Before 1 Mar 2009, lump sums paid to a non-member ex spouse were taxed in the hands of the MEMBER , but
from that date it is taxed in the hands of the NON-MEMBER , as a withdrawal benefit.
2. Para 6 of 2nd schedule allows the non-member ex to transfer it to another fund and obtain a deduction of the
amount transferred- so if the whole amount is transferred there will be no tax on it. BUT Para 6 requires transfer
to a Equivalent fund or a Stricter fund.
3. So this is a TAX DEDUCTABLE ‘contribution’ by the ex spouse to her/his fund when it was contributed.