Study Unit 5

Individuals

IURE 414
Tax Law
UDY MATERIAL: CHAPTER 13 COETZEE

LEARNING OUTCOMES:
STUDY UNIT 5:
INDIVIDUALS

ON COMPLETION OF THIS STUDY UNIT YOU SHOULD

BE ABLE TO DEMONSTRATE KNOWLEDGE AND
INSIGHT REGARDING:
• investment income by individuals earning a salary

• deductions that can be claimed by an individual

earning a salary

• specials rules applicable to foreign investments by

individuals

• deductions for any private or domestic expense

Taxable Income Framework

R
Gross Income (sec 1) XXX
Less Exempt income (sec 10, 10A & 12T) XXX
Income (sec 1) XXX
Less Deductions (sec 11) XXX
Allowances (sec 8)

Taxable Capital gains (sec 26A) XXX

Less RFC (sec 11F) XXX
Less Donations (sec 18A) XXX
Taxable income (sec 1) XXX
Normal tax less rebates medical tax credits XXX
Net taxable income
Married in community of property

• Salary – taxed in the hands of the receiving spouse

• Passive income – deemed to have accrued equally between
the two spouses

Calculation of taxable income

- Add the passive income together
- Divide it equally between the spouses
e.g. H received R70 000
W received R30 000
Total = R100 000
* include R50 000 to each spouse’s taxable income.
Year or Period of Assessment

• 1 March ending the last day of February

• Death – from 1 March up to and including the date of death
• Birth – from date of birth until the last day of Feb.
• Insolvent – from 1 March until the and including the day he
is declared insolvent.
• Emigration – from 1 March until the day preceding the day
he ceases to be a resident.
• Earning income for the first time – period of assessment is
12-months irrespective of the commencing employment or
earning income.
Expenses/ Allowances deductible by salaried taxpayers

• Depreciation of assets (11e) assets used for the purposes

of earning a salary
• Bad debts (11(i)) salary not paid, and it was already
included in the taxpayer's taxable income
• Doubtful debts (11j) likelihood that the employer will not
pay what has already included in the taxpayer salary
• Entertainment expenses (11a) rep earning more than 50%
of their remuneration as commission from sales
• Home office expenses 11(a) Repairs (11d)
– Must be specifically equipped for that purpose
– Exclusively used for the purpose of trade
– The employees' duties are mainly performed in that
office space
Sec 11F Deductions

Contributions to retirement funds

- Pensions
Linked to employment-
- Provident forced savings

Payable on retirement
or termination of
employment

- Retirement Annuity Voluntary – between

the person and the
desired fund
- Contributions disallowed in previous years – contributions not allowed as
deductions in the previous year can be rolled-over to the succeeding year.
- The deduction of all the above added together will be limited to:
R350 000 - 11F (2) (a)
or
27,5% - 11F(2)(b) of the remuneration or taxable income
(including passive income and capital gain
Sec 11F Deductions

Mr Taxpayer ceased to be a tax resident on 31 July 2024.

For the 2025 years of assessment, the allowable retirement fund contribution
deduction (i.t.o s11F(2)(a)) will be applied as follows:

Period of Assessment: 1 March 2024 – 31 July 2024

As a resident

The allowable retirement fund contribution deduction that was utilised for this
assessment is R350 000

Period of Assessment: 1 August 2024 – 28 February 2025

As a non-resident

There will be no retirement fund contribution deduction for this assessment as

the allowable amount i.t.o. section 11F(2)(a) was fully utilised in the first period
assessment that also falls within the same 12-month period from 1 March of
that calendar year to the last day of February in the following year.
Donations to PBOs

• Bona fide donations

• PBO approved by SARS in terms of sec 30
• Institution/Board/Body that provides public benefit activities in SA complying
with the additional requirements prescribed by the Min.

Limitations: 10% of taxable income before 11F deductions

Any amount exceeding the limit will qualify as deduction in the subsequent year

Example:
10% of Dan’s taxable income for 2019 = R100 000
Amount donated in 2019 = R150 000
Only R100 000 will be allowed in 2019
R50 000 will be allowed as a deduction in 2020
NB Donations under 18A may only be claimed if a receipt was issued
Normal tax for natural persons (Sec 5)

• Marginal rate of tax

– 31% of every R1 up to 45% of any income in excess of R1 817 000
• Average rate of tax

Normal tax rebates for natural persons (Sec 6)

• Primary rebate (under 65) = R17 235

• Secondary rebate (above 65 but under 75) R26 679 (R17 235 + R9 444)
• Tertiary rebate (above 75) R29 824 (R26 679 + R9 444 + R3 145)
TAX TABLES FOR A
NATURAL PERSON
Medical scheme fees tax credit (Sec 6A)

• Relates to contributions made to registered medical

schemes
– R364 in respect of the person (main member)
– R728 main member plus one dependant
– R728 main member plus dependant plus 246 for each
additional dependant
NB Tax credit for each monthly fees paid.
– Where two people pay fees to the same medical
scheme. Tax credits will be apportioned in the same
proportion as their payment to the to total payment.
Example: Assuming is only H and W
• H pays 75% of medical fees
• H’s tax credit = R546 which is 75% of R728
• W pays 25 of medicals fees
• W’s tax credit = R182 which is 25% of R728
Medical tax credits (6A)
Rebate – Foreign taxes paid (Sec 6quat)

• Applicable only to residents

• Income received from a source outside the Rep
• Taxable capital gain in respect of assets situated outside of
the Rep
• The foreign tax must be paid with NO right of recovery
• The corresponding income has been included in their SA
taxable income
NB* The rebate cannot exceed the SA tax levied on the
said income
The excess amount on foreign taxes paid will be
carried forward to the subsequent year and added to
the foreign taxes paid in that (subsequent year)
Exceptions: capital gain from asset situated outside the Rep not
attributable to a PE
Income in the resident’s taxable income in terms of 9D(2)
NB* The excess will not be carried forward
Prepaid taxes

• Employees tax – deducted monthly - PAYE

• Provisional tax – paid by the taxpayer

Limiting assessed losses

• Foreign assessed losses – ring fenced – cannot be offset

against taxable income from an SA source
• RFC – separate from income and cannot be offset against
income
• Suspect trade – e.g. letting property losses from rental
income cannot be claimed against another form of income
The exception/ Exclusionary rule (Reasonable prospects)
• The proportion of the gross income to the allowable
deductions
• Amount spent on advertising & promotions
• Commercial manner in which the trade is carried
Tax return, assessment and objections

• Salaried employees receive a salary advice monthly

• Employer prepares at the end of the year an IRP5
– total remuneration for the entire year
– retirement fund contributions
– medical contributions
– total employees' tax
During the tax season the taxpayer will complete an ITR12
form – prepopulated with the above information
NB If additional income was received, details of
expenditures must be provided on the form before
submission
Once submitted SARS will calculate the tax liability by
issuing an original assessment (OA).
If the taxpayer is not happy with the OA, the taxpayer may
request reasons for assessment and or file for an objection
(NOO).
EMPLOYEE’S TAX CERTIFICATE INFORMATION [IRP5/IT3(a)]

Employer(s) and institution(s) from which you received income will issue an
IRP5/IT3(a) Employee’s Tax Certificate where tax on that income was withheld
or if no tax was withheld (in this instance the certificate will contain a reason
code for the non-deduction of tax).

Example: Employed by two employers during the YOA & received a payment
from a retirement annuity fund
Three IRP5/IT3(a) certificates for the tax year.

Your customised income tax return will contain 3 separate pages for
IRP5/IT3(a) information – one for each employer as well as one for the
retirement annuity payment received.

• SARS will use IRP5/IT3(a) data submitted by third parties (e.g. employer,
institution, or fund administrator) via the EMP501 (Employer Reconciliation)
process to pre-populate the information on your income tax return.