College of Business and Economics

School of Accounting

Department of Accountancy

Lecture Guide
Unit 3
Gross Income (Special Inclusions)
&
Exempt income

TAX03A3/BEL3A01/ADIA002/S3PACQ3

2022

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Lecture guide Unit 3 – Special inclusions and Exempt income TAX03B3/BEL3A01
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TABLE OF CONTENTS

1. GENERAL 3
1.1 Plan of the day 3
1.2 Background 3
1.3 Outcomes 4
2. STUDY GUIDE 4
2.1 Pre-reading 4
2.2 Generic framework 5
2.2.1 Gross income definition & special inclusions 6
2.3 Resources 8
3. THE LECTURE 10
4. CLASS EXAMPLES 10
4.1 Class Example 1 10
4.2 Class Example 2 11
4.3 Class Example 3 12
4.4 Class Example 4 13
4.5 Class Example 5 14
4.5 Class Example 5 – (variation SA interest) 15
5. TUTORIAL 16
5.1 Question 16
5.2 Question 2 17
6. WEDNESDAY QUESTION 18
6.1 Question 1 18
6.2 Question 2 19
6.3 Question 21

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1. GENERAL

1.1 Plan of the day

Suggested programme for the day

 Download all material
o This lecture guide
o The PDF version of the PowerPoint slides
o The video recordings of the lectures.
 Read the paragraphs in your textbook that are mentioned in this study
guide.
 Listen to the lecture videos while following the lecture slides and make
your notes
 Work through the class examples in this lecture guide.
 Attempt the tutorial question(s).
 Log onto Blackboard and attend the live tutorial on Collaborate Ultra.
 Prepare the Wednesday question found at the end of this lecture guide.

1.2 Background

Apart from the definition of gross income (as discussed during unit 2), there
are also a number of special inclusions that form part of Gross income. They
are all listed in section 1 of the Income Tax Act. The majority of those special
inclusions are included in the gross income of natural persons, however some
also relate to the gross income of companies.
The second topic of this week’s lecture deals with exempt income. This
relates to those items that are included in gross income, but are exempt from
Tax. Exemptions are covered by section 10 of the Income Tax Act.
A number of important concepts are revised and built upon from the work done in Tax2A. The starting point of any
normal tax calculation is to identify amounts that will be included in gross income in terms of the definition
contained in section 1 of the Income Tax Act 62 of 1958. For an amount to be included in “gross income” as per
the definition, it must comply with all the elements of the definition. To gain an understanding of these elements,
relevant case law must be mastered by you as a student. The importance of case law is that it provides an
understanding of phrases or words not specifically defined in the Act. Without the knowledge of case law it is
almost impossible to understand the meaning of certain words and phrases.

The gross income definition also has a number of special/specific inclusions provided for as part of the
definition. These special/specific inclusions would normally not have met the “gross income” definition, was it
not for the special inclusion. Once the gross income inclusions are established, “income” as defined in section 1 of
the Income Tax Act must be calculated. Income is basically gross income less exempt income. The exempt items
can be found in section 10 of the Income Tax Act.

Important principles:
 An amount is included in gross income in one of two ways:
It meets the general gross income definition;
OR
It is a specific/special inclusion into gross income

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1.3 Outcomes

After studying this module and all the study material referred to herein you must:
 State the definition of gross income for a resident and a non-resident
o State the definition of resident as per the Income Tax Act, and apply the “physical
presence” test as per the “resident” definition.
 Discuss the elements of the Gross Income definition.
o State the names of the prescribed court cases as well as the principles
established in the court cases.
 Apply the elements of the Gross Income definition to practical examples
o Apply the “gross income” definition, the court cases and their principles to a
scenario.
 Identify and calculate the amounts that should be included in Gross Income per the
special inclusions to the “gross income” definition, per paragraph.
 Identify and calculate the amounts that should be exempt from tax.
o Know which income is exempt in which circumstances and how much will be
exempt.
 Calculate a taxpayer’s “income” (gross income less exempt income)

 Remember: This topic is tested in every calculation of taxable income and can also
be asked as a theory question.

2. STUDY GUIDE

2.1 Pre-reading

Purpose: to empower you with the prior knowledge that should be in place before you
attend class.

Revisit your notes from previous studies in tax and pay special attention to the definition of
gross income.

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2.2 Generic framework

Gross Definition of Special

Income Gross Income inclusions

Less:
Exempt
Income

Equals
Income

Permissible
Less: deductions
Deductions (except
donations)

Plus
Taxable capital
gains

Less:
Donation to
PBO's

Taxable
Income

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2.2.1 Gross income definition & special inclusions

For your benefit find a copy of the definition from the Income Tax Act

Section 1 of Income Tax – defines a concept, unless a specific section states otherwise

“gross income”, in relation to any year or period of assessment, means—

(i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such
resident; or

(ii) in the case of any person other than a resident, the total amount, in cash or otherwise, received by or accrued to
or in favour of such person from a source within the Republic,

during such year or period of assessment, excluding receipts or accruals of a capital nature, but including, without
in any way limiting the scope of this definition, such amounts (whether of a capital nature or not) so received or
accrued as are described hereunder, namely—

(a) any amount received or accrued by way of annuity, including any amount contemplated in the definition of “living
annuity” or the definition of “annuity amount” in section 10A (1), other than an amount contemplated in paragraph
(d) (ii);

(b) any amount payable to the taxpayer—

(i) by the spouse or former spouse of that taxpayer, under any judicial order or written agreement of separation
or under any order of divorce, by way of alimony or allowance or maintenance of the taxpayer; or
(ii) in terms of any maintenance order for the maintenance of a child as contemplated in section 15 (1) of the
Maintenance Act, 1998 (Act No. 99 of 1998);

(c) any amount, including any voluntary award, received or accrued in respect of services rendered or to be rendered
or any amount (other than an amount referred to in section 8 (1)) received or accrued in respect of any employment
or the holding of any office: Provided that—
(i) the provisions of this paragraph shall not apply in respect of any benefit or advantage in respect of which
the provisions of paragraph (i) apply;
(ii) any amount received by or accrued to or for the benefit of any person in respect of services rendered or to
be rendered by any other person shall for the purposes of this definition be deemed to have been received
by or to have accrued to the said other person;

(cB) any amount received by or accrued to any natural person as consideration for any restraint of trade imposed on
that person in respect or by virtue of—
(i) employment or the holding of any office; or
(ii) any past or future employment or the holding of an office;

(d) any amount (other than an amount contemplated in paragraph (a)), including any voluntary award, received or
accrued—
(i) in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of any office or
employment or of any appointment (or right or claim to be appointed) to any office or employment;
Provided that—
(aa) the provisions shall not apply to any lump sum award from any pension fund, pension preservation fund,
provident fund, provident preservation fund or retirement annuity fund;
(bb) any such amount which becomes payable in consequence of or following upon the death of any person shall
be deemed to be an amount which accrued to such person immediately prior to his or her death;

(e) a retirement fund lump sum benefit or retirement fund lump sum withdrawal benefit other than any amount included
under paragraph (eA);

(f) any amount received or accrued in commutation of amounts due under any contract of employment or service;

(g) any amount received or accrued from another person, as a premium or consideration in the nature of a premium—
(i) for the use or occupation or the right of use or occupation of land or buildings; or
(ii) for the use or the right of use of plant or machinery; or
(ii)bis for the use or the right of use of any motion picture film or any film or video tape or disc for use in connection
with television or any sound recording or advertising matter connected with such motion picture film, film or
video tape or disc; or
(iii) for the use or right of use of any patent as defined in the Patents Act or any design as defined in the Designs
Act or any trade mark as defined in the Trade Marks Act or any copyright as defined in the Copyright Act or
any model, pattern, plan, formula or process or any other property or right of a similar nature;
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(gA) any amount received or accrued from another person as consideration for the imparting of or the undertaking to
impart any scientific, technical, industrial or commercial knowledge or information, or for the rendering of or the
undertaking to render any assistance or service in connection with the application or utilization of such knowledge
or information;

(h) in the case of any person to whom, in terms of any agreement relating to the grant to any other person of the right
of use or occupation of land or buildings, or by virtue of the cession of any rights under any such agreement, there
has accrued in any such year or period the right to have improvements effected on the land or to the buildings by
any other person—

(i) the amount stipulated in the agreement as the value of the improvements or as the amount to be expended
on the improvements; or
(ii) if no amount is so stipulated, an amount representing the fair and reasonable value of the improvements;

(i) the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of
assessment of any benefit or advantage granted in respect of employment or to the holder of any office, being a
taxable benefit as defined in the said Schedule, and any amount required to be included in the taxpayer’s income
under section 8A;

(jA) any amount received by or accrued to any person during the year of assessment in respect of the disposal of any
asset manufactured, produced, constructed or assembled by that person, which is similar to any other asset
manufactured, produced, constructed or assembled by that person for purposes of manufacture, sale or exchange
by that person or on that person’s behalf;

(k) any amount received or accrued by way of a dividend or a foreign dividend;

(l) any amount received or accrued by way of grant or subsidy in respect of any soil erosion works referred to in section
17A (1) or any of the matters mentioned in items (a) to (i), inclusive, of paragraph 12 (1) of the First Schedule;

(m) any amount received or accrued in respect of a policy of insurance of which the taxpayer is the policyholder, where
the policy relates to the death, disablement or severe illness of an employee or director (or former employee or
director) of the taxpayer, including by way of any loan or advance: Provided that any amount so received or accrued
shall be reduced by the amount of any such loan or advance which is or has been included in the taxpayer’s gross
income;

(n) any amount which in terms of any other provision of this Act is specifically required to be included in the taxpayer’s
income and that amount must—
(i) for the purposes of this paragraph be deemed to have been received by or to have accrued to the taxpayer;
and
(ii) in the case of any amount required to be included in the taxpayer’s income in terms of section 8 (4), be
deemed to have been received or accrued from a source within the Republic notwithstanding that such
amounts may have been recovered or recouped outside the Republic:

Provided that where during any year of assessment a person has become entitled to any amount which is payable on a
Proviso date or dates falling after the last day of such year, that amount shall be deemed to have accrued to the person during
such year;

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2.3 Resources

A REMINDER: the slides are NOT sufficient to pass the module. They are an aide to guide
you through the work. The following paragraphs in your text books should be studied
together with the slides.

Notes on South African Income Tax – Chapter 3

Topic Study Leave out
3.1 – 3.7 3.8,
Special inclusions in gross
3.9 – 3.12 3.13
income – various topics
3.14 & 3.15 3.16 – 3.19
Recoupments and other
3.20.1 (only) 3.20.2 – 3.20.4
inclusions
Notes on South African Income Tax – Chapter 4
Topic Study Leave out
Exempt income 4.1 – 4.5 In 4.2:
 10(1)(bA)
 10(1)(bB)
 S50D

4.3.3 & 4.3.6

4.4.4
4.4.6
4.4.9
4.5.1 [TAX3B]
4.5.2
4.5.4
4.6 Rest of 4.6.1
4.6.1 Only the first part
of 4.6.1 (up to
before “REITS”)
4.6.2 How to calculate
 S10B(1) the 10% interest
 S10B(2) only first (b) – (e)
bullet point
 S10B(3) VVNB 10B(5)
10B(6)
4.7 (VVNB for TAX3B) 4.8 & 4.9 TAX3B
4.10 4.11
4.12 & 4.13 4.14
4.15 4.16
4.17 – 4.18 4.19 – 4.22

PLEASE NOTE: You may ignore any reference to headquarter companies and non-
exempt dividends

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Also:

Tax Workbook – Chapter 3

Topic Study Leave out
Special inclusions Take note of the opening
paragraph under the
introduction paragraph
and note the exception to
the definition of gross
income studied during
week 2.
Attempt the following
examples:
 3.1 (para a)
 3.2 (para gA)
 3.3 (para b)
 3.4 (para c & cA)
 3.5 (para f, e & d)
 3.6 (para g)
 3.7 (ignore
Tshixwadza & Sons
Ltd only do Kobus
Krombek & Izaak Ibis
- para k & c)

Tax Workbook – Chapter 4

Topic Study Leave out
Exempt Income Take note of the opening
paragraph under the
introduction paragraph
and note the reference to
amounts included in GI
that are exempt from tax.
Attempt the following
examples:
 4.1 (relocation cost)
 4.2 (services
rendered outside of
SA)
 4.3 (shipping crew)
 4.4 (various)
 4.5 (uniform &
foreign pension)

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3. THE LECTURE

Listen to the recordings of the lectures making notes while you follow

4. CLASS EXAMPLES

4.1 Class Example 1

Ralph Peters, aged 25, is a South African resident. He lives in Randburg, Gauteng.

On 1 March 2021, Ralph started working at his parents’ company, Chilli and Pepper
(Pty) Ltd. His salary is R12 500 per month. He is currently the debtors’ clerk at Chilli
and Pepper and a market-related salary is R8 500 for a similar position.

Ralph also works as a promotional salesperson on Saturdays for a sports clothes

manufacturer. He is allocated a different mall within Gauteng every Saturday. He
receives R600 in fees for every Saturday he works. For the 2022 year of assessment,
he had the full amount of his fees of R28 800 (he worked 48 of the 52 Saturdays
during that year of assessment) deposited into the bank account of his brother, who
is still a student and needs the additional cash more than Ralph does.

YOU ARE REQUIRED TO discuss what amount, if any, will be included in the gross
income of Ralph Peters in respect of the above transactions for the year of
assessment ended 28 February 2022.
Source: Questions on SA Tax

Solution:

1. Salary from Chilli and Pepper

The salary that Ralph receives from Chilli and Pepper (Pty)
Ltd will be included in his gross income in terms of
paragraph (c) of the gross income definition, as it is an
amount received for services rendered.
The fact that the company is paying Ralph more than the
market related amount is irrelevant.
Therefore R150 000 (R12 500 x 12) will be included in
Ralph's gross income for the 2022 year of assessment.

Promotions salary
Whether Ralph divests himself of the amount from the
sports manufacturer is irrelevant as the amount would be
taxed in his hands in terms of paragraph (c) of the gross
income definition, as it is an amount received for services
rendered by Ralph.
In terms of paragraph c(ii), "any amount received by any
person for the services rendered by any other person shall
be deemed to have accrued or received by the said other
person".
The R28 800 will be included in Ralph's gross income and
not his brother's for the 2022 year of assessment.

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4.2 Class Example 2

A manufacturer, Alfa Ltd, uses one vehicle manufactured by it (at a cost price of
R250 000 in the 2021 year of assessment) in its business operation as a
demonstration model, and gave the right of use of another similar vehicle to an
employee as a fringe benefit (in the 2021 year of assessment). Alfa ltd disposes of
both the vehicles during the 2022 year of assessment for an amount of R280 000 per
vehicle.

YOU ARE REQUIRED TO discuss the tax consequences of the above.

Source: Silke: South African Income Tax

Solution:
 The assets will be included in closing stock at the end of the 2021 year
assessment and in opening stock at the beginning of the 2022 year of
assessment at the cost price of R280 000 each.
 The full proceeds from the disposals (R280 000 each) are included in gross
income in the 2022 year of assessment in terms of par (jA) [similar to when
trading stock is sold], even though the vehicles were uses as capital assets.
 No wear-and-tear allowances are claimed on these vehicles in the 2021 year
of assessment and no capital gains are calculated on the disposal of the
vehicles in the 2022 year of assessment.
 No recoupment is included in terms of s8(4)(a) in the 2022 year of assessment.

There is one more point of discussion, but we will only cover this later in the
semester when we do trading stock – lecture 10 of the first semester
 No inclusion takes place under s22(8) in the 2021 year of assessment – we
will deal with this during lecture 10.

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4.3 Class Example 3

In the bank account of Vanity (Pty) Ltd, a South African resident company with a December
year-end, you found a deposit of R42 000 on 30 June 2021. Upon enquiry you are informed
that the amount represents dividends received from Wordle (Pty) Ltd, a company listed on
the JSE.

YOU ARE REQUIRED TO advise the accountant what amount needs to be included in their
gross income for the year of assessment ended on 31 December 2021

Solution

According to paragraph (k) of the gross income definition, an investor needs to include
dividends earned in their gross income despite the fact that local dividends are fully exempt
from income tax.

Any company that declares a dividend is obliged to withhold dividend tax of 20% and pay
the two amounts as follows:
 The 20% is dividends tax is paid to the Receiver of Revenue on behalf of the
investor.
 The rest (i.e. 80% of the dividend declared) is paid to the investor.
 The investor needs to include the amount of dividends declared in their gross
income
 This means that Wordle (Pty) Ltd will have to include an amount of R52 500
[42 000 / 80% or 42 000 / 0.8] in their gross income.
Just a heads-up… the required here only dealt with gross income, but if
“income” was required, you would also have dealt with the fact that the
dividends are exempt and then your answer would also have extended as
follows:
 They will also include the same amount (R52 500) in their exempt income

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4.4 Class Example 4

Hat-trick (Pty) Ltd is a South African resident company. Its financial year-end is on 30 June.
During the year of assessment ending on 30 June 2022, Hat-trick earned the equivalent of
R63 500 in foreign dividends. It does not own more than 10% of the issued shares in any
one company (from whom it earned these foreign dividends).

YOU ARE REQUIRED TO demonstrate how the above would be reflected in the calculation
of the taxable income of Hat-trick

Solution:

Gross income
XXXXX XXX XXXX
XXXX XXX XXXX
XXX XXX XXX
Foreign dividends 63 500

LESS: Exempt Income

Xxx xxx xxx
Foreign dividends [63 500 x 8/28] (18 143)
Less: Deductions
xXXX XXX XXX
XXX XXX XXX
XXX XXX XXX j

Taxable income 45 357

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4.5 Class Example 5

Mrs Apple, a South African resident aged 69, has provided you with the following information
for the year of assessment ending 28 February 2022:

 South African dividends (amount paid into her bank account) 40 000
 South African interest 60 000
 Foreign dividends (she owns less than 10% of the issued shares) 1 000
 Interest earned from a bank in United States 200

YOU ARE REQUIRED TO calculate the ‘income’ of Mrs Apple’s for the year of assessment
ending 28 February 2022.

Solution

Gross income
South African dividends [40 000 / 80%] 50 000
South African interest 60 000
Foreign dividends 1 000
Foreign interest 200

LESS: Exempt Income

South African dividends [fully exempt… i.e. same amount as included in GI] (50 000)
Foreign dividends [1 000 x 25/45] (556)
South African interest [over 65 – first 34 500 of interest earned] (34 500) j

Income 26 144

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4.5 Class Example 5 – (variation SA interest)

Mrs Apple, a South African resident aged 69, has provided you with the following information
for the year of assessment ending 28 February 2022:

 South African dividends (amount paid into her bank account) 40 000
 South African interest 22 000
 Foreign dividends (she owns less than 10% of the issued shares) 1 000
 Interest earned from a bank in United States 200

YOU ARE REQUIRED TO calculate the ‘income’ of Mrs Apple’s for the year of assessment
ending 28 February 2022.

Solution

Gross income
South African dividends [40 000 / 80%] 50 000
South African interest 22 000
Foreign dividends 1 000
Foreign interest 200

LESS: Exempt Income

South African dividends [fully exempt… i.e. same amount as included in GI] (50 000)
Foreign dividends [1 000 x 25/45] (556)
South African interest [over 65 – first 34 500 of interest earned ltd to actual] (22 000) j

Income 644

NB reminder – any exemption is limited to the amount actually

received… i.e. you cannot create a ‘loss’ by applying the
exemption.

Mrs Apple is over 65 so she is entitled to a R34 500 exemption

on local interest, BUT, she only earned R22 000 so the entire
amount is exempt.

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5. TUTORIAL

5.1 Question 1

Abby Smith, aged 22, is currently in her final year of studies towards a business science degree at
the University of Cape Town (“UCT”). She is considering either working for a company in
Johannesburg or emigrating to London on 1 March 2021. Whether or not Abbey emigrates, she will
consult to companies in South Africa. However, she will not have a permanent establishment in
South Africa if she emigrates.
For the 2022 year of assessment, Abbey will earn the following income:

 Dividends received from a company in Ireland of R7 500

 Interest received of R2 400 from a Swiss bank
 Gross income from her consulting work will amount to R400 000, and the related revenue
expenditure will be R120 000.
 South African interest received of R23 000
 Abbey purchased an annuity in South Africa on 1 March 2021 for R80 000, in terms of which
she is paid R1 000 per month for eight years from the start date.
 Abbey designed a patent while skiing in Aspen, USA. She will earn royalties relating to the
use of the patent in SA of R50 000 per annum. She received the royalty on 15 January 2022.

YOU ARE REQUIRED TO:

1. Calculate Abbey’s taxable income if she is a resident as defined for the whole of her 2022
year of assessment.
2. Calculate Abbey’s SA gross income if she is not a resident as defined for any part of the
2022 year of assessment.

Question adapted from Questions on SA Tax 23rd Edition 2022

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5.2 Question 2

PART A
Mr Boyes, and SA resident, purchased an annuity of R150 00 per annum payable monthly from
AB Insurance Ltd on 1 October 2020 for R90 000. The annuity is payable for ten years, commencing
on 31 October 2020. On 1 June 2021, he commuted the annuity for a lump sum of R80 000.
YOU ARE REQUIRED TO:
Calculate the total taxable portion of the purchased annuity that will be included in taxable income
for the year of assessment ended 28 February 2022.

PART B
Mrs Tandi, a South African resident, aged 56 was employed as a machinist in a textile
factory. On 1 January 2022, a machine that she was working on caught fire and exploded.
Mrs Tandi, was killed in the incident.

As a result of these events, the following accrued to the dependents of Mrs Tandi on
1 January 2022:
 Compensation of R400 000 in terms of the Workmen’s Compensation Act.
 A gratuitous award of R350 000 from Mrs Tandi’s employer.

It was customary for the employer to pay such a lump sum, as there was no pension fund
in place.

Mrs. Tandi had earned a salary of R10 000 per month until her death

YOU ARE REQUIRED TO:

Calculate Mrs Tandi’s taxable income up to her date of death for the year of assessment
ended 28 February 2022.

Question adapted from Questions on SA Tax 23rd Edition 2022

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6. WEDNESDAY QUESTION

Attached please find the question that will be discussed during Wednesday’s face-to-face
session. You will gain the most benefit out of the session by attempting the question below
and then marking it while the solution is being discussed during the face-to-face session.

Reminder – the solutions to Wednesday questions are NOT uploaded to Blackboard

afterwards.

6.1 Question 1

(this question was used in the first semester test in 2019 [AO1])
Repair-It (Pty) Ltd (hereafter referred to as “Repair-It”) is a South African resident
company that is wholly owned by Takalani Maluleke. Repair It is a registered VAT
(Value- Added Tax) vendor that accounts for VAT on the invoice basis.
Takalani Maluleke acquired the business on 30 April 2021 from an elderly man who
was retiring. Repair-It performs repairs and maintenance for complexes in and around
the Melville area. Its 2022 financial year just ended on 31 January 2022.

All amounts provided include VAT, where applicable, unless stated otherwise.
Where applicable, all transactions were entered into with other VAT vendors.

The following financial information relates to the 2022 year of assessment of Repair-It:

Details R

1. Fees earned from repairs and m. aintenance 1 207 500

2. Dividends received from a JSE (Johannesburg Stock Exchange) 50 000

listed company.

3. Dividends (Rand equivalent) earned from a company in England. 96 000

Repair- It owns 5% of the equity shares in that company.

4. Interest earned from cash investments in South African banks. 40 000

YOU ARE REQUIRED TO calculate the income of Repair-It (Pty) Ltd for its 2022 year of
assessment.
Where amounts should not be taken into account in your calculation of income,
provide brief reasons.
Provide either a calculation or a brief reason detailing the VAT treatment of each
transaction (where applicable).

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Lecture guide Unit 3 – Special inclusions and Exempt income TAX03B3/BEL3A01
ADIA002/S3PACQ3

6.2 Question 2

Lieutenant Limpit, aged 63, retired from Armscash Limited on 31 August 2021.
He received the following income:
Dividends from an SA company R2 200
Interest R1 500

Prior to retirement Lieutenant Limpit had earned a salary of R12 000 a month. Subsequent
to retirement a pension of R7 200 a month.

He was awarded a disability pension of R500 a month throughout the 2022 year of
assessment as a result of the loss of his left foot when a mine accidentally exploded at
Armscash Limited (awarded by the Workmen’s Compensation Commissioner)

He also receives a war pension of R400 a month.

On 1 November 2021, finding retirement boring, he obtained a part-time consulting position.

He earned a fee of R5 000 a month.

On 31 December 2021 he was dismissed from this position.

He was awarded Unemployment Insurance Fund benefits of R600 a month for January and
February.

The only other amount received was interest on his bank savings account of R11 500.

YOU ARE REQUIRED TO calculate Lieutenant Limpit’s income for the year of assessment
ending 28 February 2022.

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Lecture guide Unit 3 – Special inclusions and Exempt income TAX03B3/BEL3A01
ADIA002/S3PACQ3

6.3 Question

AS PER UNIT 2 – You do not have to do the following question (yet) – it is merely a
demonstration of what a question could look like that tests the taxable income of an
individual. This question is more relevant for the second semester – we will use this question
again in the future after you have added more building blocks to the calculation of the
taxation of a person
Jack Spratt is 52 years old and married out of community of property to Mary Spratt,
50 years old. They have no dependants. Jack is the Head of Advertising at Creative
People (Pty) Ltd and travels regularly between Cape Town and Johannesburg as part
of his duties. His remuneration package and benefits for the 2022 year of assessment
were as follows:
Basic salary (note 1) 2 200 000
Bonus (annual) 575 000
Medical scheme Contributions (note 2) 62 400
Provident fund contributions (note 3) 165 000
Travelling allowance (note 4) 250 000
Subsistence allowance (note 5) 25 000

Jack also earned the following additional income during the 2022 year of
assessment:

 Interest – local bank 61 200

 Dividends – local 21 600
 Foreign dividends 85 400
 Annuity income (note 6) 30 000

NOTES:

1. Jack’s pension fund contributions are calculated on his basic salary of R2

200 000. In terms of the rules of the pension fund, Jack is required to contribute
8.5% of his basic salary to the pension fund.

2. Creative People (Pty) Ltd makes a 100% contribution towards the medical aid
scheme on behalf of all its employees. The monthly contribution for both Jack
and Mary amounts to R5 200. In addition, Jack also incurred medical expenses
for the year amounting to R21 270 and these expenses were not covered by
the medical aid scheme.
3. Creative People (Pty) Ltd also paid an annual amount of R165 000 on Jack’s
behalf to a provident fund.
4. Jack uses his own vehicle for business purposes. He keeps an accurate
account of his travel in a logbook. According to the logbook he travelled a total
of 39 600 kilometres for the current year of assessment. He can prove that
22 800 of the total kilometres were for business purposes. The motor vehicle
had originally cost Jack R615 000 (including VAT).
5. Jack receives a subsistence allowance provided he can prove these costs with
valid documentation. Jack can prove that he spent R15 000 for the year of
assessment, he returned an amount of R3 000 back to Creative People (Pty)
Ltd.
Page 21 of 22
6. Jack purchased a 25-year annuity the day after his 50th Birthday, he
paid R200 000 for the annuity and receives an annual income of
R30 000.

During the course of the year Jack donated an amount of R500 000 to the
SPCA (a registered public benefit organisation) and he has received a valid
section 18A certificate.

Furthermore, he disposed some of his assets and made a taxable capital

gain of R53 400 during the year.

Lastly, he informed you that he is uncertain whether he needs to register as

a provisional taxpayer.

YOU ARE REQUIRED TO

6.1.1 Calculate the income tax due to the South African Revenue Services
for the year of assessment ending 28 February 2022. If there are any
items of incomethat are exempt, please reflect same and provide
reasons for such exemption. (40)

6.1.2 Explain (with reasons) to Jack if he needs to register as a provisional

taxpayer or not. (3)

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