Taxation - Summary Intro Individual Tax General Formula - PDF document

2018-08-30 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? 1

2018-08-30 Intro Tax  Who pays taxes?  RSA Res – WW Income  Non-Res – RSA Income DTAs’ roles  Tax – generally when money/wealth changes ownership  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 Rebate s (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 2

2018-08-30 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 ! 3

2018-08-30 Individual Tax Components  Deductions  Have limits! Why?  Specific Order  Tvl Claim & others (see notes)  Retire ment contr. 2 nd last deduction  PBO donation last deduction = 10%  Tvl Claim (Example 5)  Retirement Contr limit = Min imum of 3 amounts (A to C)  A = R350 000  B = Taxable income ex cl. Cap Gains & ex last two deductions  C = 27.5% of the greater of  PAYE  Taxable Income in cl. Cap Gains, but ex last two deductions Individual Tax Components  Retirement Calcs: Examples 6 & 7  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 4

2018-08-30 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  Example 11  Some other calcs on T Tables (Examples 10B & 10C)  Rebates  Primary, Secondary, Tertiary  No Medical Expenses deductions – only Rebates  Medical Aid Rebate  Medical Expense Rebate 5

2018-08-30 Individual Tax Components  Other Taxes : Non-PBO Donation Tax in general @ 20%, after exemptions for natural persons Inter vivos spouse donations free of 20% tax Example 12 Listed comp donations free of 20% tax  Other Taxes : Retirement Fund withdrawals (see notes) Example 14  Other Taxes : Transfer Duty & VAT  Other Taxes : E/duty Trust Tax Trust defin  Income tax = Flat 45%  Local Trust CGT Incl 80%  CGT Effect = 36%  Local beneficiary Offshore beneficiary Beneficiary is taxed if: Trust is taxed # Non-discretionary trust # Discretionary trust distributes all taxable receipts For foreign trust/ local benf, conduit apply ( as above )  Trusts could retain divs without further tax   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 6

2018-08-30 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  1 st = 31 Aug  2 nd = 28/29 Feb  3 rd (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) 7