N Cert FMI Module: Taxation Welcome to the session Thought for the session Personal vision gives purpose to life, Godly vision gives life in abundance Taxation � Tax structure: � Direct and indirect taxes � Provisional tax payers (First [31 Aug] and second [28 Feb] payments, optional third payment) � Tax fundamentals: � Capital vs. Income (Intention) � Residence based tax � Source?
Taxation � Types of tax – direct vs. indirect � Capital Gains tax: � Inclusion of certain percentage of capital gain in income tax calculation � Effective rates � Basic calculation format: � Calculation of capital gain: � Proceeds at disposal – base cost = Gain (profit) Taxation � What is a disposal? � Proceeds � Sales price or deemed market value � Sale of foreign assets (Convert at time of sale) � Base cost: � Actual purchase price (after 1 Oct 2001) � Valuation on 1 Oct � Time based apportionment (Before 1 Oct 2001, and after; year = full portion of year) � 20% Rule Taxation � CGT: � Exclusions � Rollover relief � Example: Mr. A Sold the following during March 2011: � His primary house for R 3,2 m, the cost of the house was R1m during Dec 2001; and � His holiday home on 1 March 2011 for R 1,55m which he bought on 1 May 1998 for R 350 000. No valuation was made on 1 Oct 2001, and he chooses to calculate the base cost on the time based apportionment method; and � He sold Sasol shares for R 100 000, which he bought 1 month earlier for R 85 000. He buys and sells shares on a regular basis as a trader Calculate how much he will pay due to capital gains tax if his marginal tax rate is 40%. Calculate how much tax would have been paid had the above assets been in a CC.
Taxation � Mr Brink is winding up his CC and sold the following out of the CC during 2011/12 (all prices are quoted excluding VAT): His primary house for R 3,5m. He bought the 1. house for R1.9m during 2003 and spent R100000 on building a granny flat for the house. Machinery which was used to produce furniture, 2. for R 2.2m. The cost of the machinery was R1.2m. He had already written of depreciation of R 350 000 on these machines for tax purposes. Investment in Anglo American shares sold for 3. R600 000. He bought the shares in 1998 for R100 000. On 1 Oct 2001 they where valued at R170 000. Calculate the income tax implications for the CC. � Taxation � Transfer Duty � Dividend tax � Tax entities: � Individuals (including partnership income) � Trusts � Companies (including CC’s) Taxation � Company tax calculation structure � 28% for normal companies on taxable profit � Micro (Very small) businesses (R1m turnover) – Turnover based on sliding scale � Small Business corporations: � Turnover of not more than R14m � Pay tax sliding scale � Comparison with other tax entities � Four fund approach of insurance companies
Taxation � Individual tax: � Components and calculation � Gross income � Less: Exempt income � = Income � Less: Deductions � = Taxable income from revenue activities � Plus: Capital Gains tax � = Total taxable income Taxation � Individual tax: � Gross Income: � Source vs. residence based � Excluding capital gains � Special inclusions � Exercise 1, 2, 3, 4 � Exempt income � Examples of exempt income � Exercise 5 Taxation � Individual tax: � Deductions: � Examples � Exercise 6 � Fringe Benefits: � Travel allowances � Right of use of motor vehicle – Exercise 7 � Medical aid contributions � Residential accommodation � Exercise 8
Taxation � Individual tax: � Tables & rebates � Ring fencing of losses � Tax avoidance � Exercise 9 Taxation � Investment tax: � Income/cost: Interest, Dividends, rental � Capital gain Income or capital � Derivatives: � Hedge: � Income, capital value of trading or capital asset � Speculation or � Partial hedge e.g. � One hedging instrument for hedging of values of trading and capital assets
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