Learning unit 4:
Income of a business entity:
1
,4.1 Background:
The first component of the taxable income framework = income.
For tax purposes, income is made up of
1. gross income and
2. exempt income.
Concepts of resident and non-resident:
This is necessary because the gross income definition distinguishes
between South African residents and non-residents.
The implication of this is that the rules used to calculate gross income for
South African residents differ to those used for the calculation of the gross
income of non-residents.
REQUIREMENTS TO BE A RESIDENT OF THE REPUBLIC OF SA
A person other than a natural person (in other words, a business entity such as a
company or a close corporation) is a resident of the Republic of South Africa if it
is
1. incorporated, established or formed in the Republic, or
2. has its place of effective management in the Republic
The first requirement is a matter of fact and is therefore not really open to
any interpretation.
The second requirement, namely the place of effective management, is
not always as easily determinable and therefore, SARS has issued
interpretation note 6 to clarify what is meant by "place of effective
management".
Read paragraph 3.4 of this document specifically to gain an understanding of
which circumstances may indicate the place of effective management of an
entity. You will not be required to list these circumstances, but they will give you
a better understanding of what this term means
2
, You first need to determine whether an entity is a resident for tax purposes,
because
residents are taxed on all (worldwide) income, according to the residence
basis of taxation
non-residents are taxed on income received from a South African source
only, or income which is deemed to have been received from a South
African source
The source of income is where the income has its origin. To determine the source
of income two aspects need to be considered:
the cause of the income
the location of that originating cause
4.2 Gross income:
SECTION 2.2.1 TO 2.2.4
Once you have established that the taxpayer is a resident of the Republic,
= you need to consider whether an amount, which is received by the taxpayer,
must be included in its gross income or not.
Below is an extract from the Income Tax Act (s 1) which contains the definition of
gross income.
REQUIREMENTS/CRITERIA FOR THE DEFINITION OF GROSS INCOME
The total amount in cash or otherwise
Received by, accrued to, or in favour of a person
During the year of assessment
Excluding amounts of a capital nature
3
Income of a business entity:
1
,4.1 Background:
The first component of the taxable income framework = income.
For tax purposes, income is made up of
1. gross income and
2. exempt income.
Concepts of resident and non-resident:
This is necessary because the gross income definition distinguishes
between South African residents and non-residents.
The implication of this is that the rules used to calculate gross income for
South African residents differ to those used for the calculation of the gross
income of non-residents.
REQUIREMENTS TO BE A RESIDENT OF THE REPUBLIC OF SA
A person other than a natural person (in other words, a business entity such as a
company or a close corporation) is a resident of the Republic of South Africa if it
is
1. incorporated, established or formed in the Republic, or
2. has its place of effective management in the Republic
The first requirement is a matter of fact and is therefore not really open to
any interpretation.
The second requirement, namely the place of effective management, is
not always as easily determinable and therefore, SARS has issued
interpretation note 6 to clarify what is meant by "place of effective
management".
Read paragraph 3.4 of this document specifically to gain an understanding of
which circumstances may indicate the place of effective management of an
entity. You will not be required to list these circumstances, but they will give you
a better understanding of what this term means
2
, You first need to determine whether an entity is a resident for tax purposes,
because
residents are taxed on all (worldwide) income, according to the residence
basis of taxation
non-residents are taxed on income received from a South African source
only, or income which is deemed to have been received from a South
African source
The source of income is where the income has its origin. To determine the source
of income two aspects need to be considered:
the cause of the income
the location of that originating cause
4.2 Gross income:
SECTION 2.2.1 TO 2.2.4
Once you have established that the taxpayer is a resident of the Republic,
= you need to consider whether an amount, which is received by the taxpayer,
must be included in its gross income or not.
Below is an extract from the Income Tax Act (s 1) which contains the definition of
gross income.
REQUIREMENTS/CRITERIA FOR THE DEFINITION OF GROSS INCOME
The total amount in cash or otherwise
Received by, accrued to, or in favour of a person
During the year of assessment
Excluding amounts of a capital nature
3
