Notes on South African Income Tax 2022 PDF
Preview Notes on South African Income Tax 2022
41st EDITION NOTES ON SOUTH AFRICAN INCOME TAX is in its 41st year. It is a summary and an explanation of the main provisions in the following South African tax legislation: ______________________ Income Tax Act Value-Added Tax Act Tax Administration Act Employment Tax Incentive Act Securities Transfer Tax Act Transfer Duty Act Estate Duty Act ______________________ A study of this book will give you a solid basic grounding in the law relating to South African income tax, VAT and estate duty. The aim of the book is to make complicated tax legislation understandable. This is done by writing the book in plain English, and by giving examples where considered necessary. This gives the reader the ability to read through the content quickly, with the aim of maximizing understanding and retention in as efficient a way as possible. The author does not believe that anything positive can be achieved by making the law appear more complicated than it is or in attempting to mystify the reader. This approach has led to the book being used as a standard textbook at Universities and other tertiary institutions, and as a standard reference work for accountants, attorneys, and business, as well as a source of reference in the South African Revenue Service for 41 years. A new edition of the book has been printed every year for 41 years. It is the longest-running tax book of its kind in South Africa. It is also available in digital format. ______________________ Except as otherwise stated, this book deals with income tax for individuals, trusts and estates for the year of assessment ended 28 February 2022 and the tax of companies and close corporations for their financial years ending during the period from 1 April 2021 to 31 March 2022. It deals with Value-Added Tax for the 2021 and 2022 calendar years. The law in the book is based on the tax law and tax bills as at December 2021. “The hardest thing to understand in the world is the income tax.” - Albert Einstein “Simple can be harder than complex: you have to work hard to get your thinking clean to make it simple.” - Steve Jobs “Tax piggy-backs on business. An understanding of business is essential and will enrich your understanding and application of tax law.” - Phillip Haupt About Phillip Haupt Professor Phillip Haupt studied business science and law at the University of Cape Town from 1972 to 1976, obtaining a Bachelor’s degree in Business Science with Law as a major. He then studied to become a chartered accountant, qualifying in 1980. In 1981 he joined the tax section of the Department of Accounting at the University of Cape Town as a tax lecturer. With encouragement from the Department of Accounting at the University of Natal, he used his study and lecture notes as a basis for writing and publishing the first edition of “Notes on South African Income Tax” in 1982, in partnership with Keith Huxham, also at the University of Cape Town. Notes on South African Income Tax (NOSAITS) rapidly became the best-selling tax book in South Africa, used at all universities, colleges and technikons, as well as in the professions, commerce and industry, and at the South African Revenue Service. It was at that time too, that Phillip started consulting and running tax seminars around South Africa. During that time Phillip obtained a post-graduate degree in tax (B.Com.(Honours)(Tax) – 1984), wrote a book on ‘Advanced Tax Planning in South Africa - 1992’. Phillip and Keith, in partnership, published a book on general sales tax (written by Trevor Emslie SC), wrote two books on VAT (1991 and 1994), wrote and published the Hedron Tax Journal through the 1990s, wrote the Southern Life Income Tax and Estate Duty Guide (with Trevor Emslie, in 1985), worked on Jutas Income Tax Reporter. The partnership (H & H Publications) became Hedron Tax in 1987. Eventually, Phillip’s teaching and research at the University of Cape Town became more part- time (Phillip taking up a part-time associate professorship in 1997) and consulting became full- time. Keith has retired to Australia. Phillip consults throughout South Africa to auditing and accounting firms, legal practices, large and medium companies, and high net worth individuals in matters relating to income tax, value-added tax, and, to some extent, estate duty. The combination of academic and practical experience, together with suggestions and commentary from users, has led to Notes on South African Income Tax becoming an essential part of any tax library. Printed by ABC Press NOTES ON SOUTH AFRICAN INCOME TAX 2022 FORTY-FIRST EDITION Incorporating legislation up to December 2021, including the Tax Administration Laws Amendment Bill 2021, the Taxation Laws Amendment Bill 2021, the Rates and Monetary Amounts and Amendment of Revenue Laws Bill 2021, the Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill. PHILLIP HAUPT B.Bus.Sc. (Law), B.Com (Honours) (Taxation), C.A. (S.A.) Associate Professor Emeritus – University of Cape Town ELKE HAUPT B.Sc. (Chem), B.Com (Honours), LLM (Tax) (UCT) © Copyright 2022 Phillip Haupt & Elke Haupt ISBN No. 978-1-991222-51-0 Income Tax Act reproduced under Government Printer's Copyright Authority 7743 of 30/10/1981 H & H Publications HEDRON TAX CONSULTING AND PUBLISHING CC CK 1987/029323/23 P. O. Box 6923, Roggebaai, 8012. Republic of South Africa Tel: (021) 762-0113 www.hedron.co.za Preface This book started 41 years ago as a handbook for students and rapidly became the leading income tax textbook at universities, technikons and colleges throughout South Africa, in the professions, and commerce and industry, as well as at SARS. We thank all of our loyal customers over the 41-year period for staying with us and helping to make the book what it is today. Some accountants tell me that they still have almost every copy of the book from 1981 till today. It is a book for professionals as well as students, both for a basic explanation of the law and a discussion of more advanced issues. The emphasis of the book is on Income Tax, including donations tax, capital gains tax, and estate duty. The chapter on VAT covers the important principles and case law. Other taxes are dealt with in broad terms. Any feedback and suggestions are welcome. The book already incorporates many of the suggestions received over the years. Keep an eye on the Hedron website for important updates (www.hedron.co.za). If you would like to be advised of any changes to the book or important developments, please send a short e-mail to us at [email protected]. Thank you We are thankful to the following people who have made valuable contributions to the development of, and improvements to, the book. We appreciate your taking the time to contact us. Paula Bagraim ● Lizanne Barnard ● Carl Beekmans ● Johann Benade ● Eugene Bendel ● John Benson ● Carel Bester ● Christiaan Binneman ● Peter Boateng ● David Botha ● Quintus Coetzee ● Carel Cornelissen ● Steven Curr ● Keith Daly ● Kobus de Beer ● Jaco de Jager ● Hestia de Kock ● Oscar de Vries ● Jerome Desmarais ● Stuart Drysdale ● Louis du Plessis ● Kobus de Beer ● Eloneor Ebobisse ● Mark Eckermann ● Nikki Engelbrecht ● Ian Fletcher ● Calven Freeman ● Paul Gering ● David Glendining ● Hussan Goga ● Cassidy Gordon ● Gil Gorgulho ● Ronald Greek ● Joan Hamman-Ungerer ● Wilna Hartshorne ● Karl Haupt ● Inka Heiser van der Bijl ● Jay Henning ● Clive Hill ● Jakkie Human ● Allan Huth ● Raphael Jankeeparsad ● Ajay Jonker ● David Joubert ● Mahomed Kamdar ● Mynhardt Kitshoff ● Hugh Knight ● Dale Kohlberg ● Anton Kriel ● Isaac Kwaku Obeng-Manu ● Chirag Lakhani ● Lood la Grange ● Kishore Laloo ● V E Laubscher ● John Lightfoot ● Richard Loyson ● Boet Lubbe ● Martin Luyt ● Siphamandla Makhaya ● KeaObaka Mahuma ● Lawrence Maqekoane ● Stuart Maxwell ● Riyaaz McClusky ● Michael McMaster ● Wilfred Mirkin ● Anton Mönnig ● Eric Naude ● Minette Nesbit ● Billy Nield ● Zelda Olivier ● Shirley Olsen ● Elizabeth Pansegrouw ● Shaun Parsons ● Monique Podesta ● Verona Potgieter ● D. W. Prenzler ● Prof Jennifer Roeleveld ● Christine Rossouw ● Bruce Russell ● Ilan Russon ● Barbara Sher ● Tinus Slabber ● Chris Smith ● Mike Sneddon ● Peter Standley ● Craig Stansfield ● Cecilia Stassen ● Carel Steenkamp ● Casper Steenkamp ● Lee-Ann Steenkamp ● Prof Jannie Strauss ● Peter Surtees ● Mike Teuchert ● Deborah Tickle ● Chris Totana ● Jordan Troy Vincent Valentine ● Pieter van der Ahee ● Danie van Dyk ● Chris van Heerden ● Tiesh van Heerden ● Linda van Schalkwyk ● Esmari van der Vyver ● Julian van der Westhuizen ● Anthony Walker ● Grant Ward ● David Warneke ● Dr Craig West ● Lionel Wheeler ● John Williams-Jones ● N N Wilmot ● Bradley Wilson A very special thanks to St. John Mancktelow (MBA Finance) Ohio University, and Judy for their work in dealing with clients, customers and suppliers, and dealing with the substantial planning and administration that goes into producing and distributing the book, and the late nights in getting the book ready for print and being pleasant and enthusiastic at all times. If you have any questions, queries or suggestions, you are welcome to e-mail us. A special thank you, also, to Professor Emeritus Keith Huxham, my co-author for over 25 years and now retired. Keith’s contribution over the years has been invaluable and deeply appreciated. Digital Edition In response to numerous requests, we have produced a digital edition of the book. It makes searching easier, and a user has the ability to make notes and bookmark pages. Limited printing and copying is allowed. Details and pricing are on the Hedron website. Phillip Haupt 8 December 2021 2023 Edition The expected date of publication for the 2023 edition is 16 January 2023. Contact us at www.hedron.co.za or [email protected] or by post or telephone at Hedron CC, P. O. Box 6923, Roggebaai, 8012 ● Tel: (021) 762-0113 NOTES ON SOUTH AFRICAN INCOME TAX 2022 CONTENTS CHAPTER Page CHAPTER Page INTRODUCTION 23. Recreational clubs, Public Benefit 1. Introduction 1 Organisations, Sporting Bodies, Small Business Funding Entities 787 INCOME TAX 24. Estates & Trusts 798 2. Gross income 16 25. Other special taxpayers 826 3. Gross income - Special inclusions 59 4. Exempt income 78 TURNOVER TAX 5. The General Deduction formula 107 26. Turnover tax for micro business 841 6. Special deductions 145 DONATIONS TAX AND ESTATE DUTY 7. Capital allowances & recoupments 170 27. Donations tax 850 8. Individuals 220 28. Estate duty 870 9. Partnerships, companies & 29. Estate planning 895 close corporations 243 10. Trading stock 264 VALUE-ADDED TAX 11. Assessed losses 294 30. Value-Added tax 906 12. Miscellaneous deductions & OTHER TAXES inclusions 310 13. Employment & fringe benefits 330 31. Transfer duty 970 14. Retirement benefits & planning 378 32. Securities transfer tax 980 15. Employees’ tax and provisional tax 392 TAX ADMINISTRATION ACT 16. Dividends & Dividends tax 421 33. Tax Administration Act 984 17. Interest, financing & financial instruments 456 DISASTER MANAGEMENT TAX RELIEF 18. Corporate restructurings, mergers 34. Disaster Management Tax Relief 1018 & acquisitions 504 APPENDICES 19. Foreign income, international transactions, non-residents, Appendix A – Tax tables withholding taxes, controlled 1. Rate of tax for natural persons, foreign companies, and DTAs 556 estates and special trusts 1023 20. Tax avoidance 644 2. Rate of tax for trusts 1024 CAPITAL GAINS TAX 3. Rates of tax for companies 1024 21. Capital gains tax 661 4. Rate of tax for PBOs, recreational clubs & small SPECIAL TAXPAYERS business funding entity 1025 5. Rates of tax for small business 22. Farmers 764 corporations - 1025 6. Rate of tax for companies in SEZ 1025 15. Subsistence allowance 1030 7. Rate of tax for an SEZ company Appendix B – Wear & tear allowance 1034 that also an SBC 1025 Appendix C – Life expectancy Table A 1036 8. Rates of tax for registered Appendix D – Annuity Table B 1037 micro businesses 1025 Appendix E – Quick reference tables 1037 9. Rates of tax on retirement Appendix F – Interest rates - Tax 1040 fund lump sum withdrawals 1026 Appendix G – Prime overdraft rates 1041 10. Rates of tax on retirement fund lump sum benefits 1026 Appendix H – Average exchange rates 1041 Appendix I – Exchange control 1042 11. Severance benefits 1027 12. Transfer duty rates 1027 Cases Index 1043 13. Travel allowance 1028 Section Index 1053 Word Index 1060 14. Employer-owned vehicles 1028 __________________________________________________________________________________ COPYRIGHT NOTICE 2022 © Phillip Haupt and Elke Haupt, the authors, own the copyright in this book © The authors’ expression of the law in concrete form in this book is copyrighted © The layout of this work is copyrighted to the extent that it is original © The method in which the information has been compiled is copyrighted © The typographical arrangement is copyrighted AUTHORS’ NOTE & DISCLAIMER This book covers the main principles in the various tax Acts, and is meant to be read and applied in conjunction with the Income Tax Act and other tax legislation. The reader should not act on the basis of any matter contained in this publication without considering appropriate professional advice. Comprehensive guides to various aspects of the tax legislation are available on the website of the South African Revenue Service (www.sars.gov.za). Professor Phillip Haupt and Elke Haupt HEDRON TAX CONSULTING AND PUBLISHING P. O. Box 6923, Roggebaai, 8012 Republic of South Africa www.hedron.co.za [email protected] 1 CHAPTER 1 INTRODUCTION CONTENTS Page 1.1 Taxation in South Africa 1 1.1.1 Background 1 1.1.2 Tax maxims 2 1.1.3 Administration of the Income Tax Act 2 1.1.4 Annual Budget 3 1.1.5 Types of tax 3 1.1.6 Direct vs Indirect taxation 4 1.1.7 Annual Amending Acts 4 1.2 Income Tax Act 5 1.2.1 Normal Tax 5 1.2.2 Capital Gains Tax 5 1.2.3 Year of Assessment 6 1.2.4 Turnover Tax 6 1.2.5 Donations Tax 6 1.2.6 Dividends Tax 6 1.2.7 Withholding Taxes 7 1.3 Normal Tax 7 1.3.1 Framework for the calculation of normal tax 7 1.3.2 Example of a tax calculation 8 1.3.3 PAYE and Provisional Tax 9 1.4 Estate Duty 10 1.5 Indirect Taxes 10 1.5.1 Value-Added Tax 10 1.5.2 Transfer Duty 10 1.5.3 Securities Transfer Tax 10 1.6 Interpretation of Statutes 11 1.7 Court Decisions 13 1.7.1 Tax Board 13 1.7.2 Tax Court 13 1.7.3 High Court 14 1.7.4 Supreme Court of Appeal 14 1.7.5 Constitutional Court 14 1.8 Interpretation Notes, Rulings & Guides 14 1.9 Exchange Control 14 1.1 TAXATION IN SOUTH AFRICA 1.1.1 BACKGROUND Taxation is the means whereby the State collects funds from persons to pay for its administration and for the benefits it provides to its citizens and residents. The various taxes include Income Tax, Value-Added Tax, Estate Duty, Customs and Excise Duty, Transfer Duty, Securities Transfer Tax, etc. In this book we concentrate on the Income Tax Act (which includes income tax, “capital gains tax”, the various withholding taxes, “dividends tax”, turnover tax and donations tax) and Estate Duty. Value-Added Tax (VAT), Transfer Duty, the Employment Tax Incentive Act and Securities Transfer Tax are covered in broad terms. We do not deal with Customs and Excise Duty. 2 CHAPTER 1: INTRODUCTION To begin learning about tax, a person needs to understand the setting and the reason tax is charged or levied. This chapter sets out the background and gives an overview of the South African tax system. Unless otherwise stated, the following references apply: • Income Tax Act No. 58 of 1962 (“Income Tax Act” / “ITA”) • Value-Added Tax Act No. 89 of 1991 (“VAT Act” / “VATA”) • Estate Duty Act No. 45 of 1955 (“Estate Duty Act” / “EDA”) • Transfer Duty Act No. 40 of 1949 (“Transfer Duty Act” / “TDA”) • Securities Transfer Tax Act No. 25 of 2007 (“Securities Transfer Tax Act” / “STTA”) • Tax Administration Act No. 28 of 2011 (“Tax Administration Act” / “TAA”) • Companies Act No. 71 of 2008 (“Companies Act”) • Section is abbreviated as ‘s’, and sections as ‘ss’. 1.1.2 TAX MAXIMS Adam Smith (The Wealth of Nations - 1776) felt that there were four basic maxims with regard to taxes in general. These are: (i) The subjects of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. (ii) The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor. (iii) Every tax ought to be levied at the time, or in a manner in which it is most likely to be convenient for the contributor to pay it. (iv) Every tax ought to be so contrived as to both take out, and keep out, of the pockets of the people as little as possible over and above what it brings into the public treasury of the State. These maxims, which were formulated in the 1770s, are still relevant today. 1.1.3 ADMINISTRATION OF THE INCOME TAX ACT South African Revenue Service The South African Revenue Service (SARS) is established in terms of the South African Revenue Service Act (No. 34 of 1997). It is an organ of State, within the public administration, but is an institution outside the Public Service. This means it can set its own staffing policies. Its objective is the efficient and effective collection of taxes. The South African Revenue Service performs its functions under the policy control of the Minister of Finance and subject to any directives and guidelines on policy matters issued by the Minister of Finance. In terms of section 4(2) of the South African Revenue Service Act, SARS must perform its functions in the most cost- efficient and effective manner, and in accordance with the values and principles mentioned in section 195 of the Constitution (Act 108 of 1996). Section 195 deals with Public Administration and requires, among other things, a high standard of professional ethics, efficient use of resources, transparency, and fair and impartial treatment of the public. In this regard SARS has issued the “South African Revenue Service – Service Charter”. The Minister of Finance appoints the Commissioner for the South African Revenue Service, in consultation with the Cabinet and an advisory board. The Commissioner administers the tax Acts (see 1.1.5). Commissioner for SARS The Income Tax Act is administered by the Commissioner for the South African Revenue Service (see section 2 of the Income Tax Act). He administers the Act in terms of administrative provisions in the Income Tax Act and in the Tax Administration Act. The abbreviation for Commissioner for the South African Revenue Service is CSARS. Previously the CSARS was known as the Commissioner for Inland Revenue (CIR). There was also a time in the past when he was known as the Secretary for Inland Revenue (SIR). CHAPTER 1: INTRODUCTION 3 Receivers of Revenue The Commissioner (based at the Revenue Service’s head office in Pretoria) delegates his powers to the Receivers of Revenue in the various cities, towns and centres (in terms of section 3 of the Income Tax Act). The Commissioner, the Receivers of Revenue and all of the Revenue Service’s staff, are employees of the South African Revenue Service. 1.1.4 ANNUAL BUDGET Each year (in February) the Minister of Finance presents the annual Budget to Parliament. In the Budget the total government expenditure for the following ‘fiscal’ year is announced, and the manner in which the expenditure will be funded is broadly set out. This expenditure is funded mainly by means of taxation with the balance being funded by means of loan finance (borrowings) and sundry government income (fines, sales of goods and services, interest, dividends, and rental of fixed property). The proceeds from the sale of State capital assets also falls into the National Revenue Fund. The year to which the budget relates is known as the fiscal year and covers the period 1 April to 31 March of the following year. Note that the State’s fiscal year is different from the tax year for taxpayers. The flow of funds can be illustrated as follows: Shortfalls in revenue are funded by borrowings, and the creation of cash (printing money). 1.1.5 TYPES OF TAX The Commissioner for the South African Revenue Service is responsible for administering and collecting all taxes. These taxes are dealt with and collected in terms of the various (South African) tax Acts (per section 4 of the South African Revenue Service Act). The current tax Acts and taxes covered are as follows (per Schedule 1 of the SARS Act): Taxes Direct tax Indirect tax Value-Added Tax Income Tax Act Estate Duty Skills Transfer Duty Normal Tax Development - Tax on income - Tax on capital Levy Securities gains (CGT) Transfer Tax Turnover Tax – Micro business Dividends Tax Customs and Withholding Taxes Donations Tax Excise Duty Various levies On royalties & interest On non-resident entertainers and sportspersons On purchase of fixed property from non-residents On employment income (PAYE)
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