SBSA FINANCIAL COURSE 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: � Who pays? � 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? 1
Taxation � Types of tax – direct vs. indirect � Donations tax � 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 2012: � 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 2012 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. 2
Taxation Mr Brink is winding up his CC and sold the � following out of the CC during 2012/13 (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 � Example 1. � Taxation � Transfer Duty & VAT � Dividend tax � Replacing STC, rate 15% on div � Co withholds but it is a tax on shareholder � Exempted, i.e. RSA companies � What about foreign div’s? Taxation � Tax entities: � Individuals (including partnership income) � Trusts � Who gets taxed and at what rates? � Special & testamentary trusts � Companies (including CC’s) � Micro Businesses � Based on turnover � Small businesses � Reduced rates for the first R 350 000 � Ordinary companies 3
Taxation � 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 2, 3, 4 � Exempt income � Examples of exempt income � Exercise 5 4
Taxation � Individual tax: � Exempt income � Calculate exempt interest foreign dividend if: � Mr A (43) earned R 10 000 local interest and R 3700 foreign div � Mr A (43) earned R 18 900 local interest and R 3900 foreign div � Mr A (43) earned R 20 000 local interest and R 3500 foreign div � Mr A (43) earned R 18 000 local interest and R 3900 foreign div Taxation � Individual tax: � Deductions: � Examples � Exercise 6 � Fringe Benefits: � Travel allowances � Right of use of motor vehicle – Exercise 7 � Medical aid contributions � Residential accommodation � Rates and tables � Exercise 8, 9 Taxation � Company tax: � Basic structure and calculation � Expenses and deductions � Capital allowances � Example 10 � Other allowances � Example 11 5
Taxation � Ring fencing of losses � Tax avoidance (vs. tax evasion) � Collection of taxes: � Withholding tax e.g. PAYE, Dividend tax � Provisional tax system � Returns and exempted entities � Assignment 6
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