Contents
Introduction ......................................................................................................................................... 0
Tax Administration ........................................................................................................................... 19
Gross Income: Introduction, residence and source ............................................................... 40
Gross Income: Amount................................................................................................................... 48
Gross Income: receipts or accruals ............................................................................................ 53
Gross Income: Capital and Revenue .......................................................................................... 60
Exempt Income ................................................................................................................................. 81
General Deduction Formula: Introduction and Expenditure and losses .......................... 85
General Deduction Formula: Actually incurred in yoa ........................................................... 88
General Deduction Formula: In the production of the income ............................................ 95
General Deduction Formula: Not of a capital nature ............................................................ 100
General Deduction Formula: Trade requirement ................................................................... 107
Prohibited Deductions and Special Deductions .................................................................... 112
Capital Gains Tax ........................................................................................................................... 119
Study material ............................................................................................................................. 119
Overview ....................................................................................................................................... 119
Introduction ................................................................................................................................. 120
Formula for calculating taxable capital gain ...................................................................... 121
Application of 8th schedule ...................................................................................................... 128
Building blocks ........................................................................................................................... 129
Asset.............................................................................................................................................. 129
Disposal ........................................................................................................................................ 130
Proceeds ...................................................................................................................................... 131
Base cost...................................................................................................................................... 132
Disposal by way of donation................................................................................................... 134
Exclusions ................................................................................................................................... 135
Roll-overs ..................................................................................................................................... 138
Other .............................................................................................................................................. 139
Introduction
Prescribed material
• Constitution: Sections 9, 14, 25, 33, 34, 36, 55, 73, 75, 77, 213, 228 and 229.
, • Tax Law: An Introduction 2nd ed by T Legwaila (chapter 1) (available below or click
here).
• Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA)
(paragraphs 18-19 only).
1.1 Introduction and definition – what is tax?
• How would you define a tax to someone? What is an ordinary meaning of a tax? How
would you define it?
o There is not one set definition
o Portion of a transaction paid to the government
o Debt owed to the state for an economic activity
o Is it voluntary?
o Do you get something in return for it?
• Tax is a discipline which is also studied in other faculties in this university
• Tax law module
o Tax at EMS (accounting and economics)
▪ Accounting – calculations associated with tax – results in some
amount being payable to the state
▪ There are legal rules that determine how you get to the amount – what
we focus on here
▪ Economics – policy point of view – decide whether it is a good idea to
increase the VAT rate – what would the effect be on households
o Sources (main)
▪ Legislation (including the constitution)
▪ Case law
o Interaction with many other areas of law
▪ Confronted with a set of facts where the tax payer and SARS is
involved – we have legal rules that you have to apply to the set of
facts and you should reach a conclusion
▪ You don’t need to become a tax lawyer in order for tax law to cross
your path
▪ In a personal capacity you will interact with taxes
▪ Wills / estate planning / insolvent estates = tax consequences
▪ Conveyancing / property transfers = transfer duties
▪ Labour law = tax consequences (taxing an employee is different to
taxing an independent contractor)
▪ Commercial transactions = most tax efficient way
▪ Litigation lawyer = could be involved in disputes between the tax
payer and SARS (tax administration – procedural rules are important)
▪ Administrative law = commissioner / head of SARS makes a decision
which needs to comply with the administrative requirements
▪ SARS is an organ of state so the decisions are subject to
administrative law
• Legislation
o Definition of “tax” in Income Tax Act 58 of 1962 (ITA): Means tax or a penalty
imposed in terms of this Act
▪ Not very useful
o Definition of “tax” in Tax Administration Act 28 of 2011 (TAA): For purposes of
administration under this Act, includes a tax, duty, levy, royalty, fee,
contribution, penalty, interest and any other moneys imposed under a tax Act
1
, ▪ Don’t really help us to give characteristics to what a tax is
▪ Administrative penalties can be imposed
▪ If you are late in paying your tax then interest can be charged
o Interpretation is important
▪ Tax means / tax includes in the different acts
• Economics (Black, Calitz and Steenekamp)
o “Taxes are transfers of resources from persons or economic units to
government and are compulsory (or legally enforceable). There is not
necessarily a direct connection between the resources transferred to
government and the goods and services that it supplies.”
▪ In law we talk about rights and obligations
▪ In economics we talk about resources
▪ Compulsory – you don’t have a choice – you must pay your taxes
▪ Legally enforceable – SARS has certain powers that are subject to the
Constitution
▪ There is no direct link between the fact that you have paid your taxes
and what you will get in return for that
• E.g., the pandemic – even though you would have paid your
taxes / your taxes are up to date – that would not guarantee
that you would get a bed in hospital
• Law (Legwaila)
o “…a monetary-based compulsory contribution payable by the public as a
whole or a substantial sector thereof to a government (at a national or sub-
national level).”
▪ In the prescribed chapter you have to read
▪ Not levied on a number of individuals – it is levied on the public as a
whole
• Davis Tax Committee
o Committee appointed by the minister of finance – it is a committee of experts
– tasked to investigate things in the SA tax system – they get projects to
investigate and then to make recommendations on proposed legislation
changes
o “Taxes … are general obligations for which: payments are compulsory and
are enforced in terms of legislation; no direct benefits accrue to taxpayers in
exchange for payments made and benefits are returned to groups of people,
not identifiable individuals.”
▪ If you pay your taxes to government and in return for that government
provides goods and services to the public
o “Taxation is a critical part of the social contract between the state and
citizens”
▪ You have a responsibility to pay your taxes, and in return government
has a responsibility to provide goods and services (education / health
care / housing)
▪ What we pay for a civilised society / what we pay for a democracy
• Courts
o Nyambirai v National Social Security Authority 1996 (1) SA 636 (ZS): “From
these authorities the following features which designate a tax may be said to
emerge:
▪ (i) it is a compulsory and not an optional contribution,
▪ (ii) imposed by the Legislature or other competent public authority,
2
, ▪ (iii) upon the public as a whole or a substantial sector thereof,
▪ (iv) the revenue from which is to be utilised for the public benefit and
to provide a service in the public interest.”
o “A state cannot exist without taxes. Society receives benefits from them”
(Pienaar Bros v C:SARS 2017 (6) SA 435 (GP))
o “They are indispensable in an open and democratic society to enable the
State to discharge its obligations towards its citizens” (PWC v C:SARS 2021
(3) SA 213 (GP))
o “Taxes are what we pay for a civilized society” (Compania Generalde Tabacos
de Filipinas v Collector of Internal Revenue – 1927 US Supreme Court case)
• It is crucial to determine what is a tax
o If you renew your passport at home affairs and pay a fee, is that a tax?
o Is it a tax if you pay to go through the tunnel at Worcester?
1.2 Constitution
• Role of the Constitution in tax law
• Constitution from 2 angles:
o Starting point of the governments power to levy taxes
▪ Look at parliamentary processes in order to validly levy a tax
o Because a whole lot of constitutional rights / fundamental human rights can
be affected by tax law – either the provisions found in legislation or by the
conduct of SARS officials
▪ Rights can also be limited – there is a balancing exercise that will
have to be exercised
• Tax payers have rights
• SARS needs rights to fulfil its mandate
• Power to levy tax
o Don’t learn how a money bill becomes law – the parliamentary procedures
o Identify when something is a money bill.
o Section 55(1): In exercising its legislative power, the National Assembly
(legislature) may—
▪ (a) consider, pass, amend or reject any legislation before the
Assembly; and
• Any legislation would include money bills.
▪ (b) initiate or prepare legislation, except money Bills.
• National assembly cant do this
• The initiation or preparation of a money bill has to follow a
different procedure
o Section 213(1): There is a National Revenue Fund (NRF) into which all
money received by the national government must be paid, except money
reasonably excluded by an Act of Parliament.
▪ Taxes are elected into the NRF
▪ Implies that the government has the power to impose taxes
o Section 228 empowers province to impose taxes, levies and duties:
▪ Limited power (type of taxes, act of parliament needed, way
exercised)
• We won’t do this in detail – we only do national level
o Section 229 empowers municipalities to impose:
▪ Rates on property
3
Introduction ......................................................................................................................................... 0
Tax Administration ........................................................................................................................... 19
Gross Income: Introduction, residence and source ............................................................... 40
Gross Income: Amount................................................................................................................... 48
Gross Income: receipts or accruals ............................................................................................ 53
Gross Income: Capital and Revenue .......................................................................................... 60
Exempt Income ................................................................................................................................. 81
General Deduction Formula: Introduction and Expenditure and losses .......................... 85
General Deduction Formula: Actually incurred in yoa ........................................................... 88
General Deduction Formula: In the production of the income ............................................ 95
General Deduction Formula: Not of a capital nature ............................................................ 100
General Deduction Formula: Trade requirement ................................................................... 107
Prohibited Deductions and Special Deductions .................................................................... 112
Capital Gains Tax ........................................................................................................................... 119
Study material ............................................................................................................................. 119
Overview ....................................................................................................................................... 119
Introduction ................................................................................................................................. 120
Formula for calculating taxable capital gain ...................................................................... 121
Application of 8th schedule ...................................................................................................... 128
Building blocks ........................................................................................................................... 129
Asset.............................................................................................................................................. 129
Disposal ........................................................................................................................................ 130
Proceeds ...................................................................................................................................... 131
Base cost...................................................................................................................................... 132
Disposal by way of donation................................................................................................... 134
Exclusions ................................................................................................................................... 135
Roll-overs ..................................................................................................................................... 138
Other .............................................................................................................................................. 139
Introduction
Prescribed material
• Constitution: Sections 9, 14, 25, 33, 34, 36, 55, 73, 75, 77, 213, 228 and 229.
, • Tax Law: An Introduction 2nd ed by T Legwaila (chapter 1) (available below or click
here).
• Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA)
(paragraphs 18-19 only).
1.1 Introduction and definition – what is tax?
• How would you define a tax to someone? What is an ordinary meaning of a tax? How
would you define it?
o There is not one set definition
o Portion of a transaction paid to the government
o Debt owed to the state for an economic activity
o Is it voluntary?
o Do you get something in return for it?
• Tax is a discipline which is also studied in other faculties in this university
• Tax law module
o Tax at EMS (accounting and economics)
▪ Accounting – calculations associated with tax – results in some
amount being payable to the state
▪ There are legal rules that determine how you get to the amount – what
we focus on here
▪ Economics – policy point of view – decide whether it is a good idea to
increase the VAT rate – what would the effect be on households
o Sources (main)
▪ Legislation (including the constitution)
▪ Case law
o Interaction with many other areas of law
▪ Confronted with a set of facts where the tax payer and SARS is
involved – we have legal rules that you have to apply to the set of
facts and you should reach a conclusion
▪ You don’t need to become a tax lawyer in order for tax law to cross
your path
▪ In a personal capacity you will interact with taxes
▪ Wills / estate planning / insolvent estates = tax consequences
▪ Conveyancing / property transfers = transfer duties
▪ Labour law = tax consequences (taxing an employee is different to
taxing an independent contractor)
▪ Commercial transactions = most tax efficient way
▪ Litigation lawyer = could be involved in disputes between the tax
payer and SARS (tax administration – procedural rules are important)
▪ Administrative law = commissioner / head of SARS makes a decision
which needs to comply with the administrative requirements
▪ SARS is an organ of state so the decisions are subject to
administrative law
• Legislation
o Definition of “tax” in Income Tax Act 58 of 1962 (ITA): Means tax or a penalty
imposed in terms of this Act
▪ Not very useful
o Definition of “tax” in Tax Administration Act 28 of 2011 (TAA): For purposes of
administration under this Act, includes a tax, duty, levy, royalty, fee,
contribution, penalty, interest and any other moneys imposed under a tax Act
1
, ▪ Don’t really help us to give characteristics to what a tax is
▪ Administrative penalties can be imposed
▪ If you are late in paying your tax then interest can be charged
o Interpretation is important
▪ Tax means / tax includes in the different acts
• Economics (Black, Calitz and Steenekamp)
o “Taxes are transfers of resources from persons or economic units to
government and are compulsory (or legally enforceable). There is not
necessarily a direct connection between the resources transferred to
government and the goods and services that it supplies.”
▪ In law we talk about rights and obligations
▪ In economics we talk about resources
▪ Compulsory – you don’t have a choice – you must pay your taxes
▪ Legally enforceable – SARS has certain powers that are subject to the
Constitution
▪ There is no direct link between the fact that you have paid your taxes
and what you will get in return for that
• E.g., the pandemic – even though you would have paid your
taxes / your taxes are up to date – that would not guarantee
that you would get a bed in hospital
• Law (Legwaila)
o “…a monetary-based compulsory contribution payable by the public as a
whole or a substantial sector thereof to a government (at a national or sub-
national level).”
▪ In the prescribed chapter you have to read
▪ Not levied on a number of individuals – it is levied on the public as a
whole
• Davis Tax Committee
o Committee appointed by the minister of finance – it is a committee of experts
– tasked to investigate things in the SA tax system – they get projects to
investigate and then to make recommendations on proposed legislation
changes
o “Taxes … are general obligations for which: payments are compulsory and
are enforced in terms of legislation; no direct benefits accrue to taxpayers in
exchange for payments made and benefits are returned to groups of people,
not identifiable individuals.”
▪ If you pay your taxes to government and in return for that government
provides goods and services to the public
o “Taxation is a critical part of the social contract between the state and
citizens”
▪ You have a responsibility to pay your taxes, and in return government
has a responsibility to provide goods and services (education / health
care / housing)
▪ What we pay for a civilised society / what we pay for a democracy
• Courts
o Nyambirai v National Social Security Authority 1996 (1) SA 636 (ZS): “From
these authorities the following features which designate a tax may be said to
emerge:
▪ (i) it is a compulsory and not an optional contribution,
▪ (ii) imposed by the Legislature or other competent public authority,
2
, ▪ (iii) upon the public as a whole or a substantial sector thereof,
▪ (iv) the revenue from which is to be utilised for the public benefit and
to provide a service in the public interest.”
o “A state cannot exist without taxes. Society receives benefits from them”
(Pienaar Bros v C:SARS 2017 (6) SA 435 (GP))
o “They are indispensable in an open and democratic society to enable the
State to discharge its obligations towards its citizens” (PWC v C:SARS 2021
(3) SA 213 (GP))
o “Taxes are what we pay for a civilized society” (Compania Generalde Tabacos
de Filipinas v Collector of Internal Revenue – 1927 US Supreme Court case)
• It is crucial to determine what is a tax
o If you renew your passport at home affairs and pay a fee, is that a tax?
o Is it a tax if you pay to go through the tunnel at Worcester?
1.2 Constitution
• Role of the Constitution in tax law
• Constitution from 2 angles:
o Starting point of the governments power to levy taxes
▪ Look at parliamentary processes in order to validly levy a tax
o Because a whole lot of constitutional rights / fundamental human rights can
be affected by tax law – either the provisions found in legislation or by the
conduct of SARS officials
▪ Rights can also be limited – there is a balancing exercise that will
have to be exercised
• Tax payers have rights
• SARS needs rights to fulfil its mandate
• Power to levy tax
o Don’t learn how a money bill becomes law – the parliamentary procedures
o Identify when something is a money bill.
o Section 55(1): In exercising its legislative power, the National Assembly
(legislature) may—
▪ (a) consider, pass, amend or reject any legislation before the
Assembly; and
• Any legislation would include money bills.
▪ (b) initiate or prepare legislation, except money Bills.
• National assembly cant do this
• The initiation or preparation of a money bill has to follow a
different procedure
o Section 213(1): There is a National Revenue Fund (NRF) into which all
money received by the national government must be paid, except money
reasonably excluded by an Act of Parliament.
▪ Taxes are elected into the NRF
▪ Implies that the government has the power to impose taxes
o Section 228 empowers province to impose taxes, levies and duties:
▪ Limited power (type of taxes, act of parliament needed, way
exercised)
• We won’t do this in detail – we only do national level
o Section 229 empowers municipalities to impose:
▪ Rates on property
3
