1
LEARNING OUTCOMES
After studying LU 4, you should be able to achieve the following outcomes:
- Illustrate the interpretation of tax legislation by calculating a taxpayer’s ‘income’.
- Demonstrate an in-depth knowledge of the gross income definition and the application thereof
through case law principles by analysing a practical scenario to identify an amount as being gross
income or capital in nature.
- Identify and explain whether an amount should specifically be included in ‘gross income’.
- Evaluate whether a natural person meets the requirements of a resident for income tax purposes.
- Identify which amounts are exempt from normal tax and understand the impact thereof on income.
Apply your knowledge in practical case studies (to calculate and discuss) to improve your critical thinking.
, 2
STUDY PROGRAMME AND TIME FRAME
A total of 6 hours 25 minutes of your study time is allocated to LU 4.
Your time should be divided between two aspects:
• Obtaining the required knowledge
This entails working through this learning unit and the textbooks (SAICA Student
Handbook and SILKE), underlining, making summaries and familiarising yourself with
the determination of income.
• Application of knowledge
This entails the completion of the examples and activities included in this learning unit.
After completion of your studies of LU’s 4 to 6 you will have the opportunity to test your
knowledge by completing some questions which will comprise of integrated activities
covering the three LU’s in Topic 2, but it will also incorporate some of the sections
covered during your studies of Topic 1 last week. These integrated activities will be
included at the end of LU 6.
The following time allocation is recommended:
Determination of income (gross income less exempt income) Minutes
Outcomes and assessment criteria 5
4.1 Background 5
4.2 Beancounter scenario 5
4.3 Content of learning unit 4 215
4.4 Important law amendments 10
4.5 Additional notes (including Activity 4.1 – 20 minutes) 45
4.6 Outcomes of the Beancounter scenario – Discussion Forum 15
4.7 Integrated activities 4.2 and 4.3 85
Total 385
Note that there is a lot of work to master in the allocated time, however all the sections
covered in this LU, except for section 7E (Timing of interest payable by SARS to a taxpayer
– SILKE 3.4.8), have been covered in detail in your undergraduate studies. Since the
calculation of income is one of the cornerstones of the tax framework (see below) used to
calculate the taxation of a taxpayer, we allow some time in this LU to refresh your memory
and work through some notes and examples to assist in honing your critical thinking and
decision-making skills. If the time allowed is not enough, you will have to refresh your
memory regarding sections you already covered in your prior studies in your own time.
, 3
4.1 BACKGROUND
The topics covered in learning unit 4 fit into the tax framework as follows:
TAX FRAMEWORK
GROSS INCOME (s 1)
LESS: Exempt income (ss 10 and 10A to 10C, 12T)
= INCOME
LESS: Deductions and allowances (ss 11 – 24P, excluding s 20 and s 18A)
LESS: Assessed loss brought forward (s 20)
ADD: Amounts to be included in taxable income including TAXABLE CAPITAL GAINS
LESS: Deductions in terms of s 11
LESS: Qualifying donations (s 18A)
= TAXABLE INCOME
Use taxable income to calculate NORMAL TAX PAYABLE.
Learning unit 4 deals with income as defined in section 1 of the Income Tax Act, meaning gross income
(also special inclusions) less any applicable exemptions (exempt income). Based on your undergraduate
studies, you should have a good knowledge of gross income and exempt income. In this learning unit we
will concentrate on those areas that were not covered in your undergraduate studies and master the more
complex sections covered by this unit. When you plan your study time, also bear in mind that most of
these areas would have been covered in depth in your previous studies. While reviewing, concentrate on
recent amendments to the Income Tax Act, as these tend to receive more attention in the SAICA
examinations. Where the relevant section will be discussed in a later LU, we will indicate this, and we won’t
discuss the section in detail in this LU.
UNGC Principle 10
As you work through the tax legislation, you need to remember and apply ethical tax behaviour. In line with
the UNGC principles (introduced in LU 2), compliance with the laws and regulations is the basis on which
the taxation legislation is founded.
Thus, to not declare an amount as gross income if it falls within the definition, comes down to tax evasion,
which in turn would fall within the ambit of corruption. UNGC principle 10 (businesses should work against
corruption in all its forms, including extortion and bribery) encourages entities to find a balance between
the social obligation to pay taxes and tax planning, to minimise the ‘cost’ of these taxes for an entity within
the ambit of the law. This non-aggressive tax planning should always be done with integrity and whilst
demonstrating ethical behaviour from both the planner and the taxpayer.
4.2 BEANCOUNTER SCENARIO
Before you start studying the detailed provisions of the Income Tax Act, read the
following scenario relating to the Beancounter family or watch the video posted on
myUnisa. The scenario requires you to read through the information provided. As you
study the different income tax provisions, you should analyse areas of concern that
should be brought to the attention of the Beancounter family and the impact thereof
on their taxes due.
By now you know that Barry Beancounter (51 years old and married in community of property to Bizzie) is
the managing director of Clothing Manufacturers (Pty) Ltd. Upon the death of his mother during this year,
he inherited a share portfolio to the value of R1.8 million. His mother did not like Bizzie much and stipulated
that the portfolio should be excluded from the joint estate. The portfolio consists of shares in blue chip
LEARNING OUTCOMES
After studying LU 4, you should be able to achieve the following outcomes:
- Illustrate the interpretation of tax legislation by calculating a taxpayer’s ‘income’.
- Demonstrate an in-depth knowledge of the gross income definition and the application thereof
through case law principles by analysing a practical scenario to identify an amount as being gross
income or capital in nature.
- Identify and explain whether an amount should specifically be included in ‘gross income’.
- Evaluate whether a natural person meets the requirements of a resident for income tax purposes.
- Identify which amounts are exempt from normal tax and understand the impact thereof on income.
Apply your knowledge in practical case studies (to calculate and discuss) to improve your critical thinking.
, 2
STUDY PROGRAMME AND TIME FRAME
A total of 6 hours 25 minutes of your study time is allocated to LU 4.
Your time should be divided between two aspects:
• Obtaining the required knowledge
This entails working through this learning unit and the textbooks (SAICA Student
Handbook and SILKE), underlining, making summaries and familiarising yourself with
the determination of income.
• Application of knowledge
This entails the completion of the examples and activities included in this learning unit.
After completion of your studies of LU’s 4 to 6 you will have the opportunity to test your
knowledge by completing some questions which will comprise of integrated activities
covering the three LU’s in Topic 2, but it will also incorporate some of the sections
covered during your studies of Topic 1 last week. These integrated activities will be
included at the end of LU 6.
The following time allocation is recommended:
Determination of income (gross income less exempt income) Minutes
Outcomes and assessment criteria 5
4.1 Background 5
4.2 Beancounter scenario 5
4.3 Content of learning unit 4 215
4.4 Important law amendments 10
4.5 Additional notes (including Activity 4.1 – 20 minutes) 45
4.6 Outcomes of the Beancounter scenario – Discussion Forum 15
4.7 Integrated activities 4.2 and 4.3 85
Total 385
Note that there is a lot of work to master in the allocated time, however all the sections
covered in this LU, except for section 7E (Timing of interest payable by SARS to a taxpayer
– SILKE 3.4.8), have been covered in detail in your undergraduate studies. Since the
calculation of income is one of the cornerstones of the tax framework (see below) used to
calculate the taxation of a taxpayer, we allow some time in this LU to refresh your memory
and work through some notes and examples to assist in honing your critical thinking and
decision-making skills. If the time allowed is not enough, you will have to refresh your
memory regarding sections you already covered in your prior studies in your own time.
, 3
4.1 BACKGROUND
The topics covered in learning unit 4 fit into the tax framework as follows:
TAX FRAMEWORK
GROSS INCOME (s 1)
LESS: Exempt income (ss 10 and 10A to 10C, 12T)
= INCOME
LESS: Deductions and allowances (ss 11 – 24P, excluding s 20 and s 18A)
LESS: Assessed loss brought forward (s 20)
ADD: Amounts to be included in taxable income including TAXABLE CAPITAL GAINS
LESS: Deductions in terms of s 11
LESS: Qualifying donations (s 18A)
= TAXABLE INCOME
Use taxable income to calculate NORMAL TAX PAYABLE.
Learning unit 4 deals with income as defined in section 1 of the Income Tax Act, meaning gross income
(also special inclusions) less any applicable exemptions (exempt income). Based on your undergraduate
studies, you should have a good knowledge of gross income and exempt income. In this learning unit we
will concentrate on those areas that were not covered in your undergraduate studies and master the more
complex sections covered by this unit. When you plan your study time, also bear in mind that most of
these areas would have been covered in depth in your previous studies. While reviewing, concentrate on
recent amendments to the Income Tax Act, as these tend to receive more attention in the SAICA
examinations. Where the relevant section will be discussed in a later LU, we will indicate this, and we won’t
discuss the section in detail in this LU.
UNGC Principle 10
As you work through the tax legislation, you need to remember and apply ethical tax behaviour. In line with
the UNGC principles (introduced in LU 2), compliance with the laws and regulations is the basis on which
the taxation legislation is founded.
Thus, to not declare an amount as gross income if it falls within the definition, comes down to tax evasion,
which in turn would fall within the ambit of corruption. UNGC principle 10 (businesses should work against
corruption in all its forms, including extortion and bribery) encourages entities to find a balance between
the social obligation to pay taxes and tax planning, to minimise the ‘cost’ of these taxes for an entity within
the ambit of the law. This non-aggressive tax planning should always be done with integrity and whilst
demonstrating ethical behaviour from both the planner and the taxpayer.
4.2 BEANCOUNTER SCENARIO
Before you start studying the detailed provisions of the Income Tax Act, read the
following scenario relating to the Beancounter family or watch the video posted on
myUnisa. The scenario requires you to read through the information provided. As you
study the different income tax provisions, you should analyse areas of concern that
should be brought to the attention of the Beancounter family and the impact thereof
on their taxes due.
By now you know that Barry Beancounter (51 years old and married in community of property to Bizzie) is
the managing director of Clothing Manufacturers (Pty) Ltd. Upon the death of his mother during this year,
he inherited a share portfolio to the value of R1.8 million. His mother did not like Bizzie much and stipulated
that the portfolio should be excluded from the joint estate. The portfolio consists of shares in blue chip
