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Special Inclusions - Module

The document outlines the special inclusions in gross income as per the Income Tax Act, detailing various types of income such as annuities, alimony, and lease premiums. It emphasizes the importance of understanding these inclusions for calculating taxable income and provides case law references for further context. Additionally, it explains the treatment of leasehold improvements and key-man insurance proceeds in relation to gross income.

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collemangundolf
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7 views

Special Inclusions - Module

The document outlines the special inclusions in gross income as per the Income Tax Act, detailing various types of income such as annuities, alimony, and lease premiums. It emphasizes the importance of understanding these inclusions for calculating taxable income and provides case law references for further context. Additionally, it explains the treatment of leasehold improvements and key-man insurance proceeds in relation to gross income.

Uploaded by

collemangundolf
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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UNIVERSITY OF SCIENCE AND TECHNOLOGY

TAXATION 300– 2021

SPECIAL INCLUSIONS
OUTLINE:

REFERENCES
Income Tax Act Haupt
TAX 200 – ASSUMED KNOWLEDGE
WHERE TO FIND INFO Chapter 3
1. Introduction 3.1

2. Definitions Section 1
 Gross income Sect 1 par (a) – (n)
Leave out subpar
j, l, lA
 Special inclusions
o Annuities (READ WITH S 10A) (Individuals) Par (a), s10A 3.2
3.2.1 , 3.2.2,
3.2.3
o Alimony (Individuals) Par (b) 3.3
o Services rendered (Individuals) Par (c),(f) 3.4
3.4.1, 3.4.2
3.4.3
o Restraint of trade Par (cA) 3.5
o Lump sum benefits (Individuals) Par (d) 3.6
o Pension, Provident, RAF benefits (Individuals) Par (e) 3.7
o Transfers from state pension (Individuals) Par (eA) 3.8
o Lease premiums Par (g) 3.9
o “Know how” payments Par (gA) 3.10
o Leasehold improvements Par (h) 3.11
3.11.1
3.11.2
o Fringe Benefits (Individuals) Par (i) 3.12
o Sale of assets similar to trading stock Par (jA) 3.14

1
o Dividends (Sem 1 & individuals) Par (k) 3.15
o Key-man insurance policies (2ND semester) Par (m) 3.19
o Recoupments and other inclusions Par (n) 3.20
3.20.1.
3.20.2
30.20.3

LEAVE OUT –
3.13, 3.16, 3.17, 3.18, 30.20.4
For FIRST semester - all references to individuals above only to be done in
in 2ND sem

OBJECTIVES:
You must be able to:
Discuss why certain amounts are included in gross income, even though they do not meet the definition
of gross income.
Calculate taxable income with reference to special inclusions

CASE LAW
KBI en ‘n Ander v Hogan - Annuities
Stevens v C:SARS 2006 - services rendered

BACKGROUND

Framework for computation of normal tax

GROSS income Section 1 XXX


Less
EXEMPT income Section 10 (XX)
INCOME XXX
Less
Allowable deductions Section 11 -19 & (XX)
23
Less
Allowable allowances Section 11 -19 & (XX)
23
Add
Taxable capital gains Section 26A XX
TAXABLE INCOME / XXX
(loss)

The starting point of any INCOME TAX calculation is Gross Income (hereafter “GI”). When a person does
not have GI such person will not pay tax, therefore the GI definition is central to the whole of the Act. Part
of the GI definition specifically includes certain receipts as part of GI, whether it may be capital in nature
or may fall outside the scope of the general definition.

2
NB  even though some of these inclusions may be capital in nature, the fact that it is specifically included in the
GI definition OVERRIDES their nature, and these amounts will be taxable.

1. Study the GI definition in section 1 and summarise the specific inclusions in par (a) – (n) of the GI definition.
Ensure that you will be able to recognise the specific inclusions and when to include it in Gross income, and at
what amount.

LEASE PREMIUMS par (g)

Premiums received for use/right of use of


 Land
 Buildings
 Plant & machinery
 Film, video, disc…
 Patent, design, trademark…

The assets must be used in the production of income, or income must be derived from them

Premiums refer to:


 Consideration
 Measured in money
 Passing from lessee to lessor
 Cash/otherwise
 Distinct or in addition to rent

The WHOLE amount will be included in GI, when it is received/accrued.

Read together with section 11(h)/ (f)


Think about VAT treatment

LEASEHOLD IMPROVEMENTS par (h)


Improvements to land or buildings done by the lessee, will be included in the lessor’s GI. The value will be
included in the year when the improvement accrues to the lessor.

For improvements to be included in GI, there must be an agreement obliging the lessee to effect these
improvements

Amount to be included:
 Amount stipulated in contract
 If no amount is stipulated, the fair value representing the improvements (usually the cost)

NB  when the contract stipulate an amount, and subsequently the lessee spends more than the stipulated
amount, the original amount stipulated will be included in the lessor’s GI – volunteering more than stipulated is
not embraced by par (h)

3
NB  when the agreement state a specified building (hotel or parking lot) with a minimum value, the reasonable
value of improvement will be included and not merely the stipulated minimum.

NB  It is SARS practice to only include the improvement value in the year in which the improvement was
completed, but the special inclusion according to the Act must be made in the tax year the improvement
accrues to the lessor. You must follow SARS practice.

Read together with section 11(h)

KEY-MAN INSURANCE PROCEEDS par (m)

Premiums paid on standard insurance policies will be deductible under section 11(w). Section 11(w) states that
the employER may deduct premiums payable on key-man insurance policies where the employER insures the life
of an employee – thus the employER must be the beneficiary of the policy

When the policy matures the beneficiary (employER) will receive proceeds and these proceeds will be included in
GI in terms of par (m) PROVIDED that the premiums were deducted in terms of section 11(w)

SECTION 8(4) RECOUPMENTS par(n)


Paragraph (n) includes in GI any amount specifically required by the Act to be included in GI.

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