Taxation - Summary Intro Individual Tax General Formula - - PDF document

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Taxation - Summary

 Intro  Individual Tax – General Formula  Individual Tax Components  Trust Tax  Business Tax  Tax Collection & Prov. Tax

Intro Tax

 Quote: Tax & fishing have made our nation the

greatest liars

 Why do we pay tax?  To achieve policy objectives/ aims  What are they?  Which obj is undisputedly the

responsibility of tax?

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Intro Tax

 Who pays taxes?  RSA Res – WW Income  Non-Res – RSA Income

DTAs’ roles

 Tax – generally when money/wealth changes

• wnership

 Direct  Indirect  Complexity of Tax

= Defin; in/excl/exemptions; rates; etc = Disputes with SARS = Tax Ombud

Individual Tax – General Formula

Gross Income − Exempt Income − Allowable deductions before Retirement Contr & PBO donations + Taxable Capital Gains = Taxable Income (for 27.5% Retirement Contr limit)

• Retirement Contr
• PBO Donations

= Taxable Income (before rebates) = Tax (from Tax Tables) − Various Rebates (Primary, Secondary, etc.) − Various Medical Rebates (Credits) = Income Tax payable + Donation Tax (non-PBOs) + Tax on foreign dividends (inward foreign listed) + Retirement Lump sum withdrawal Taxes (before/on retirement/death) + E/Duty = Total Tax payable See Template in notes

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Individual Tax Components

 Income vs. Capital

 Capital  Trees (B/S)  Income  Fruits (I/S)  CGT < Income Tax  disputes with SARS  Example 1  Criteria for Capital (Intention, 3-yr rule, etc.)  Example 2  Some Gross Income Items (see Template)

Individual Tax Components

 Exempt Gross Income

 Items (see notes)  Example 3B  Dividend T  Local Divs = 20% DWT  Foreign Divs  JSE listing = 20%, Show on tax return  Non-JSE listing = Show on tax Return (Example 4)  DWT Exemptions  Onus on T payer  Refunds within 3 yrs  Admin obligation div payer  List of exemptions (see notes)  Companies/Retirement Funds NOT exempt from foreign

div Tax !

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Individual Tax Components

 Deductions

 Have limits! Why?  Specific Order  Tvl Claim & others (see notes)  Retirement contr. 2nd last deduction  PBO donation last deduction = 10%  Tvl Claim (Example 5)  Retirement Contr limit = Minimum of 3 amounts (A to C)  A = R350 000  B = Taxable income excl. Cap Gains & ex last two

deductions

 C = 27.5% of the greater of  PAYE  Taxable Income incl. Cap Gains, but ex last two

deductions

Individual Tax Components

 Calc of CGT

 Capital Gain = Mkt P – Base Cost  Losses are carried fwd after annual exclusion  Triggers of CGT (i.e. disposals)  Sale  Emigration (formal)  Donation  Death, etc  Base cost (purchase price, improvements, portion donat T,

etc.) Example 8

 Operating Farm (non-arms length)  Base cost = Land Bank values

Disposal P = 30% below Mkt P

 Base Cost = Mkt P; Disposal P = Mkt  Retirement Calcs: Examples 6 & 7

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Individual Tax Components

 Calc of CGT

 Pre-2001 acquisitions of assets  Valuation on 1/10/2001  Time based apportionment (≈ Interpolation)  20% rule gains = 80%  Example 9  Exclusions from CGT (see notes)  Rollover relief

Individual Tax Components

 CGT offshore investments Base cost & sales P @ same exchange rate, on disposal Example 10A

 Calc Taxable income from Tax Tables  Rebates  Primary, Secondary, Tertiary  No Medical Expenses deductions – only Rebates  Medical Aid Rebate  Medical Expense Rebate  Example 11  Some other calcs on T Tables (Examples 10B & 10C)

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Individual Tax Components

 Other Taxes : Non-PBO Donation Tax in general

Example 12 @ 20%, after exemptions for natural persons Listed comp donations free of 20% tax Inter vivos spouse donations free of 20% tax

 Other Taxes : Retirement Fund withdrawals (see notes)  Other Taxes : Transfer Duty & VAT  Other Taxes : E/duty

Example 14

Trust Tax

 For foreign trust/ local benf, conduit apply (as above)  Trusts could retain divs without further tax  Trust defin

Local Trust

Offshore beneficiary Local beneficiary Trust is taxed Beneficiary is taxed if: # Non-discretionary trust # Discretionary trust distributes all taxable receipts



Lender pay tax on zero or low interest charged to trust



Testamentary trust taxed at marginal of natural person (not flat 45%) until youngest benef is 18 yrs

 Income tax = Flat 45%  CGT Incl 80%  CGT Effect = 36%

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Business Tax

 Income Tax  Comp/CC = 28%  Mining Comps = Special formula  SBC = Variable  Micro businesses = Turnover based  Labour brokers = 33%  CGT = 80 % inclusion rate for Cap Gain

22.4% Effective CGT rate

Tax Collect & Prov. T

 Gvt needs T income immediately!  Hence, SARS collects T via:  Regularly via PAYE, Vat, etc.  Provisionally  All Comps (excl. gold) register as Prov. T payers  Some indiv register as Prov. T payer (see thresholds)

 3 Prov. T Pmts – natural persons

 1st = 31 Aug  2nd = 28/29 Feb  3rd(optional) = within 6 mths  20% penalty on under paid Prov. T amount  Avoid penalty by:  Within 80 - 90% of finally assessed T

90% = (Taxable Income < R 1 mil) 80% = (Taxable Income > R1 mil)