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Gross Income :, Case Law:, Fortuitous Gains:, : - Coggle Diagram

- - - - a) Natural Person who is--
        
        i) Ordinarily resident in South Africa
        
        If that person meets the requirements of the Physical Presence Test (PPT)
        
        If not ordinarily resident (at any time during year), physical presence:
        
        Physical Presence Test:
        
        91 days in current year; AND
        91 days in each preceding 5 years;
        AND >915 days in aggregate in preceding
        
        Treated as resident from beginning of that year of assessment
        
        If meets PPT criteria, ceases on date of leaving once absent for at least 330 continuous full days; otherwise year end
      - Company, CC or trust
        
        Incorporated, established or formed in South Africa
        
        Has its place of effective management (POEM) in South Afrca
        
        POEM:
        
        is where: "key management and commercial decisions that are necessary for the conduct of (the company's) business as a whole are in substance made
        
        different from "day-to-day" management
  - - - South African Source Income
        
        Income in Section 9
        
        From a source WITHIN the Republic
        
        Dividends
        S9(2)(a)
        
        Any dividend received by or accrued to a person
        
        Dividend= any amount transaferred or applied by a company that is a resident
        
        Disposal Immovable assets
        S9(2)(j)
        
        Amounts received by or accrued to in respect of the disposal of immovable property or any interest or right in immovable property will be from a South African source if the property is situated in the Republic
        
        Interest
        S9(2)(b)
        
        Interest is defined in s24j, will be from a South African source if:
        
        ii). Is received or accrued in respect of any funds utilised or applied by any person in the Republic
        
        i). Incurred by a resident, unless the interest is attributable to a permanent establishment situated outside the Republic;
        OR
        
        Lump Sum, Pensions, Annuties
        S9(2)(i)
        
        If an amount is received or accrued in respect of services which were partly rendered outside the RSA, only a portion which relates to services rendered within RSA is regarded as being from a South African source
        
        SA source= Amount x (Years of Service in SA/Total years of service)
        
        Amounts received or accrued will be from a South African source if the lump sums, pensions or annuties are received or accrued in respect of services rendered within the Republic
        
        Disposal of Movable property
        S9(2)(k)
        
        Amounys received by or accrued to in respect of the disposal of movable property will be from a South African source if:
        (one of the following)
        
        i). That person is a resident AND the asset is not attributable to a PE which is situated outside the RSA AND the proceeds from the disposal is not taxed by any country other than the RSA
        
        ii). That person is a non-resident AND the asset is attributable to a PE which is situated in the RSA
        
        From a source OUTSIDE the Republic
        
        Dividends
        S9(4)(a)
        
        Constitutes a foreign dividend
        
        Interest
        S9(4)(b)
        
        Constitutes interest that is not from a Source within the RSA in terms of S9(2)(b)
        
        Disposal of assets
        S9(4)(d)
        
        Consititutes the disposal of an asset that is not from a source within the RSA in terms of S9(2)(j) or (k)
        
        Income not dealt with in Section 9
        
        CASE LAW:
        
        What is the orignating cause of the income?
        
        Where is the originating cause located?
        
        Rental Income
        
        Income from trading operations
        
        Fees for services rendered
        
        Alimony & Maintenance
  - - - Para (a):
        Annuities
        
        All annuities, including capital annuities, are included in gross income:
        This provision:
        
        Includes 'living annuities' and Section 10(A) 'annuity amounts'; but
        
        Excludes annuities received from a life insurance policy held by the individual's employer (para(d)(ii))
        
        This provision:
        
        Includes 'living annuities' and Section 10(A) 'annuity amounts'; but
        
        Excludes annuities received from a life insurance policy held by the individual's employer (para(d)(ii))
        
        Not defined in the Act => Case Law
        
        An annuity has the following essential characteristics:
        
        It is a periodical payment
        
        The recipient has the right to recieve more than one payment; and
        
        There is no principal sum that is reduced by each payment
        
        A monthly pension received is an annuity
      - Para (b):
        Alimony or maintenance receipts
        
        Any amount payable to the taxpayer:
        
        By the spouce or former spouse in terms of judicial order or written agreement of separation or under any order of divorce by way of alimony, allowance or maintenance of the taxpayer; or
        
        In terms of any maintenance order for the maintenance of a child
        
        Inclusion only applies to natural persons
      - Para (c):
        Payments received for services rendered/employment
        
        Includes all gross income all amounts (including voluntary awards) received or accrued in respect of services rendered or to be rendered OR received or accrued in respoect of employmet
        
        Irrespective of whether these amounts are capital or revenue in nature
        
        This inclusion applies only to natural persons
        
        Examples:
        
        Salaries & Wages
        
        Voluntary bonus (e.g. Christmas bonus, Performance bonus)
        
        Tips received by waiters
        
        Rewards for providing information to the police
        
        Three Provisos:
        
        If an amount is included in gross income by virtue of para(i), it will not be included by virtue of para(c)
        
        The receipt of services rendered will always be inclided in the gross income of the taxpayer who rendered the service; regardless of who receives it.
        
        Amounts received for long service (as defined in para5(4) of the 7th Schedule) shall not be inclided onto gross income to the extent that ALL long service awards (under this paragraph + in terms of para 5(2)(b), para 6(4)(d) and para 10 (2)(e) of the 7th schedule) during the year do not exceed R5000
        
        Long service is defined as 'an initial unbroken period of not less that 15 years or any subsequent unbroken period of not less than 10 years'
      - Para (cA) & (cB):
        Restraints of trade payments
        
        What is a Restraint of Trade?
        A restraint of trade may be enforced by an employer which entails the employer placing certain limitations of an employee's (former employee's) freedom of employment thus rendering the employee ineligible to trade within the same industry you currently work in, should the employee resign.
        
        A restraint of trade payment is not covered by para(c) - it is not for services rendered but an undertaking not to render a service
        
        Para (cA) includes restraint of trade payment in gross income if they are received by:
        
        Labour brokers (without an exemption certificarte)
        
        Personal services providers
        
        Personal service company or personal service trust
        
        Para (cB) includes restraint of trade payment in gross income if they are received by:
        
        Individuals
        
        By virtue of past/future employment
      - Para (d): Lump sum benefits of arising from variatin of office
        
        Lump sum benefits arising from relinquishment, termination, loss, repudiation, cancellation or variation of office/employment
        
        Excludes lump sums received from retirement funds
        
        Examples:
        
        An amount paid by employer in respect of a breach of a service contranct
        
        Amounts paid as compensation to a director who loses his directorship
        
        Compensation for a variation in the leave entitlement in a service contract
        
        Accumulated leave pay paid on resignation
        
        A paymennt of any of the above amounts to the dependants of a decreased employee
      - Para (gA):
        Know-how payments
        
        Amounts received or accrued for imparting or undertaking to impart any scientific, technical , industrial or commercial knowledge or information
      - Para (i):
        Fringe benefits
        
        Fringe benefits differ from a normal cash salary in that they are not paid in cash but are rather benefits received as a result of employment
        
        Employees are taxed on the value of fringe benefits
        
        Examples:
        
        The use of employer-owned car
        
        The use of residential accomodation provided by the employer
        
        Schooling for children of employees paid by the employer to the employee
        
        Low interest loans from the employer
      - Para (jA):
        Disposal of assets similar to trading stock
        
        The sale of a capital asset which is similar to the taxpayer's trading stock must be included in gross income in certain circumstances
        
        The asset has to be manufactured, produced, constructed or assembled by the taxpayer; and
        
        It is similar to any other asset which the taxpayer has manufactured, produced, constructed, or assembled for the purposes of sale
        
        It does not include assets which are merely bought for own use or for sale
      - Para (k):
        Dividends or Foreign Dividends
        
        Any amount receied or accrued by way of a dividend or a foreign dividend
        
        Definitions (s1 of the Income Tax Act):
        o Dividend: "...any amount tranferred or applied by a company that is a resident..."
        o Foreign dividend: "...any amount that is paid or payable by a foreign company in respect of a share in that foreign company.."
      - Para (m):
        Key-man insurance policies
        
        Amounts received or accrued in respect of a policy of insurance of the life of an employee or director (or former employee or director) is included in the gross income of the EMPLOYER if:
        o The employer is the policyholder; and
        o The policy relates to the death, disablement or illness of the employee or director (or former employee/director)
        
        Loans or advances in respect of the policy are also included
        
        Provided: the amount taxed when the proceeds are paid out is reduced by loans or advances previously included in the employer's gross income
      - Para (n):
        Recoupments & other inclusions
        
        Any amounts required to be included in the taxpayer's income in terms of any other sections of this Act:
        o Amounts are deemed to have been recieved by or accrued to the taxpayer
        
        Examples:
        
        S8(4)(a) general recoupments
        
        S7(5), 7(6), s8(5), s8A, s8B, s9D, s24J, s25
  - - - Income which is exempt from normal tax
        
        I.e., South African dividends, South African interest earned by non-residents
        
        These exemptions can either be for the full amount or part of the amount- depending on the exemption
        
        Investment Income:
        
        Non-resident interest exemption s10(1)(h)
        
        Individuals local interest exemption s10(1)(i)
        
        South African dividends s10(1)(k)
        
        Foreign dividends s10(B)
        
        Purchased Annuities s10(A)
        
        Tax Free Investments s12T
        
        Employment & Others
        
        Uniform Allowance 10(1)(nA)
        
        Persons Employed outside the RSA s10(1)(o)
        
        Bursary Exemption
        
        Alimony & maintenance
        
        Funeral Benefits
        
        Insurance Benefits accruing to employees
        
        Police Pay-Outs of indivual owned insurance policies
        
        Unemployment Benefits
        
        Relocation allowances
        
        Reduction in employees' tax
        
        Amounts received as a war pension
        
        Any disability pension (Social Assistance)
        
        Compensation for workman's compensation, death, or disability pension from employment or compensation from RAF
        
        Amounts received/accrued from social security outside the Republic
      - Entities which are exempt from normal tax
        
        Pension and provident funds, the Government and municipalities
- - - - The term 'amount' is not only money, but also every form of property earned by the taxpayer, whether it be corporeal or incorporeal, which has a money value.
        
        No monetary value:
        The onus rests upon the Commissioner (SARS) to prove that an 'amount' exists. Must be an expressible amount in money
    - - If a 'benefit' is received and this 'benefit' has an ascertainable monetary value, there is an 'amount' that has accrued to the taxpayer.
        
        Investors granted interest-free loans to the developer
        Developer provided life-rights in the residential units to the invetors
        
        If a 'benefit' is received and this 'benefit' has an ascertainable monetary value, there is an 'amount' that has accrued to the taxpayer
  - - - An amount must be receieved by a taxpayer for his own benefit and on his own behalf
      - "received by" a taxpayer, if the taxpayer has intended to receive the amount for their own benefit
      - Deposits received for taxpayer's own benefit, should be included in gross income
    - - "Accrued to" means entitled to payment
        
        Included in gross income in the year of assessment taxpayer becomes entitled to an amount
        
        Irrespective of the fact that the amount may only be due and payable in a later year of assessment
      - To accrue means Unconditionally entitled to
      - "Once an amount has been beneficially received by or accrued to a taxpayer, he is taxed on such amount even though he may have a moral obligation (not a legal obligation) to pay it over to some other person
        
        Where a taxpayer divests himself of income prior to it accruing to him by ceding the right to future income, the income accrues to the cessionary rather than the taxpayer. In tax terms, such as arrangement is reffered to "antecedently" divesting onself of income"
      - Value of Accrual
        
        Value of accrual is the market value of an asset received or the face value of debt
        
        Provisio to the Gross Income definition states that if a taxpayer becomes entitled to any amount payable at a future date, the face value of the amount is to be trated as the value of the accrual
  - - - The courts will consider:
        
        Intention at acquisiton; and
        
        Whether there was a change of intention.
        
        Intention at Acquisition
        
        The intention of the taxpayer can either be:
        
        Speculative (a scheme of profit making):
        o Receipts/ Accruals will only be of a revenue nature if the business was conducted with a profit-making purpose (i.e., profit making scheme)
        
        Investment (to earn a return on the investment)
        
        Company
        
        "The mere intention to profit is not conclusive. There must be 'an operation of business in carrying out a scheme for profit making' for a receipt to be income & that expression refers to the use of the taxpayer's resources and skills to generate profits, usually but not always of an ongoing nature"
        
        Must consider:
        o Nature of ordinary business activities
        o Length of time held
        o Nature of risk
        
        "If the receipt or accrual arose from a detailed commercial transaction, the transaction must be considered in its entirety from a commercial perspective and not be broken into component parts or subjected to narrow legalistic scrutiny"
        
        Change of intention
        
        Realise at best advantage
        To sell at the best advantage ≠ change of intention
        
        Something more than decision to sell
        To sell at a profit ≠ change of intention
        
        "Crossed the Rubicon"
        
        Determining intention
        
        Burden of Proof- TAA s102
        
        Subjective Test:
        
        Objective Test:
        
        Subjective Test:
        o The intetnion of the taxpayer is an important factor to determine whether an amount is capital or revenue in nature
        o Ipse dixit
        
        Objective Test:
        
        Length of time held
        
        Frequency
        
        Nature of Taxpayer's business
        
        Income Stream
        
        Reason for Sale
        
        Finance
        Nature of Asset
    - - " A receipt arising on the cancellation or variation of a trade agreement is normally of a revenue nature. Where, however, a contract is so crucial that its loss would cripple or destroy the business it may transcend the status of an ordinary commercial contract "
      - The court held:
        o " The fact that a value was determined with reference to lost profits did not mean it was compensation for lost profits- it is common to value businesses and assets on the basis of future profits
        o Neither the accounting treatment determines the nature of the amount for tax purposes, nor does the fact that the amount received was paid as a dividend
        
        The amount was, therefore held to be of a capital nature"
    - - Sporafic successes from gambling activities are considered to be of a capital nature
        
        Professional Gambling = Revenue in Nature