ch3 gross income
Saturday, 24 February 2024 15:11
outcomes of this chapter:
- demonstrate an in-depth knowledge of each requirement of the definition of 'gross income'
- determine whether a natural person or a person other than a natural person is a resident for income tax purposes
- apply the principles of relevant case law in order to illustrate the meaning of the terms used in the definition of 'gross income'
- demonstrate an in-depth knowledge of the criteria to be applied in order to distinguish between capital & (revenue) income for
purposes of the definition of 'gross income'
[see table 2.2. framework for calc taxable income & normal tax payable for natural person - SILKE p.23-24]
3.1. overview: definition of 'gross income' [SILKE p.26]
gross income xxx
less: exempt income (xxx)
income xxx
less: deductions & allowances (xxx)
taxable income xxx
- but, the starting point for calc a person's taxable income, is to determine the person's 'gross income'
○ 'gross income', in relation to any year of assessment, means-
i. in the case of any resident, the total amount, in cash or otherwise, received by 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, excl. receipts or accruals of a capital nature…
- all requirements must be complied with for an amount to qualify as a gross income:
a. in the case of a resident residence based tax system worldwide income
• there must be an amount, in cash or otherwise
• that is received by, or accrued to, or in favour of such resident
• during a year, or period of assessment
• excl. receipts or accruals that are of capital nature.
b. in the case of a non-resident source-based tax system south africa sourced income
• there must be an amount, in cash or otherwise
• that is received by, or accrued to, or in favour of such non-resident
• during a year, or period of assessment
• from a source withing south africa
• excl. receipts, or accruals that are of a capital nature.
3.2. resident & non-resident [SILKE p.27]
the concept of 'residence' is fundamental to the residence-based system of taxation. the definition of a 'resident' distinguishes between
natural persons & persons other than natural persons [see SAICA p.27]
○ 'resident' means any -
(a) natural person who is -
(i) ordinarily resident in the republic; or
(ii) not at any time during the relevant year of assessment ordinarily resident in the republic, if that person was
physically present in the republic
3.2.1. residence of natural persons of the definition of 'resident' [SILKE p.27]
Cohen v CIR [see SILKE p.27]
○ to determine if the taxpayer ordinarily resided in south africa at the time, the court established 3 important principles:
1. a person's ordinary residence would be the country to which he would naturally return from travelling - real home
2. one should not only consider the person's actions during the yoa to determine whether he is ordinarily resident in a
particular country - the person's mode of life outside yoa should also be taken into consideration
3. physical absence during the full yoa is not decisive - a person could be absent from a country for the entire year & still
qualify as ordinarily resident in that country
CIR v Kuttel [see SILKE p.27]
ch3 Page 1
, CIR v Kuttel [see SILKE p.27]
○ what happens when a taxpayer [resident] emigrates from south africa?
○ what happens when a taxpayer [non-resident] immigrates to south africa?
○ the following factors, although not exhaustive, will be considered as a guideline:
▫ an intention to be ordinarily resident in south africa
▫ most fixed & settled place of residence
▫ place of business & personal interests of the person & his family family & social relations
▫ employment & economic factors
▫ frequency of, & reasons for visits
physical presence
a natural person who is not, at any time during the relevant yoa, an 'ordinarily resident' will be a resident if he is
physically present in south africa for certain periods :. physical presence test
the test only applies to a person who is not an ordinarily resident of south africa at any time during the yoa but is
physically present in south africa for…
▪ exceeding 91 days in aggregate during the current yoa &
▪ exceeding 91 days in aggregate during each of the 5 yoa preceding the current yoa &
▪ exceeding 915 days in aggregate during the 5 yoa preceding the current yoa
the following rules apply to the physical presence test:
a. for purposes of determining the # of days during which a person is physically present in south africa a part
of a day is incl. as a day
b. a day spent in transit through south africa is not incl. as a day, provided that the person does not formally enter
south africa through a port of entry
c. the more than 91 days & more than 915 days' periods of physical presence in south africa don't need to be
continuous if a person is present for several periods which in aggregate exceed 91 or 915 days, the
requirement will be met
3.2.2. residence of persons other than natural persons [SILKE p.32]
○ a person other than a natural person (e.g., company, close corporation or trust) is defined as being a 'resident' if it
• is incorporated, established or formed in south africa; or
• has its place of effective management in south africa
○ where a company is incorporated, established or formed?
• a company that is formed & incorporated in south africa is clearly a resident bc of its own formation & incorporation in
south africa, irrespective of where it is managed or where it carries out its business
• result of being a resident - company is liable for tax in south africa on its worldwide receipts
○ where a company is effectively managed?
• the act does not define 'place of effective management'
○ residence of estates, trusts, clubs & associations
• estates, trusts & other entities are resident in south africa if they are incorporated, established or formed or have their
place of effective management in south africa
3.3. amount in cash or otherwise [SILKE p.38]
ch3 Page 2
Saturday, 24 February 2024 15:11
outcomes of this chapter:
- demonstrate an in-depth knowledge of each requirement of the definition of 'gross income'
- determine whether a natural person or a person other than a natural person is a resident for income tax purposes
- apply the principles of relevant case law in order to illustrate the meaning of the terms used in the definition of 'gross income'
- demonstrate an in-depth knowledge of the criteria to be applied in order to distinguish between capital & (revenue) income for
purposes of the definition of 'gross income'
[see table 2.2. framework for calc taxable income & normal tax payable for natural person - SILKE p.23-24]
3.1. overview: definition of 'gross income' [SILKE p.26]
gross income xxx
less: exempt income (xxx)
income xxx
less: deductions & allowances (xxx)
taxable income xxx
- but, the starting point for calc a person's taxable income, is to determine the person's 'gross income'
○ 'gross income', in relation to any year of assessment, means-
i. in the case of any resident, the total amount, in cash or otherwise, received by 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, excl. receipts or accruals of a capital nature…
- all requirements must be complied with for an amount to qualify as a gross income:
a. in the case of a resident residence based tax system worldwide income
• there must be an amount, in cash or otherwise
• that is received by, or accrued to, or in favour of such resident
• during a year, or period of assessment
• excl. receipts or accruals that are of capital nature.
b. in the case of a non-resident source-based tax system south africa sourced income
• there must be an amount, in cash or otherwise
• that is received by, or accrued to, or in favour of such non-resident
• during a year, or period of assessment
• from a source withing south africa
• excl. receipts, or accruals that are of a capital nature.
3.2. resident & non-resident [SILKE p.27]
the concept of 'residence' is fundamental to the residence-based system of taxation. the definition of a 'resident' distinguishes between
natural persons & persons other than natural persons [see SAICA p.27]
○ 'resident' means any -
(a) natural person who is -
(i) ordinarily resident in the republic; or
(ii) not at any time during the relevant year of assessment ordinarily resident in the republic, if that person was
physically present in the republic
3.2.1. residence of natural persons of the definition of 'resident' [SILKE p.27]
Cohen v CIR [see SILKE p.27]
○ to determine if the taxpayer ordinarily resided in south africa at the time, the court established 3 important principles:
1. a person's ordinary residence would be the country to which he would naturally return from travelling - real home
2. one should not only consider the person's actions during the yoa to determine whether he is ordinarily resident in a
particular country - the person's mode of life outside yoa should also be taken into consideration
3. physical absence during the full yoa is not decisive - a person could be absent from a country for the entire year & still
qualify as ordinarily resident in that country
CIR v Kuttel [see SILKE p.27]
ch3 Page 1
, CIR v Kuttel [see SILKE p.27]
○ what happens when a taxpayer [resident] emigrates from south africa?
○ what happens when a taxpayer [non-resident] immigrates to south africa?
○ the following factors, although not exhaustive, will be considered as a guideline:
▫ an intention to be ordinarily resident in south africa
▫ most fixed & settled place of residence
▫ place of business & personal interests of the person & his family family & social relations
▫ employment & economic factors
▫ frequency of, & reasons for visits
physical presence
a natural person who is not, at any time during the relevant yoa, an 'ordinarily resident' will be a resident if he is
physically present in south africa for certain periods :. physical presence test
the test only applies to a person who is not an ordinarily resident of south africa at any time during the yoa but is
physically present in south africa for…
▪ exceeding 91 days in aggregate during the current yoa &
▪ exceeding 91 days in aggregate during each of the 5 yoa preceding the current yoa &
▪ exceeding 915 days in aggregate during the 5 yoa preceding the current yoa
the following rules apply to the physical presence test:
a. for purposes of determining the # of days during which a person is physically present in south africa a part
of a day is incl. as a day
b. a day spent in transit through south africa is not incl. as a day, provided that the person does not formally enter
south africa through a port of entry
c. the more than 91 days & more than 915 days' periods of physical presence in south africa don't need to be
continuous if a person is present for several periods which in aggregate exceed 91 or 915 days, the
requirement will be met
3.2.2. residence of persons other than natural persons [SILKE p.32]
○ a person other than a natural person (e.g., company, close corporation or trust) is defined as being a 'resident' if it
• is incorporated, established or formed in south africa; or
• has its place of effective management in south africa
○ where a company is incorporated, established or formed?
• a company that is formed & incorporated in south africa is clearly a resident bc of its own formation & incorporation in
south africa, irrespective of where it is managed or where it carries out its business
• result of being a resident - company is liable for tax in south africa on its worldwide receipts
○ where a company is effectively managed?
• the act does not define 'place of effective management'
○ residence of estates, trusts, clubs & associations
• estates, trusts & other entities are resident in south africa if they are incorporated, established or formed or have their
place of effective management in south africa
3.3. amount in cash or otherwise [SILKE p.38]
ch3 Page 2
