The SA tax regime is set by National Treasury and administered by the Commissioner of SARS
(CSARS).
In SA, taxpayers are taxed on the residence basis of taxation. Persons who are residents are
subject to taxation in respect of ALL the income they earn anywhere in the world.
Where person not a resident, will be taxed on income earned from a South African source –
could lead to double tax.
The need for interpretation arise when Income tax Act not clear. Binding general rules are
issued by CSARS – these rules are binding on CSARS and taxpayers.
Interpretation notes are merely the opinion of SARS – are not binding. A taxpayer can object to
an assessment even if SARS has assessed that taxpayer in terms of an interpretation note.
When interpretation note provides guidance as to how commissioner intends to use discretion
– then interpretation note binding. A definition in the Income Tax Act will take precedence over
the definition in the Interpretation Act.
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Contra Fiscum Rule – where a provision of the Income tax Act has two interpretations, the
court will interpret the provision that places the smaller burden on the taxpayer.
LEGAL REMEDIES
Tax Board (1st appeal to Tax Board, less than R500 000, consist of Advocate or Attorney)
Tax Court (no inherent powers such as High court, not a court of law – have persuasive
value. The court not bound by its own rulings)
Taxpayers who have a service delivery issue or dispute with SARS may contact the SARS Service
Monitoring Office (SSMO) – operates independently of SARS branch offices – report directly to
the commissioner.
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QUESTIONS AND ASSESSMENT CRITERIA - STUDY UNIT 1
a) Court decisions: Are used to guide taxpayers in their affairs. These decisions show how
the income tax was applied to a certain set of facts and will give rise to rules for
interpreting the income tax act.
b) Binding General Rules: assist in the interpretation of tax laws on matters that affect
taxpayers in general. They are binding on SARS and on taxpayers.
c) Media Releases: inform taxpayers of important information that the Commissioner
needs to share with them
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STUDY UNIT 2 – CHAPTER 9 – Administration, returns and
assessments.
(Page 32)
Question 2.1.1 – Discuss the process of registering as a taxpayer for the first time
A: John Majale (Pty) Ltd has to complete form IT77(C) and submit the signed and completed
form to any SARS branch office. The following is a list of the information the company will need
to complete on the form:
Registered name of the company
Trade name of company
Postal address, Registered address, Company Registration no,
Nature of business, Registration date of company with CIPC
Full banking details, Particulars of the public officer, Particulars of three main directors
Question 2.1.2 - Discuss the process that John Majale (Pty) Ltd should follow in order to
OBJECT to the Issued tax assessment
Question 2.1.3 – Discuss the procedure to appeal against the incorrect tax assessment
A: Will have to pay the outstanding amount of R4750 to SARS and then proceed to lodge an
appeal. Will have to appeal within 30 days of the notice of disallowing the objection. An ADR2
form is used for the notice of appeal, which must contain the details of the tax in dispute i.e.
the disallowance of the wear and tear deduction and the grounds of appeal.
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(Page 32)
Question 2.2 When an objection has been declined, what procedures can be follow to rectify
incorrect assessment?
A: Lodge an appeal:
Pay the outstanding amount and lodge an appeal via efiling or manually to SARS.
Appeal must be on the ADR2 form with details of tax dispute and the grounds for the
appeal
If SARS still rejects the appeal, take matter to the Tax Board or Tax Court
If the matter remains unsolved, take matter to High Court
If still unresolved, take matter to Supreme Court
Question 2.3 (a) – Administrative steps to lodge an objection and appeal to SARS
Complete an ADR1 form and submit it to SARS via efiling and set out detailed grounds
(reasons) of objection on the ADR1
Submit supporting documents
The objection must be submitted within 30 day of the date of assessment
You must prove that the assessment is incorrect – burden of proof vests with taxpayer
If objection still not resolved and SARS does not rectify the objection, you may lodge and
appeal to SARS by completing an ADR2 form and submitting it to SARS
If the matter is still not resolved, it can be taken to the Tax Board, when amount is less
than R500 000.
Thereafter, the party that loses the case can follow the normal SA legal precedent, going
to the High Court and the Supreme Court and even in certain cases to the Constitutional
Court.
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Question 2.3 (b) – SARS has to keep a register of all the disputes that it settles by means of
the Alternative Dispute Resolution (ADR) process.
List five elements that must be recorded by SARS when a dispute (objection) has been settled.
Once SARS has received the tax returns (ITR12 – individuals, ITR14 – Co and CC), the
information on tax returns is processed and a tax assessment (IT34) is sent to the taxpayer. The
IT34 indicates the calculation of taxable income and normal tax for the year of assessment. The
IT34 also indicates if any tax is payable or refundable to the taxpayer for the year of
assessment.
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STUDY UNIT 3 – CHAPTER 3 & 8 – Different taxpayers.
Various taxpayers:
Sole traders
Partnerships
Companies (including small business corporations, close corporations and micro businesses)
Trusts
Farmers
Legal Entity Not separate taxpayer Not separate taxpayer Separate taxpayer
All companies that are not public companies will be regarded as private companies. For tax
purposes, a close corporation is a private company
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RATES OF NORMAL TAX
A small business corporation is a special type of company for tax purposes – companies that
comply with the requirements get special tax concessions.
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MICRO BUSINESSES
The profits are NOT subject to normal tax – thus not necessary to record trading stock at year-
end.
Also NOT necessary to keep a record of expenses.
The business is taxed on a receipts basis, NOT on accruals – therefore the amount of debtors
DOES NOT affect the tax calculation.
Trusts cannot qualify as micro businesses.
Qualifying turnover is different from taxable turnover (If a capital receipt pushes the person’s
receipts over R1 million, it does not affect his registration as a micro business)
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TAXABLE TURNOVER
Inclusions – par 6
For companies and close corporations: 100% of investment income (excluding dividends and
foreign dividends)
Exclusions – par 7
TAX PAYMENTS –MICRO BUSINESSES - A micro business pays tax called turnover tax on its
taxable turnover. This differs from other taxpayers for which tax is calculated on taxable
income.
Micro businesses do not pay tax according to the provisional tax collection method – they are
subject to interim payments and pay twice a year.
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STUDY UNIT 4 – CHAPTER – CAPITAL ALLOWANCES AND RECOUPMENTS
GROSS INCOME
the total amount
in cash or otherwise
received by or accrued to or in favour of a person
during the year of assessment
excluding amounts of capital nature
The Act makes provision for capital allowances in respect of capital assets:
The purchase price of an asset is NOT deductible – instead the cost is spread over the estimated
life of the asset – deducted as a capital allowance.
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A repair is different to an improvement. An improvement is the creation of a better asset, and
the associated costs of the improvement cannot be deducted under section 11(d)
The materials used do not need to be the same as the original material, so long as the intention
in using different materials is not to improve the asset.
Where an asset has been improved, no deduction is available for the notional costs that would
have been incurred it the asset had been merely repaired.
When an asset is improved, the result is a better asset, which possibly has improved the income
earning capacity.
Wear-and-tear allowances apply to movable assets and do not apply to structures and
works of a permanent nature such as buildings
See page 121 5.3.2. Interpretation note no 47 & Binding General Ruling no.7
Manufacturing assets – Section (s12C) (p.122 – 124) 5.4 SPECIAL DEPRECIATION ALLOWANCE
The plant or machinery must be owned by the taxpayer (or acquired by the taxpayer under
and installment credit agreement)
The allowance is NOT apportioned if the asset is only used for a part of a year.
In order to qualify for the allowances, the asset must be acquired for a cost.
The write off period:
The above allowance may not be claimed by taxpayers whose business is banking,
financial services, insurance or rental business.
New or unused machinery or plant acquired and brought into use on or after 1 January 2012 for
section 11D research and development purposes.
50% in the year that plant, machinery or improvement is brought into use for the 1 st time
30% in year 2
20% in year 3
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