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SOUTH AFRICAN REVENUE SERVICE
TTAAXXAATTIIOONN IINNSSOOUUTTHHAAFFRRIICCAA
22000088//0099
Another helpful guide brought to you by theSouth African Revenue Service
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TAXATION IN SOUTH AFRICA 2008/09
Foreword
This guide is a general guide dealing with taxation in South Africa. It is not meant to
delve into the precise technical and legal detail that is often associated with taxation.
It should, therefore, not be used as a legal reference. Advance tax rulings referred to
in PART IA of CHAPTER III of the Income Tax Act, No. 58 of 1962 is not dealt with in
this guide.
The information in this guide relates to
a) individuals for the 2008/09 year of assessment ending on 28 February 2009;
b) trusts for the 2008/09 year of assessment ending on 28 February 2009; and
c) companies with years of assessment ending during the twelve month period
ending on 31 March 2009.
The Commissioner for the South African Revenue Service is responsible for the
administration of taxation and customs legislation.
Should you require additional information concerning any aspect of taxation, you
may
contact your local SARS office;
contact the SARS National Call Centre
if calling locally, on 0860121218; or
if calling from abroad, +27 11 602 2093;
visit the SARS website at www.sars.gov.za; or
contact your own tax advisors/practitioners.
Prepared by
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
February 2009
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CONTENT
1 INTRODUCTION 8
1.1 Autonomous Body 8
1.2 SARS Act 8
1.3 Collection of taxes 8
1.4 Overview of Taxes 9
2 INCOME TAX 12
2.1 Introduction 12
2.1.1 Main source of Governments income 12
2.1.2 Registration as a taxpayer 12
2.1.3 Change of address 12
2.1.4 Year of assessment 12
2.1.5 Filling of tax returns 12
2.1.6 eFiling 13
2.1.7 Payments at Banks 13
2.1.8 Assessment 13
2.1.9 Calculation of taxable income 13
2.1.10 Calculation of final income tax liability 14
2.2 A resident of SA 15
2.2.1 Individuals 15
2.2.2 Companies and other entities 16
2.2.3 South African residents working outside SA 17
2.2.4 Agreements for the avoidance of double taxation (DTA) 18
2.2.5 Unilateral relief for foreign taxes paid 19
2.3 Not a resident of SA 19
2.3.1 A person who is not a resident of SA, who is temporarily working in SA 19
2.3.2 Employees working at foreign diplomatic or consular missions in SA 21
2.4 Individuals 222.4.1 Taxation of income from employment 22
2.4.2 Standard Income Tax on Employees (SITE) 22
2.4.3 Pay-As-You-Earn (PAYE) 23
2.4.4 Provisional tax 28
2.4.5 Income of spouses 30
2.4.6 Allowable deductions 32
2.4.7 Prohibited deductions 38
2.4.8 The taxation of taxable benefits 38
2.4.9 Pensions 45
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2.4.10 Annuities 46
2.4.11 Withholding tax on foreign entertainers and sportspersons 47
2.4.12 Withholding tax on payments to non-residents on the sale of their
immovable property in SA 47
2.5 Rental income 48
2.6 Investment income 48
2.7 Tax on royalties 50
2.8 Restraint of trade 50
2.9 Business income 51
2.10 Companies and businesses 51
2.10.1 Tax consequences of doing business in a company 51
2.10.2 Provisional tax 51
2.10.3 Controlled foreign companies 52
2.10.4 Small Business Corporations (SBCs) 55
2.10.5 Special allowances 57
2.10.6 Secondary Tax on Companies (STC) 72
2.10.7 Insurance companies 73
2.10.8 Mining companies 74
2.10.9 Shipping and aircraft 75
2.10.10 Farming 75
2.10.11 Deductions in respect of expenditure and losses incurred
prior to commencement of trade (pre-trade costs) 77
2.11 Donations tax (and PBOs) 77
2.12 Capital Gains Tax (CGT) 79
2.12.1 Introduction 79
2.12.2 Registration 79
2.12.3 Rates 79
2.12.4 Capital losses 802.12.5 Disposal 80
2.12.6 Exclusions 80
2.12.7 Base cost 81
2.12.8 Annual exclusion 83
2.12.9 Small businesses 84
2.12.10 CGT on disposal of property in SA by a person who is not a
resident of SA 84
2.12.11 CGT on disposal of foreign assets by residents 84
2.13 Ring-fencing of assessed losses 86
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2.14 Dispute Resolution 87
2.14.1 Objections 87
2.14.2 Appeals 87
2.14.3 Rules regarding objections and appeals 87
2.14.4 Alternative Dispute Resolution (ADR) 88
2.15 Secrecy and confidentiality 89
2.16 Tax rates applicable to any natural person, deceased estate, insolvent
estate, special trust, trusts and company 89
3 VALUE-ADDED TAX (VAT) 95
3.1 Introduction 95
3.2 Rates 95
3.3 Who is liable for the payment of VAT? 95
3.4 Presumptive tax an alternative to VAT registration 97
3.5 Items subject to the standard rate 97
3.6 Items subject to the zero-rating 97
3.7 Exemptions 98
3.8 Tourists, diplomats and exports to foreign countries 98
3.8.1 Tourists 98
3.8.2 Diplomats 100
3.8.3 Exports to foreign countries 100
3.8.4 Small Retailers VAT Package 100
4 CUSTOMS 104
4.1 Introduction 104
4.2 The Southern African Customs Union (SACU) 106
4.3 Free trade agreements and preferential arrangements with
other countries 107
4.3.1 Bi-lateral Agreements (Non-reciprocal) 107
4.3.2 Preferential dispensation for goods entering SA (Non-reciprocal) 1074.3.3 Free or Preferential Trade Agreements (FTAs or PTAs) (Reciprocal) 107
4.3.4 Generalised System of Preferences (GSPs) (Non-reciprocal) 108
4.4 Duties 108
4.4.1 Customs duty 108
4.4.2 Specific excise duties and specific customs duties on imported
goods of the same class or kind 109
4.4.3 Ad valorem excise duties and ad valorem customs duties on
imported goods of the same class or kind 109
4.4.4 Anti-dumping and countervailing duties on imported goods 110
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4.5 VAT Importation of goods 110
4.6 Customs value 111
4.7 Customs declarations 111
4.8 Goods imported for inward or outward processing 112
4.9 General rebates of customs duties 112
4.10 Persons entering SA 112
4.10.1 Goods imported without payment of customs duty and which are
exempt from VAT 113
4.10.2 Customs clearance procedures for travellers 115
4.11 Implementation of a Single Administrative Document (SAD) 116
4.12 Goods accepted at appointed places of entry 117
4.13 Cargo entering SA 117
4.14 State warehouses 117
4.15 Importation of household effects by immigrants/returning residents 117
4.16 Motor vehicles 118
4.17 Motor vehicles imported on a temporary basis 118
5 EXCISE DUTIES AND LEVIES 118
5.1 Specific Excise duties 119
5.2 Ad valorem Excise duties 120
5.3 General Fuel Levy and Road Accident Fund Levy 121
5.4 Environmental Levy 121
6 TRANSFER DUTY 122
7 ESTATE DUTY 122
8 STAMP DUTY 124
9 UNCERTIFICATED SECURITIES TAX (UST) 124
10 SKILLS DEVELOPMENT LEVIES (SDL) 124
11 UNEMPLOYMENT INSURANCE CONTRIBUTIONS 125
12 AIR PASSENGER DEPARTURE TAX 12613 SOUTH AFRICAN RESERVE BANK EXCHANGE CONTROL
REGULATIONS 126
Annexure A: EXAMPLES OF HOW INCOME TAX IS CALCULATED 128
GLOSSARY
ADR : Alternative Dispute Resolution
CGT : Capital Gains Tax
BLNS : Botswana, Lesotho, Namibia and SwazilandCommissioner : Commissioner for the South African Revenue Service
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DTA : An agreement for the avoidance of double taxation between the
government of SA and the government of a foreign country
FOB : Free on Board
GATT : General Agreement on Tariffs and Trade
IT Act : Income Tax Act, No. 58 of 1962PAYE : Pay-As-You-Earn (Employees Tax)
SA : Republic of South Africa
SACU : South African Customs Union
SADC : Southern African Development Community
SARS : South African Revenue Service
SBCs : Small Business Corporations
SDL : Skills Development Levy
SITE : Standard Income Tax on Employees
SMMEs : Small, Medium and Micro Enterprises
STC : Secondary Tax on Companies
TCC : Tax Clearance Certificate
UST : Uncertificated Securities Tax
VAT Act : Value-Added Tax Act, No. 89 of 1991
VAT : Value-Added Tax
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1 INTRODUCTION
1.1 Autonomous Body
SARS was established with effect from 1 October 1997 by the South African
Revenue Service Act, No. 34 of 1997 (the SARS Act) as an autonomous
administrative organ of state within the public administration, but as an
institution outside the public service.
1.2 SARS Act
The SARS Act gives SARS the mandate to
y collect all revenues that are due;
y ensure maximum compliance with relevant legislation; and
y provide a customs service that will maximise revenue, facilitate trade and
protect ports of entry against smuggling and other illegal trade.
1.3 Collection of taxes
y SARS employs approximately 15 000 employees
y Tax revenue to be collected for 2008/09 is R627,7 billion
y The number of registered taxpayers in 2007/08 was as follows:
o Companies 2,18 million
o Individuals 5,3 million
o Trusts 394 389
o Vendors (value-added tax) 745 487
o Employers (employees tax) 379 675
The tax revenue contribution for 2007/08 was made up as follows:
y Income Tax
o Personal Income Tax : 29,4%o Corporate Income Tax : 24,5%
y Secondary Tax on Companies : 3,6%
y Fuel Levy : 4,1%
y Value-Added Tax : 26,3%
y Customs Duties : 4,7%
y Excise Duties : 3,2%
y Other : 4,2%
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1.4 Overview of Taxes
Various taxes are levied by the National Government in terms of the IT Act.
Such taxes are:
y Income tax.
y Withholding tax on foreign entertainers and sportspersons.
y Withholding tax on payments to non-residents on the sale of their
immovable property in SA.
y Donations tax.
y Secondary tax on companies.
Provincial and municipalities do not levy such taxes.
As from 2001, South Africa moved from a source-based income tax system to a
residence-based income tax system. Residents are (subject to certain
exclusions) taxed on their worldwide taxable income, irrespective of where the
income is earned. Foreign taxes proved to be payable are credited against
South African tax payable on foreign income. Foreign income and taxes are
translated into the South African currency, the Rand.
Capital gains tax (CGT) was implemented on 1 October 2001, which forms part
of the income tax system. The taxable capital gain made upon the disposal of
assets is included in the taxable income of the taxpayer. (For more information
see 2.12.)
The South African Government has entered into agreements for the avoidance
of double taxation with various countries. This means that the same income will
not be taxed twice, or, if it is, then a credit will normally be allowed in the
country of residence in respect of the foreign tax paid.
Value-added tax (VAT) is levied by the National Government in terms of the
VAT Act. VAT which is based on destination consumption, is levied at a
standard rate of 14% on
the supply by any vendor of all goods or services supplied by him;
the importation of any goods into South Africa by any person; and
the supply of imported services by any person,
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subject to certain exemptions, exceptions, deductions and adjustments
provided for in the VAT Act. (For more information see 3 to 4.5.)
Ordinary customs duty, specific excise duties and specific customs duties, ad
valorem excise duties and ad valorem customs duties, environmental levy, fuel
levy, ordinary levy, anti dumping duty and countervailing duty are levied in
terms of the Customs and Excise Act, No. 91 of 1964.
Ordinary customs duties are levied on imported goods. Customs provides the
interface between the domestic and broader global economy, and has a key
role to play in facilitating legal trade and in protecting the economy and society
by clamping down on illegal and unfair trade practices.
Specific excise duties and specific customs duties are consumption duties that
are levied on a selective number of locally manufactured goods and imported
goods of the same class or kind and are fiscal in nature.
Ad valorem excise duties and ad valorem customs duties levied on imported
goods of the same class or kind.
An environmental levy is collected on certain specific products and used for the
clean up and protection of the environment.
Fuel levy is levied on distillate fuels, mixtures of illuminating or heating
kerosene with lubricity agents, biodiesel and petrol which have been
manufactured in or imported in SA.
Ordinary levy is the equivalent of ordinary customs duty paid by governmentalbodies in Botswana, Lesotho, Namibia and Swaziland (BLNS)_for specific
purposes.
Anti-dumping and countervailing duty is an additional duty levied on goods
imported from a supplier or originating in a country so specified and which is
dumped in SA.
Transferduty, estate duty, stamp duty and uncertificated securities tax (which
has been replaced with a Securities Transfer Tax effective from 1 July 2008)
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skills development levy, unemployment insurance contributions, are also levied
by the National Government. (For more information see 6 to 11.)
SARS also administers the collection of the Skills Development Levy (SDL),
which became payable with effect from 1 April 2000. SDL is levied on payrolls
in order to finance the development of skills and thus enhance productivity. The
SDL is payable by employers at a rate of 1% of the payroll. Employers
providing training to employees receive grants from Sector Training and
Education Authorities (SETAs) in terms of this initiative.
SARS administers the collection of the bulk of unemployment insurance
contributions, which was implemented on 1 April 2002. Unemployment
insurance contributions are collected from employers on a monthly basis. The
total amount of the contributions collected monthly from the employer, which is
equal to 2% of the remuneration paid or payable by the employer to the
employee, consists of
a contribution made by an employee equal to 1% of the remuneration paid
or payable by the employer to the employee during any month; and
a contribution made by an employer equal to 1% of the remuneration paid
or payable by the employer to that employee during any month.
Section 1 of the Unemployment Insurance Contributions Act, No. 4 of 2002
defines remuneration as remuneration defined in paragraph 1 of the Fourth
Schedule to the IT Act.
The employer must pay the total contribution of 2% (1% contributed by the
employee and 1% contributed by the employer) over to SARS within seven
days after the end of the month during which the amount was deducted fromthe remuneration of the employee. Unemployment insurance contributions do
not apply to so much of the remuneration paid or payable by an employer to an
employee, as exceeds
R12 478 per month (R149 736 annually); or
R2 879,53 per week.
Municipalities levy rates on the value of fixed property to finance the cost of
municipal services.
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2 INCOME TAX
2.1 Introduction
2.1.1 Main source of Governments income
Income tax is the Governments main source of income and is levied in terms of
the IT Act.
2.1.2 Registration as a taxpayer
Every person who becomes liable for any income tax or who becomes liable to
submit any return of income must register as a taxpayer at SARS within 60
days after so becoming a taxpayer by completing an IT 77 form.
2.1.3 Change of address
The IT Act requires that if a persons address which is normally used by the
Commissioner for any correspondence with that person changes, that person
must, within 60 days after that change, notify SARS of the new address for
correspondence.
2.1.4 Year of assessment
The year of assessment for individuals and trusts covers a period of 12 months
and commences on 1 March of a specific year and ends on the last day of
February the following year. Individuals and trusts may be allowed to draw up
their financial statements for their businesses to dates other than the end of
February.
Companies are permitted to have a year of assessment ending on a date that
coincides with their financial year. If the financial year-end is 30 June, its year
of assessment will run from 1 July of a specific year to 30 June the followingyear.
2.1.5 Filing of tax returns
The income tax returns must be submitted manually or electronically by a
specific date each year. This date is published for information of the general
public and is promoted by way of a filing campaign to encourage compliance in
this regard.
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2.1.6 eFiling
The primary objective of eFiling is to facilitate the electronic submission of tax
returns and payments by taxpayers and tax practitioners. Taxpayers registered
for e-Filing can engage with SARS online for submission of returns and
payments in respect of the following taxes:
Value-added tax (VAT). Pay-as-you-earn (PAYE).
Income tax. Provisional tax.
Skills Development Levy (SDL).
Unemployment Insurance Fund (UIF).
Secondary tax on companies (STC).
Transfer duty and stamp duty.
For more information visit the SARS eFiling website at www.sarsefiling.gov.za.
2.1.7 Payments at Banks
Payment of taxes can be made via First National Bank, ABSA, Nedbank and
Standard Bank internet facilities. Over the counter payment of taxes can also
be done at these banks.
If more details are required, visit the SARS website.
2.1.8 Assessment
From the information furnished in the income tax return, SARS raises an
assessment showing the income tax due by you or due to you (refundable), as
the case may be, for that year of assessment.
2.1.9 Calculation of taxable income
The IT Act provides for a series of steps to be followed in arriving at thetaxpayers taxable income (as defined in the IT Act) for a specific year or
period of assessment.
The first step
Determine the taxpayers gross income for a specific year or period of
assessment, namely, in the case of
any person who is a resident, the total amount of income (worldwide), in
cash or otherwise, received by or accrued to or in favour of that person; or
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any person who is not a resident, the total amount of income, in cash or
otherwise, received by or accrued to or in favour of that person from a
source within or deemed to be within SA,
during such year or period of assessment.
Receipts or accruals of a capital nature (except those referred to in paragraphs
(a) to (n) of the definition of gross income in section 1 of the IT Act) are
generally excluded from gross income. The Eighth Schedule to the IT Act deals
with capital gains and capital losses.
The second step
Calculate the income, of the taxpayer by deducting all amounts that are
exempt from income tax in terms of the IT Act from the taxpayers gross
income.
The third step
In arriving at taxable income
deduct all the amounts allowed to be deducted or set-off in terms of the IT
Act from income; and
add all amounts (which includes taxable capital gains) to be included ordeemed to be included in the taxable income in terms of the IT Act.
2.1.10 Calculation of final income tax liability
The IT Act provides for a series of steps to be followed in arriving at the
taxpayers final income tax liability.
The first step
Determine the normal (income) tax by multiplying the taxable income withthe applicable rate of income tax.
The second step
Determine net normal tax by deducting from normal tax the normal tax
rebate/(s) (only applicable in the case of a natural person).
The third step
In arriving at the final income tax liability the taxpayer must
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a) deduct sum of all tax credits, that is, SITE, PAYE and provisional tax
payments made by the taxpayer in respect of that specific year of
assessment, from net normal tax; and
b) add any balance of account as at the date of assessment to net normal
tax.
2.2 A resident of SA
2.2.1 Individuals
Two tests (namely the ordinarily resident test and the physical presence test)
apply in order to determine whether or not an individual is a resident of SA.
Ordinarily resident test
This test is to determine whether the individual is ordinarily resident in SA.
The courts have interpreted the term ordinarily resident to mean the
country to which an individual would naturally return from his/her
wanderings. It might, therefore, be called an individuals usual or principal
residence and it would be described more aptly, in comparison to other
countries, as the individuals real home.
Physical presence test
This test applies to an individual who is not considered ordinarily resident
in SA. In terms of this test, an individual, who is physically present in SA for
a period(s) exceeding
91 days in aggregate during the year of assessment under
consideration;
91 days in aggregate during each of the five years preceding the year
of assessment under consideration; and
915 days in aggregate during the above preceding five years of
assessment,
will be regarded as resident in SA from the beginning of the sixth year of
assessment.
A day includes a part of a day, but does not include any day that a person
is in transit through SA between two places outside SA where the person
does not formally enter SA
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through a port of entry as defined in section 9(1) of the Immigration
Act, 2002 (Act No. 13 of 2002); or
at any other place as may be permitted by the Director General of the
Department of Home Affairs upon application or the Minister of Home
Affairs granted an exemption in terms of the Immigration Act, 2002.
Where an individual who is resident as a result of the physical presence
test is absent from SA for a continuous period of at least 330 full days
immediately after the day on which he/she ceased to be physically present
in SA, he/she will be regarded as being non-resident from the date on
which he/she ceased to be physically present in SA.
Note: Any person who is deemed to be exclusively a resident of another
country with which SA has entered into an agreement for the avoidance of
double taxation is excluded from the definition of resident.
For more information see Interpretation Notes No. 3 4 February 2002 and
No. 4 (Issue 3) 8 February 2006 available on the SARS website.
2.2.2 Companies and other entitiesAny company or other entity which is incorporated, established, formed in SA,
or which has its place of effective management in SA is regarded as being
resident in SA.
The term place of effective management refers to the place where the
company is managed on a regular or day-to-day basis by the executive
directors or senior managers of the company, irrespective of where the
overriding or central management and control is exercised, or where the boardof directors meet. It is the place of execution and implementation of the
companys policy and strategic decisions. The place of effective management
test focuses on the companys purpose and operational management and not
on the shareholder functions or the place where the day-to-day business
activities are conducted.
It is important to note that the place from where the entity is managed and
controlled, that is, the place where strategic decision-making and control takes
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place, need not necessarily be the same as the place from where it is
effectively managed, although in practice they often coincide.
For more information see Interpretation Notes No. 6 26 March 2002 available
on the SARS website.
2.2.3 South Afr ican residents working outs ide SA
As a result of SAs residence basis of taxation, SA residents who derive income
from countries other than SA are taxed in SA unless
an agreement for the avoidance of double taxation with another country
stipulates that only the other country has a right to tax the income; or
the income is specifically exempt from income tax in SA.
With regard to any form of remuneration (salary, commission, leave pay,
bonus, taxable benefits, broad-based employee share plans, share options,
etc) received by or accrued to an employee during a year of assessment in
respect of services rendered outside SA for or on behalf of an employer, that
remuneration will be exempt from income tax in SA, if that employee was
outside SA
o
for a period or periods exceeding 183 full days in aggregate during anyperiod of 12 months; and
o for a continuous period exceeding 60 full days during that period of 12
months; and
o those services were rendered during that period or periods.
Notes:
(1) The remuneration, referred to above, which is received by or accrued to an
employee during a year of assessment in respect of services rendered bythat employee in more than one year of assessment, will be taxed evenly
over the period those services were rendered.
(2) For the purposes of counting these days, a person will still be regarded as
being outside SA where the person is in transit through SA between two
places outside SA and he/she does not formally enter SA through a port of
entry, or at any other place as may be permitted by the Director General of
the Department of Home Affairs or the Minister of Home Affairs.
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(3) This exemption from income tax will not be applicable to residents who are
employed in the national or provincial spheres of government, any local
authority or any public entity if 80 per cent or more of the expenses of
these entities are defrayed from funds voted by Parliament. However, a
person who is not a resident who is employed by such entities to render
services outside SA will be exempt from South African income tax on the
remuneration for the services rendered if the remuneration is taxed in
his/her country of residence and the foreign tax is not paid on his/her
behalf by the employing entities. (See Interpretation Note No. 16 27
March 2003 available on the SARS website.)
(4) The remuneration of an officer or crew member of a ship is also exempt
from income tax if the requirements of section 10(1)(o) of the IT Act are
met (for more information see Interpretation Note No. 34 12 January
2006 available on the SARS website).
(5) This exemption does not apply to any other income such as interest or
rentals that the resident may earn during these periods.
2.2.4 Agreements for the avoidance of double taxation (DTA)
It is practice in most countries for income tax to be imposed both on the
worldwide income derived by the residents of the country and on income
derived by persons who are not residents of that country which arises in that
country. The effect of such a system is that income derived by a resident of one
country from a source in another country is subject to tax in both countries. As
this position clearly discourages foreign investment, countries that have trade
relationships enter into agreements for the avoidance of double taxation.
These agreements commonly provide that income of a particular nature will be
taxed in only one of the countries, or may be taxed in both countries with thecountry of residence allowing a credit for the tax imposed by the other country,
or exempting that income from income tax. SA uses the credit method.
Comprehensive agreements for the avoidance of double taxation on the same
income are in force between the government of SA and various foreign
governments. These agreements, agreements that are in the process of being
finalised, limited sea and air transport agreements, etc are available on the
SARS website, under Legal and Policy.
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2.2.5 Unilateral relief for foreign taxes paid
Where there is no double taxation agreement between the relevant countries,
the domestic tax legislation of each country will apply independently of each
other. A resident who is taxable in SA on income received from a foreign
country and who is liable for tax in the foreign country on that income will be
allowed a credit for the foreign tax paid against the South African tax liability.
To qualify for this credit the taxes must have been payable to the government
of any country other than SA, without any right of recovery of the tax payable.
It will be necessary for a resident to submit proof of foreign taxes paid or
payable. An assessment or the equivalent thereof, tax receipts or an official
document will generally be accepted as proof of foreign tax paid or payable.
This rebate may be granted in substitution for the relief to which a resident
would be entitled under a double taxation agreement and is not granted in
addition to such relief.
2.3 Not a resident of SA
2.3.1 A person who is not a resident of SA, who is temporarily working in SA
It is internationally accepted that the income from employment should be
subject to income tax in the source country, that is, where the services are
actually rendered, as opposed to the country where the employee is resident.
A person who is not a resident of SA who is working in SA for short periods are
liable for income tax in SA in respect of his/her South African source income.
The normal employees tax rules apply to remuneration received by or accrued
to that person. Where the employer or representative employer is present in
SA, the income from employment will be subject to income tax by way ofemployees tax (SITE and PAYE) which is deducted.
The income tax position of a person who is not a resident of SA may be
affected by a DTA entered into between the government of SA and the
government of the foreign country in which that person resides. In terms of that
agreement that persons remuneration earned in SA may be exempt from
income tax in SA where specific requirements are met. In the absence of a
DTA, that income will be taxable in SA.
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Where such an agreement has been concluded with a foreign country, the
employment income of that person will generally be subject to income tax in
SA. However, if all three of the following requirements are met the income will
be exempt from income tax in SA
that person is present in SA for a period or periods in aggregate not
exceeding 183 full days in any 12 month period (not necessarily a year of
assessment); and
the remuneration is paid by, or on behalf of, an employer who is not a
resident of SA; and
the remuneration is not borne by a permanent establishment that the
employer has in SA. A permanent establishment means in essence a
fixed place of business through which the business of the employer is
wholly or partly conducted.
Any taxable benefit (see 2.4.8) enjoyed by a seconded employee who is not a
resident of SA will be subject to income tax in SA on the same basis as any
resident employee. Taxable benefits subject to income tax include the
following:
Cost of home leave
Childrens education expenses
Security costs
Storage of furniture
Where an employee who is not a resident of SA renders services in SA has
been provided with residential accommodation in SA, the taxable benefit will be
taxable in his/her hands for the duration of his/her employment in SA. However,
there is an exclusion to this rule contained in paragraph 9(7A) of the Seventh
Schedule to the IT Act. In terms of paragraph 9(7A) no value must be placed on
the accommodation provided by the employer to that employee, where the
accommodation is not granted for a period exceeding 2 years as from the date
of arrival of the employee in SA or the accommodation is provided to that
employee during the year of assessment and that employee is physical present
in SA for a period less than 90 days in that year.
Any taxable benefit received by an employee, who is not a resident of SA, by
virtue of the fact that his/her employer has borne some expenditure incurred inconsequence of the employees transfer from one place of employment to
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another, or on termination of that employees employment is usually not subject
to income tax in SA.
No income tax liability will arise in respect of amounts paid to employees, who
are not residents of SA, for reimbursement by a foreign employer for the loss
on sale of vehicles and residences outside of SA as the amounts are not from a
source or deemed to be from a source in SA, unless the employee is regarded
as a resident of SA. More information on taxable benefits received or accrued
is available on the SARS website under PAYE Guidelines.
A number of immigrants have, in the past intimated that they were advised that
they did not have to pay income tax during the first year in SA. SARS would like
to make it clear to all concerned that the IT Act does not make provision for any
such general exemption.
Note: Individuals who are not ordinarily resident in SA should bear in mind the
physical presence test (see 2.2.1).
2.3.2 Employees working at foreign diplomatic or consular missions in SA
The remuneration of an employee of a foreign diplomatic or consular mission in
SA is exempt from income tax in SA if
the employee is stationed in SA for the sole purpose of holding office in SA
as an official of a foreign government; and
the employee is not ordinarily resident in SA.
Employees in the domestic service of the above employees are also exempt
from income tax provided they are not SA citizens and are not ordinarily
resident in SA. The fact that the employee or the employee in his/her domesticservice will as a consequence of the application of the physical presence test
(see 2.2.1) become a resident of SA will not affect his/her remuneration
exemption in this regard.
Where the above employees (who qualify for exemption) apply for and receive
permits for permanent residence in SA, any exemption falls away. Liability for
income tax arises from the date of issue of the permit for permanent residence.
Furthermore, where a foreign government carries on business activities in SA,
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the remuneration payable to its employees could also be taxable in SA. (The
taxability of this income may be affected by a DTA.)
South African residents who are employed by foreign diplomatic or consular
missions (that is, locally recruited staff) are not exempt from income tax on their
income received from that mission.
Where the employees are not exempt from income tax in SA in the above
circumstances, they must register as provisional taxpayers with their local
SARS offices.
Note: The salaries of foreign employees of foreign states, foreign government
agencies and certain multinational organisations, are also exempt from income
tax in SA.
2.4 Individuals
2.4.1 Taxation of income from employment
Income from employment can be divided into three broad categories
cash remuneration such as a salary, overtime, commission or a bonus;
cash allowances such as a travelling or subsistence allowance; and
non-cash taxable benefits such as the use of a motor vehicle owned by the
employer or the occupation of a dwelling owned by or paid for by the
employer.
2.4.2 Standard Income Tax on Employees (SITE)
The SITE system generally applies to individuals
whose net remuneration does not exceed R60 000 annually; and
who are not in receipt of a travelling allowance.
The SITE deducted from the employees remuneration in this case is generally
regarded as final and those individuals do not have to submit income tax
returns, except if taxable investment income or other sources of income is
earned or tax deductible expenditure is claimed. However, in the event of
SARS issuing you with an income tax return, even though it is not required in
terms of your income, the income tax return must always be completed and be
submitted back to SARS. The income tax return must not simply be ignored.
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SITE is applicable to
net remuneration or the annual equivalent of net remuneration as does not
exceed R60 000; or
any annual payment included in net remuneration to the extent that the
sum of all such annual payments and the annual equivalent of all other net
remuneration as does not exceed R60 000.
SITE is usually deducted as the final liability for income tax. The employee
may, however, apply to SARS for the income tax liability to be recalculated
where he/she is entitled to a deduction in respect of
medical expenses exceeding 7,5% of his/her taxable income;
contributions made to a registered medical scheme which do not exceed
the capped amounts (R570 for yourself, R1 140 for yourself and one
dependant or R1 140 for yourself and one dependant plus R345 for every
additional dependant thereafter) less any contributions made by the
employer which were not included in the employees remuneration as a
taxable benefit;
medical expenses paid in the case of a handicapped person;
contributions made to a registered medical scheme if the employee is 65
years of age or older; medical expenses borne by an employee who is 65 years of age or older;
any premium paid in terms of an insurance policy to the extent that
y it covers the employee against the loss of income as a result of illness,
injury, disability or unemployment; and
y the amounts payable in terms of the above-mentioned policy constitute
or will constitute income as defined in section 1 of the IT Act or;
retirement annuity fund contributions which were not taken into account.
2.4.3 Pay-As-You-Earn (PAYE)
The purpose of PAYE is to ensure that the employees income tax liability is
settled at the same time that the income is earned. The advantage of this
system is that the income tax liability for the year is settled over the course of
the whole year of assessment.
Employers are obliged to deduct employees tax (SITE and/or PAYE) from
remuneration every month. The employees tax deducted must be paid over to
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SARS within seven days after the end of the month in respect of which the
deductions were made. These deductions are determined according to tax
deduction tables.
Employees whose net annual remuneration exceeds R60 000 (for employees
under 65 years of age) or R74 000 (for employees who are 65 years of age or
older) are required to submit income tax returns. Employees tax deductions for
those employees are split into SITE and PAYE deductions at the end of a year
of assessment. Employees who also earn income from other sources, for
example, rental, taxable interest/dividends, trade, taxable capital gain or capital
loss exceeding R16 000, allowances (excluding an amount reimbursed) must
submit an income tax return irrespective of whether the net annual
remuneration exceeds the above-mentioned amounts or not.
Employees tax certificates (IRP 5s) are issued to employees from whom
employees tax has been deducted. These certificates reflect a breakdown of
remuneration received, deductions made from the remuneration and the
employees tax (SITE and PAYE) deducted.
In cases where the employer has, for valid reasons, not deducted employees
tax, the employer must provide the employee with an IT 3(a) certificate.
Information such as taxable benefits and remuneration must be reflected on the
IT 3(a).
PAYE operates as follows in respect of the more complex cases of:
(a) Directors
The remuneration of directors of private companies (including individuals in
close corporations performing similar functions) is subject to employeestax.
The remuneration of private company directors is often only finally
determined late in the year of assessment or in the following year. The
directors in these circumstances finance their living expenditure out of their
loan accounts until the remuneration is determined. To overcome the
problem of no monthly remuneration being payable from which employees
tax can be withheld, a formula is used to determine the directors deemed
monthly remuneration upon which the company must pay employees tax
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on behalf of the director. More information on the application of the formula
and relief from hardship is available in Interpretation Note No. 5 (issue 2)
23 January 2006 on the SARS website.
A director is not entitled to receive an employees tax certificate (IRP 5) in
respect of the amount of employees tax paid by the company on the
deemed remuneration if the company has not recovered the employees
tax from the director.
(b) Personal Service Companies and Personal Service Trusts
A personal service company or personal service trust is any company or
trust (other than a labour broker) where services are rendered on behalf of
that company or trust to a client of that company or trust personally by any
person who is a connected person1 in relation that that company or trust,
and
that connected person would be regarded as an employee of that
client if that service was rendered by that connected person directly to
the client; or
where those duties must be performed mainly at the clients premises
and that connected person or that company or trust is subject to thecontrol or supervision of that client as to the manner in which the
duties are performed in rendering that service; or
more than 80% on the income of that company or trust consists of
amounts directly or indirectly received from one client.
However, where company or trust referred to above employs three or more
full-time employees throughout the year of assessment who are on a full-
1A connected person generally means in relation to
a natural person- a relative of a natural person and any trust of which a naturalperson is a beneficiary;
a trust- a beneficiary of a trust and any relative in relation to such beneficiary; a company- any other company which would be part of a group of companies if a
more than 50% holding of equity shares were applied and any person, other than acompany, who individually or jointly with any other connected person in relation tohim/herself holds directly or indirectly at least 20% of the companys equity sharecapital or voting rights.
For a complete definition of a connected person, see section 1 of the IT Act.
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time basis engaged in the business of the company or trust of rendering
that service (other than any employee who is a connected person), it will
not be classified as a personal service company or personal service trust.
Payments made to personal service companies and personal service trusts
are subject to the deduction of employees tax.
(c) Labour Brokers
A labour broker is any person who carries on the business, for reward, of
providing clients of such person with other persons to render a service to
such clients for which such other persons are remunerated.
Employers are required to deduct employees tax from all payments made
to a labour broker, unless the labour broker is in possession of a valid
exemption certificate issued by SARS.
An exemption certificate will be issued by SARS under the following
circumstances
the person carries on an independent trade and is registered as
a provisional taxpayer; the labour broker is registered as an employer; and
all returns required by SARS, have been submitted.
SARS will not issue an exemption certificate if
more than 80% of the gross income of the labour broker during the
year of assessment consists of amounts received from any one client
of the labour broker, unless the labour broker who throughout the year
of assessment employs three or more full-time employees who are on
a full-time basis engaged in the business of the labour broker and who
are not connected persons in relation to the labour broker;
the labour broker provides to any of its clients the services of
another labour broker; or
the labour broker is contractually obliged to provide a specified
employee of the labour broker to the client.
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Payments made to persons who render services to or on behalf of a labour
broker without an exemption certificate are subject to the deduction of
employees tax.
A labour broker that is a company without an exemption certificate and a
personal service company cannot be a small business corporation.
For further information refer to the PAYE Guidelines and Interpretation
Note No. 35 (Issue 2) 11 December 2007 available on the SARS
website.
Note: Deductions
(1) Limitation of deductions. The deduction of expenses incurred by the
personal service company, personal service trust or labour broker
without an exemption certificate is limited to the amounts paid to the
employees of such company, trust or labour broker for services
rendered that will comprise taxable income in the hands of the
employees.
(2) In the case of a personal service company or personal service trust
the following expenses will also be allowed as deductions
y certain legal costs, bad debts, contributions to pension/provident
funds/medical schemes;
y operating expenses in respect of premises; and
y finance charges/insurance/repairs/fuel/maintenance in respect of
assets,
if such premises/assets are used wholly and exclusively for purposes
of trade.
(d) Independent Contractors
The concept of an independent trader or independent contractor remains
one of the more contentious features of the Fourth Schedule to the IT Act.
An amount paid or payable for services rendered or to be rendered by a
person in the course of a trade carried on by him/her independently of the
person by whom the amount is paid or payable is excluded from
remuneration for employees tax purposes.
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However, a person is deemed not to be carrying on a trade independently
if
the services are required to be performed mainly at premises of the
person by whom the above amount is paid or payable or of the person
to whom such services were or are to be rendered and the person who
rendered or will render the services is subject to control or supervision
as to the manner in which his/her duties are performed or as to his/her
hours of work; or
he/she employs three or more full-time employees throughout the year
of assessment who are on a full-time basis engaged in the business of
the person rendering that service (other than any employee who is a
connected person).
An amount paid to a person who is deemed not to carry on a trade
independently will constitute remuneration and will be subject to the
deduction of employees tax.
For more information, refer to Interpretation Note No. 17 (issue 2)
9 January 2008 and PAYE Guidelinesavailable on the SARS website.
2.4.4 Provisional tax
Provisional tax is not a separate tax but simply a provision for the taxpayers
final income tax liability for a year of assessment, which will be determined
upon assessment.
Compulsory provisional tax payments are made six months after the beginning
of a year of assessment and at the end of the year of assessment and
represent income tax, calculated on the estimated taxable income anticipatedfor the year of assessment. The provisional taxpayer must fill in his/her
estimated taxable income and provisional tax payable on an IRP 6 form which
he/she must submit to SARS. Payment of provisional tax must be made directly
to SARS orvia banks (see 2.1.7).
A provisional taxpayer is
any person who derives income which does not constitute
remuneration as defined in the 4th Schedule to the IT Act; or
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an allowance or advance in terms of section 8(1) of the IT Act;
any person who derives income from the carrying on of any business;
a company/close corporation (see 2.10.1); and
any person who is notified by the Commissioner that he/she is a
provisional taxpayer
Note: Every person who is a provisional taxpayer must within 30 days after the
date on which he/she becomes a provisional taxpayer, apply to SARS for
registration as a provisional taxpayer.
The following natural persons are exempt from the payment of provisional tax:
(1) A natural person (other than a director of a private company) who is 65
years of age or older on the last day of the year of assessment and his/her
taxable income for that year
does not exceed R80 000;
consists only of remuneration, interest, dividends or rental from letting
of fixed property; and
he/she does not carry on any business
(The above concession applies only to provisional tax. Such natural person
may still be liable for income tax if his/her net remuneration plus otherincome (excluding exempt income) exceeds R74 000 for the year.)
(2) A natural person who is under the age of 65 years on the last day of the
year of assessment and who does not derive any income from the carrying
on of any business, if
his/her taxable income for the relevant year of assessment does not
exceed the income tax threshold of R46 000; or
his/her taxable income for the relevant year of assessment which is
derived from interest, dividends and rental from letting of fixed property
for the year of assessment does not exceed R20 000.
Provisional taxpayers (other than companies) with taxable income
exceeding R50 000 may make a third voluntary provisional tax
payment (often called the topping-up payment). This is to enable
the taxpayer to pay the difference between the sum of PAYE and
provisional tax already paid for the year of assessment and the full
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income tax liability for that particular year. This payment must be
made within seven months after the end of the year of assessment if
the year-end falls on the last day of February. If the accounting year-
end as approved by the Commissioner ends on another date, the
taxpayer is required to settle the total income tax liability within six
months after that year-end. Failure to do so may result in interest
being levied and a penalty being imposed on any underpayment of
provisional tax. In the case of an overpayment of provisional tax,
interest is payable to the taxpayer.
Provisional tax tables are sent to provisional taxpayers annually and
are also available from SARS offices. For further information see
Guidelines for Provisional Tax (IRP 12) available on the SARS
website.
2.4.5 Income of spouses
The IT Act define a spouse in relation to any person as a person who is a
partner of such person in a marriage, customary relationship or union
recognised as a marriage in terms of the laws of SA or any religion. Thedefinition also includes a same-sex or heterosexual relationship which the
Commissioner is satisfied is intended to be permanent.
Spouses married out of community of property are taxed separately on their
individual incomes.
In the case of spouses married in community of property, under South African
common law, income received accrues to the joint estate and is treated as
being received in equal shares by each spouse. However
a salary from a third party is treated as being the income of the spouse
who receives that salary;
as far as passive income (investment income) originating from assets
forming part of the joint estate, is concerned, the provisions of the IT Act
merely confirm the legal position between the spouses married in
community of property. Income derived from the letting of property or
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income other than from carrying on a trade (for example, investments) is
split equally between the spouses;
income earned from carrying on a trade jointly or where spouses are
trading in partnership will accrue to each partner according to the agreed
profit-sharing ratio;
income which does not form part of the joint estate of both spouses is
treated as being income of the spouse entitled to it;
benefits from pension, provident and retirement annuity funds are taxable
in the hands of the spouse who is the member of the fund;
income from patents, designs, trademarks and copyrights is treated as
being the income of the holder or owner.
expenses incurred in the production of income are deductible to the extent
to which that income accrued to the spouses;
in the case of pension fund or retirement annuity fund contributions, the
contributions are deducted in the hands of the spouse who made the
contributions and who is the member of the fund; and
expenditure incurred (for example, medical expenses), will be deductible in
the hands of the spouse who paid the expenses, notwithstanding the fact
that the funds for the expenses may have come from the joint estate.
These provisions must not in any way be seen as favouring spouses married in
community of property over spouses married out of community of property. It is
rather a case of harmonising the existing rights with regard to property and
income of couples married in community of property.
There are also measures to prevent income splitting that apply to spouses
whether they are married in and out of community of property. The income of
one spouse may not be treated as being the income of the other spouse. Thisprovision prevents income splitting between spouses in order to obtain an
unfair tax advantage.
These deeming provisions also apply to donations, settlements and other
dispositions between spouses, where income is derived by one spouse
(recipient) as a result of a donation made by the other spouse (donor) with the
purpose of avoiding tax; or as a result of a transaction, operation or a scheme
entered into or carried out by the donor with the sole or main purpose of
reducing, postponing or avoiding the donors liability for tax.
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Where a spouse (recipient) derives excessive income from
any trade which is connected to the trade of the other spouse (donor);
a partnership of which the donor is a partner; or
a company in which the donor is a principal shareholder,
and the income so earned is excessive having regard to the nature of the trade
and the recipients participation, the amount that is regarded as excessive will
be taxed in the hands of the donor.
2.4.6 Allowable deductions
General deduction formula
The general deduction formula provides the general rules an expense must
comply with in order to be deductible for income tax purposes. Other
provisions of the IT Act allow for special deductions. If no special deduction
applies, the expense in question will have to comply with the general
deduction formula.
The general deduction formula provides that for expenditure and losses to
be deductible they must be
h actually incurred;
hduring the year of assessment;
h in the production of income;
h not of a capital nature; and
h laid out or expended for the purposes of trade.
It should be noted that deductions of expenditure claimed against income
from employment (remuneration) derived by employees and office holders,
are limited. This limitation, however, does not apply in respect of agents
and representatives whose remuneration is normally derived mainly in the
form of commission based on sales or turnover attributable to that agent or
representative. For further information refer to Interpretation Note No. 13
(issue 2) 30 March 2005 available on the SARS website.
Home office expenses
Home office expenses (expenses referred to that part of the house used
for the purposes of trade) will be allowed as a deduction provided certain
requirements are met.
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Expenses relating to the taxpayers home office may be claimed as a
deduction for income tax purposes if
a part of the taxpayers home is occupied for purposes of his/her trade
and that part is regularly and exclusively used for purposes of his/her
trade; and
the part so used or occupied is specifically equipped for purposes of
his/her trade.
If the taxpayers trade is employment or the holding of an office no
deduction is allowed unless
the income derived from that employment or office is mainly (that is
more than 50% of the taxpayers total income from employment or
office) commission or other variable payments which are based on the
taxpayers work performance and his/her duties are not performed
mainly in an office provided by the taxpayers employer; or
the taxpayers duties are mainly performed in that part of the
taxpayers home.
If the above requirements are met the taxpayer will be entitled to claim a
portion of his/her total home expenses that relate to that part of his/her
home used for business purposes, as a deduction against his/her income.
Typical home expenses may include rent of the premises, interest on bond,
rates and taxes, cost of repairs or maintenance to the property, etc. These
expenses may be apportioned on the following basis:
A/B x Total Costs
where: A = The area in m of the area specifically
equipped and used regularly and
exclusively for trade
B = The total area in m (including any
outbuildings and the area used for trade)
of the taxpayers home
Total Costs = Total home expenses referred to above
Example
The total area (square metres) of the taxpayers home office is 20 sq.
metres in relation to the total area of his/her home which is 200 sq. metres.
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The percentage area of the home office in relation to the total area of
his/her home is, therefore, 10% (20/200). The taxpayer will, therefore, be
entitled to claim 10% of his/her total home expenses as a deduction for
income tax purposes.
Employees and office holders may claim the limited deductions listed
below:
(a) Pension fund contr ibutions
(i) Current pension fund contributions
An amount which does not exceed the greater of -
7,5% of the remuneration received during the year from
retirement-funding employment; or
R1 750.
Retirement-funding employment is the portion of the
remuneration that is used to calculate the contributions to a
pension or provident fund. Any excess may not be carried
forward to the following year of assessment.
(ii) Arrear contributions
These are the amounts paid in respect of past periods taken
into account as pensionable service. Maximum of R1 800 per year - Any excess over R1 800
may be carried forward to the following year of
assessment.
(b) Retirement annuity fund contribut ions
(i) Current contributions
An amount which does not exceed the greater of -
15% of the remaining amount after the deduction fromincome (excluding income derived from retirement-
funding employment, any retirement lump sum benefit
and retirement lump sum withdrawal benefit) the
deductions or assessed losses admissible against such
income (excluding deductions in respect of contributions
to a retirement annuity fund, expenditure incurred as a
lessor of land let for farming purposes, in respect of soil
erosion, medical, donations to approved bodies and
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certain capital development expenditure referred to in the
First Schedule to the IT Act): or
R3 500 less allowable current pension fund contributions;
or
R1 750
Any excess may be carried forward to the following year of
assessment.
(ii) Arrear contributions
A maximum of R1 800 per year may be claimed. Any excess
over R1 800 may be carried forward to the following year of
assessment.
(c) Donations to approved bodies
A deduction for donations made to approved bodies (such as a
PBO) carrying on certain public benefit activities as set out in Part
II of the Ninth Schedule to the IT Act is limited to 10% of taxable
income (excluding any retirement fund lump sum benefit and
retirement lump sum withdrawal benefit) as determined before
allowing any deduction in respect of donations or medical
deduction. (For more information see the PBO Guide available onthe SARS website.)
(d) Medical deduction
Medical expenses, contributions to medical schemes and
physically disability expenses paid by the taxpayer (other than
amounts recoverable from medical schemes) may be claimed in
respect of the taxpayer, his/her spouse, his/her children or any
dependant of the taxpayer.
Persons 65 years of age or older
If the taxpayer is 65 years of age or older he/she may deduct all
his/her contributions to a registered medical scheme, all qualifying
medical expenses and physical disability expenses necessarily
incurred and paid. In other words, there is no limit.
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Handicapped persons
If the taxpayer, his/her spouse or his/her child is a handicapped
person as defined in section 18(3) of the IT Act (see below), the
taxpayer will be allowed to deduct all his/her contributions to a
registered medical scheme, all qualifying medical expenses and
physical disability expenses necessarily incurred and paid.
For the purposes of section 18 a handicapped person means
a blind person as contemplated in the Blind Persons Act,
1968;
a deaf person, being a person whose hearing is impaired to
such an extent that he cannot use it as a primary means ofcommunication;
a person who as a result of a permanent disability requires a
wheelchair, calliper or crutch to assist him to move from one
place to another;
a person who requires an artificial limb; or
a person who suffers from a mental illness as defined in
section 1 of the Mental Health Care Act, 2002.
Persons under 65 years of age
If the taxpayer is under 65 years of age he/she may claim the
following expenses as a deduction:
(a) any contributions to a registered medical scheme in respect of
the taxpayer, his/her spouse and any dependant, as long as it
does not exceed
(i) R570 per month in respect of the taxpayer; or(ii) R1 140 per month in respect of the taxpayer and one
dependant; or
(iii) R1 140 per month in respect of the taxpayer and one
dependant, plus R345 for every additional dependant.
The amounts in (i) to (iii) above must be reduced by any
amount contributed by the employer of the taxpayer to such
fund which has not been included as a taxable benefit in the
taxpayers remuneration; and
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(b) the total of
o any contributions to a registered medical scheme which
have not been allowed as a deduction under item (a)
above;
o any qualifying medical expenses and physical disability
expenses; and
o contributions by the employer to a medical scheme taxed
as a taxable benefit,
as exceeds 7,5% of the taxpayers taxable income (excluding
any retirement fund lump sum benefit and retirement lump
sum withdrawal benefit) before allowing any deduction under
this subparagraph (subparagraph (b)).
Note: The contributions by the employer that exceed the amounts
in (a) above, as the case may be, will be a taxable benefit
received by the taxpayer.
For more information see the Tax Guide on the Deduction of
Medical Expenses available on the SARS website.
(e) Wear and tear
Wear and tear may be claimed on assets not of a permanent
nature that are used for the purposes of trade. For example,
where it is essential for a taxpayer to maintain a library, a wear
and tear allowance of 33% calculated on a straight line basis is
allowable. Wear and tear may also be claimed as a deduction on
assets such as computers, furniture and fittings, motor vehicles,
etc used for purposes of trade. Assets costing less than R5 000may be written off in full in the year in which they are acquired.
(f) Premiums paid in respect of an insurance policy for loss of
income
The deduction of insurance policy premiums is limited to
insurance policies to the extent that it covers the taxpayer against
the loss of income as a result of illness, injury, disability or
unemployment and to the extent that the amounts payable in
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terms of that policy constitute or will constitute income as defined
in the IT Act.
(g) Bad and doubt ful debts incurred in respect of employment
Note: Deductions under items (b), (c), (d), (e), (f) and (g) above may
also be claimed by taxpayers against income other than remuneration
such as from business, rent or interest.
2.4.7 Prohib ited deductions
Domestic /private expenses
A taxpayer is prohibited from deducting any of the following expenses and
payments in terms of the general deduction formula:
x The cost incurred in the maintenance of the taxpayer, his/her family or
his/her establishment.
x Domestic or private expenses, including the rent of, repairs of, or
expenses in connection with any premises not occupied for the
purposes of trade or of any dwelling or house used for domestic
purposes, except in respect of those parts as may be occupied for the
purposes of trade.
Part of house not used for the purposes of trade
Bribes, fines or penalties
A payment for a bribe, fine or penalty will not be allowed as a deduction
for income tax purposes if
x the payment, agreement or offer to make that payment constitutes an
activity contemplated in Chapter 2 of the Prevention and Combating of
Corrupt Activities Act, No. 12 of 2004; or
x the payment is a fine charged or penalty imposed as a result of
carrying out an unlawful activity in SA or in another country where the
activity would be unlawful had it been carried out in SA.
2.4.8 The taxation of taxable benefits
Any payment received in respect of employment is included in an employees
gross income in terms of the definition of gross income. However, certain
taxable benefits flowing from employment are not paid in cash and a cash
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equivalent of these benefits in kind needs to be determined. Any contribution
made by an employee will reduce the amount so determined in respect of the
taxable benefit.
Where the taxable benefit is an amount paid to or for the benefit of an
employee, that amount forms part of the remuneration of the employee. The
deemed value of other taxable benefits, such as company owned residential
accommodation or the use of a company motor vehicle is calculated by way of
a formula.
The IT Act provides specific provisions contained in the Seventh Schedule to
the IT Act for the calculation of the value that must be placed upon each
taxable benefit that accrues to an employee.
Note: The Commissioner uses market value for some types of taxable benefits
and cost price for others.
(a) Allowances
Allowances are generally paid to employees to meet expenditure incurred
on behalf of an employer. The portion of the allowance not expended for
business purposes must be included in the employees taxable income.
The most common types of allowances are travelling, subsistence and
uniform allowances.
Travelling allowance
Motor vehicle travelling allowances are taxable but expenses for
business travel may be set-off against the allowance received. Travel
between home and a place of business is regarded as private traveland is not considered to be business travel. Business expenses may
be claimed by keeping acceptable records and proof of actual costs,
or by using the tables provided by SARS. The tables make provision
for a fixed, fuel and maintenance cost per kilometre. If no record of
actual business kilometres travelled is kept, the first 18 000 km are
regarded as private travel. In that case not more than 14 000 km may
be claimed for business purposes. The business related claim
depends on the total actual kilometres travelled during the year of
assessment. If the motor vehicle has been used for a period of less
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than 12 months during that year, these distances are reduced
proportionately.
Where the employee interchangeably uses more than one motor
vehicle for business purposes and one or more of those motor
vehicles were not primarily used for business purposes, the
provisions pertaining to the 18 000 km deemed private kilometres
and 32 000 km maximum distance used in the calculations apply
separately to each motor vehicle. In order to prove that any motor
vehicle was primarily used for business purposes, the taxpayer will
have to keep an accurate record of the total distance travelled for
business purposes.
Subsistence allowance
A subsistence allowance is normally paid to employees to enable
them to meet expenses incurred in respect of accommodation and
meals when away from their normal place of residence for at least
one night on business. For each day or part of a day in the period
during which an employee is absent from his/her place of residence,
an amount calculated at the following rates, will be deemed to have
been actually expended
h where the accommodation to which that allowance or advance
relates is in SA, an amount equal to
- R73.50 per day if that allowance or advance is paid or
granted to defray the incidental costs only; or
- R240 per day if that allowance or advance is paid or granted
to defray the cost of meals and incidental costs;
hwhere the accommodation to which that allowance or advancerelates is outside of SA, an amount equal to US$215 per day if
that allowance or advance is paid or granted to defray the cost of
meals and incidental costs.
Where the allowance exceeds this amount, the full amount of the
allowance must be included in the employees income and actual
expenses incurred must be claimed against that allowance.
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Uniform allowance
The value of the uniform or the amount of the allowance made by the
employer to the employee in lieu of any such uniform must be
included in the employees gross income. The value of the uniform or
the amount of the allowance will be exempt from income tax (and
therefore deducted from the gross income in arriving at the
employees income), provided that the employee is required as a
condition of his/her employment to wear a special uniform while on
duty and the uniform is clearly distinguishable from ordinary clothing.
(b) Benefits in kind
Benefits in kind include, for example, the use of free or cheap
accommodation, right of use of a company motor vehicle, the acquisition
of an asset at a consideration below cost, free or cheap services, private
use of an asset, low-interest loans, housing subsidies and redemption of
loans due to third parties.
Residential accommodation
This includes normal residential accommodation as well as holiday
accommodation. The benefit arises when the employee has been
provided with residential accommodation whether
unfurnished with power or fuel; or
furnished but power or fuel is not supplied; or
furnished and power or fuel is supplied.
Any residential accommodation supplied by the employer as a
benefit or advantage or as a reward for services rendered (or to be
rendered) is valued at the greater of (a) the cost borne by the employer, less any amount paid by the
employee; or
(b) by utilising the formula laid down in the Seventh Schedule to
the IT Act, which is based on a percentage of remuneration,
less any amount paid by the employee (see Annexure A,
Example 4).
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Notes:
(1) Where, by reason of the situation, nature or condition of
accommodation or any factor, the market-related rental value
of the accommodation is lower than the amount arrived at by
way of the above formula, the market-related rental value is
taken into account for income tax purposes. In such an
instance, the employer must approach the local SARS office to
confirm whether the market-related rental value may be used.
(2) Where a foreign employee has been provided with residential
accommodation in SA, the benefit will be taxable in the hands
of that employee for the duration of his/her employment in SA.
However, there is an exclusion to this rule contained in
paragraph 9(7A) of the Seventh Schedule to the IT Act, which
provides that no value must be placed on the accommodation
provided by the employer to the employee where the employee
is away from his/her usual place of residence outside SA
a) for a period not exceeding 2 years from the date of arrival
of that employee in SA for the purpose of performing the
duties of his/her employer; or
b) if the accommodation is provided to that employee during
the year of assessment and that employee is physically
present in SA for a period less than 90 days in that year
In terms of paragraph 9(7B) of the Seventh Schedule to the IT
Act the abovementioned exclusion does not apply
(i) if that employee was present in SA for a period exceeding
90 days during the year of assessment immediately
preceding the date of arrival referred to in paragraph 9(7A)of the Seventh Schedule to the IT Act; or
(ii) to the extent that the cash equivalent of the value of the
taxable benefit exceeds an amount of R25 000 multiplied
by the number of months during which subparagraph 9(7A)
of the Seventh Schedule to the IT Act applies.
(3) The formula will apply where the full ownership
vests in the employer; or
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does not vest in the employer and-
it is customary for an employer to provide free or
subsidised accommodation to its employees; and
it is necessary for the particular employer, having
regard to the kind of employment, to provide free or
subsidised accommodation
- for the proper performance of the duties of the
employee; or
- as a result of the frequent movement of
employees; or
- due to lack of employer-owned accommodation;
and
the benefit is provided forbona fide business purposes
other than the obtaining of a tax benefit.
(4) Where the employee has an interest in the accommodation the
greater of the formula or the cost borne by the employer will
apply to determine the value of the taxable benefit.
Use of a company motor vehicle for private purposes
The value of a company motor vehicle made available to an
employee for private use is included in gross income as a taxable
benefit. It is calculated at 2.5% per month of the determined value
(as defined in the Seventh Schedule to the IT Act). Where the
employee does not receive a travelling allowance or advance and the
employee bears
the cost of all fuel used for the purposes of private travel
(including travelling between the employees place of residence
and his/her place of employment) the value of such private use
for each month is reduced by 0.22%; or
the full cost of maintaining the vehicle (including the cost of
repairs, servicing, lubrication and tyres) the value of such private
use for each month is reduced by 0.18%.
Where more than one vehicle is made available to that employee or
his/her family, and all the motor vehicles are not used primarily forbusiness purposes, the benefit is 2.5% per month on the determined
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value of the vehicle with the highest value and 4% per month on the
other vehicle(s).
Note: The determined value generally excludes finance charges,
interest and value-added tax.
Interest-free or low-interest loans
The difference between the actual amount of interest charged and
the interest charged at the official rate (12% from 1 March 2008 to
31 August 2008 and 13% from 1 September 2008 to 28 February
2009) is to be included in gross income.
Share options and other rights to acquire marketable securit ies
Gains made by directors of companies or employees by the exercise,
cession or release in respect of rights to acquire marketable
securities such as stock, debentures and shares are regarded as
income.
Note: These gains are subject to the deduction of PAYE.
Equity instruments
From 26 October 2004 persons are taxed on any gain or loss on the
vesting of an equity instrument acquired as a result of employment or
holding of office as a director. The taxable amount is the difference
between the market value on date of vesting and any consideration
for the acquisition. Equity instruments are equity shares, members
interests, options to acquire those shares or interests and other
financial instruments convertible into those shares or interests. Anequity instrument vests on acquisition of an unrestricted instrument
or as a general rule the date when all restrictions which prevent the
instrument to be freely disposed of cease to have effect.
Note: These gains are subject to the deduction of PAYE.
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Broad-based employee share plans
Equity shares acquired by persons under a qualifying share plan are
not taxed on condition that the person does not dispose of the shares
within five years from the date of grant thereof. A person may not be
granted shares in terms of the share plan which are worth more than
R9 000 during a period of three years of assessment.
Relocation costs
Any benefit an employee may have enjoyed by reason of the fact that
his/her employer has borne certain expenditure incurred in
consequence of the employee's relocation from one place of
employment to another or on the appointment of the employee or on
the termination of the employees employment, may be exempt from
tax.
The above list is not exhaustive. For more information see PAYE
Guidelines available on the SARS website.
2.4.9Pensions
DTAs generally provide that a pension will be taxed in the country where thepensioner resides, except in the case of Government pensions, which are
taxable in the country paying such pension. However, the country that has the
right to tax the pension may, in its domestic tax legislation, choose to exempt
the pension from income tax, for example, section 10(1)(gC) of the IT Act.
The following pensions are exempt from income tax in SA:
1) War veterans pensions.
2) Compensation in respect of diseases contracted by persons employed in
mining operations.
3) Disability pensions paid under section 2 of the Social Assistance Act,
1992 (Act No. 59 of 1992).
4) Compensation paid in terms of the Workmens Compensation Act, 1941
(Act No. 30 of 1941) or the Compensation for Occupational Injuries and
Diseases Act, 1993 (Act No. 130 of 1993).
5) Pension paid in respect of the death or disablement caused by any
occupational injury or disease sustained or contracted by an employee
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before 1 March 1994 in the course of employment, where that employee
would have qualified for compensation under the Compensation for
Occupational Injuries and Diseases Act, 1993, had that injury or disease
been sustained or contracted on or after 1 March 1994.
6) Compensation paid by the employer, in addition to the compensation
mentioned in 4 above, in respect of the death of the employee which
arose out of and in the course of employment.
Note: The tax exemption of such additional compensation may not
exceed R300 000 less the sum of amounts exempted from tax in terms of
section 10(1)(x) of the IT Act, whether in the current or any previous year
of assessment.
7) Any amount received by or accrued to any resident under the social
security system of any other country.
8) Any pension received by or accrued to any resident from a source
outside SA, which is not deemed to be from a source in SA, in
consideration of past employment outside SA.
The following pensions are taxable in SA:
1) A pension or annuity received by a resident from a pension, provident, or
retirement annuity fund, unless one of the exemptions above applies.
2) A pension or annuity received from the South African Government.
3) Where any pension or annuity is payable to any person (whether a
resident of SA or not) for services rendered inside and outside of SA and
at least two years out of the last ten years of services, prior to the accrual
of the pension, were rendered in SA, part of the pension or annuity will be
taxable in SA in the ratio of the number of years service inside SA to the
total number of years service. (The taxability of the pension may be
affected by an agreement for avoidance of double taxation.)
2.4.10 Annuities
Annuities received from retirement annuity funds, insurance policies, trusts,
estates and purchased annuities are taxable. The capital content of a
purchased annuity is exempt from income tax. The certificate issued by the
insurance company will reflect the capital content. Annuities are subject to the
deduction of PAYE where the source is from SA.
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Annuities received by residents from abroad (that is, from a source outside
SA) are also taxable in SA. (The taxability of the annuity may be affected by a
DTA.)
2.4.11 Withholding tax on foreign entertainers and sportspersons
With effect from 1 August 2006 South African residents who are liable to pay
amounts to foreign entertainers and sportspersons for their performances in